Posted on 02/17/2006 7:28:59 AM PST by Irontank
You simply cannot continue flooding the world with $700 billion per year (trade deficit) and $350 billion per year (50% of federal deficit) and not see the dollar fall. As the dollar falls foreigners who own dollar denomiated assets see them depreciate. Thus the Fed has to raise interest rates to compensate for the depreciation, and perhaps slow it down. The U.S. government does not want the dollar to fall, since a falling dollar makes US securities less attractive as an investment. Americans now have a zero % savings rate, so we cannot finance our own government's debt.
Then you look down the road at the unfunded liabilities of the social security system and Medicaid. See this from Bush's State of the Union:
By 2030, spending for Social Security, Medicare and Medicaid alone will be almost 60 percent of the entire federal budget. And that will present future Congresses with impossible choices -- staggering tax increases, immense deficits, or deep cuts in every category of spending. Congress did not act last year on my proposal to save Social Security -- (applause) -- yet the rising cost of entitlements is a problem that is not going away. (Applause.) And every year we fail to act, the situation gets worse.
Presently the SS system pumps about $130 billion surplus into the federal coffers each year. By 2016 that annual surplus will disappear, as SS begins to run a deficit. So you can add roughly $200 billion more to the federal deficit by 2020 for that item alone. My conclusion is that after you add in the immense debt service required to pay the interest on our ever rising debt, the government will be unable to meet its obligations in the early 2020's by taxation and borrowing. Their only option will be to print enough dollars to pay their debts. Got gold?
Actually, that point has been alluded to, but you do well to raise it now.
China is now a part of the 'dance', and has no interest in seeing the music stop.
Imho, China wishes to parallel the American succession to Britain, and unlike Imperial Germany, be patiently prepared to let nature take its course and allow the 'mandate of heaven' to descend upon them in due course through diligence and enterprise.
China is going around the world locking up petroleum reserves, copper, etc, for the next 25 years, taking care of its next generation. We are leaving a huge debt service to our children. In a world of growing populations and increasingly dear natural resources, whose long term plan would you prefer?
Plus, it's illegal for anyone in China to hold American dollars except for the Chinese government.
China makes its businesses turn over American dollars to the government in exchange for less than a fair amount of Yen.
And thus American jobs move overseas.
Not because the American worker doesn't work hard enough.
Not because the American worker isn't as smart as foreign workers.
But because the American worker gets paid with overvalued American dollars, whereas Chinese workers get paid with undervalued Yen.
The American worker is the victim of an economic jiu-jitsu.
Well said..
"Why do they have to sell them? All they have to do is use them and then replenish their banks with Euros... Just buy off whatever goods they choose in dollars they presently have, and never take in any more, just use Euros."
Firstly ALL oil transactions are and "have to be" currently in dollars until circumstances unlink oil from the dollar. That fact alone creates a downward trend in the value of a dollar. Anyone holding dollars will immediately lose their "investment" as it slides down in value. And secondly in buying power, too.
Do you believe that with the above in mind, when the "sell and replenish" policy you posit becomes apparent that the price of the dollar will remain constant and high?
Specially when countries like Iran, knowing the damage they can cause will intentionally sell off a few billion dollars (which they no longer need to obtain or trade in oil) and force countries to buy them up to bolster the exchange rate value. then repeat the process till everyone begins to jettison dollars to get the best price they can in a saturated, rapidly downward spiralling market?
Glut of available dollars - not enough buyers. Like any other commodity, the value of that commodity (dollars) goes through the floor. Dollars will be sold for anything that someone will pay. Even pennies. And even pennies would soon dry up - resulting in the collapse of other currencies on the slippery slope till money (as opposed to barter) would have little value.
Barter's mainstay? Oil again. Unlinked to any currency since most economies would have crashed by them anyway.
THAT's simple as pie. :-))
But disaterous.
FINALLY!! SOMEONE UNDERSTANDS! Heads up, people. When nobody wants to buy dollars then dollars will have zero value. Once again, check out "Mullah Threat Not Sinking In" at Mullah Threat to get a better handle on all this. And the Islamic lunatics who will be trying to make it happen.
Actually has been mentioned, the trick is figuring out how long that will last. China's economy would be in for a rough landing if they pulled the plug on their weak yuan policy. But inevitably they will pull the plug and the dollar will go down the drain. The giant sucking sound will be the world divesting dollars as the politicians here blame everyone but us for the crisis.
And how much TP do you think it will take at that point to buy a barrel of oil?
How did that work out after the savings and loan crisis?
This mistaken idea has been advanced by the phoney free trade apologists before. But it doesn't fly.
China already doesn't care about the money...they refuse to buy our manufactures. They want to get a hold of our industry and technology, and then bankrupt what's left. What happens is that we'll be the ones holding a pile of toilet paper, because the strong dollar will crash. Right through the floor. Imagine wheel-barrows of $20s needed to fill up your car with gas. This has happened, without fail, to countless bananna republics before. And we have an administration hell-bent on seeing if it applies to the U.S. too...
I do. I have mentioned countless times that they expend the collossal sums of $195 billion annually to sustain their currency peg.
They regard it as merely a temporary strategic sacrifice.
They are willing to keep their price advantage only so long as it continues the black-hole 'event-horizon' that keeps sucking in still more U.S. industry, capital, technology, etc. Once the snake has swallowed the vast bulk that there is to relocate, then they will dispense with their exports to us as well...and turn the capacity over to their own national agendas. If the U.S. self-implodes due to the import-lobbyist-induced Federal government bankruptcy, so much the better, in their opinion.
LOL, the mother of all referendums will be when we have to vote on what to do with the governement's tax receipts.
either pay interest on the debt or pay welfare, for there won't be enough $ to do both anymore.
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