Is There Really a Global 'Cabal' Aiming to Dump the Dollar? 72 comments
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British journalist Robert Fisk has published a rather sensational report in today’s The Independent that the Gulf Arab states are in secret discussions with China, Russia, Japan, and France on moves to dump the U.S. Dollar as the world’s chief trading currency. According to him:
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
Like much of Fisk’s reporting, the tale reads like something out of a compelling spy novel, and is sure to fuel further speculation (both intellectual and financial) concerning the demise of the Dollar and the rise of the Renminbi. But on serious reading, I find little in it that makes financial or economic sense.
Two points I would make. First, as my Peking University counterpart Michael Pettis has frequently and eloquently pointed out, the main challenges facing China and other countries do not stem from the role of the Dollar. Global imbalances in the flow of funds reflect fundamental patterns in production, savings, and consumption.
For the past 30 years, China (and much of the rest of Asia) has pursued a growth model that involves maximizing investment and capacity expansion by exporting goods and importing capital. To do both simultaneously necessitates a net inflow of currency from abroad, which is accumulated by the government in the form of reserves. The currency used does not alter the net effect.
Even if China conducted all of its trade in a “basket” of currencies, or even in Renminbi, its current payments imbalance would still require it to accumulate foreign reserves on a massive scale. Those reserves might not be as concentrated in U.S. Dollars as they are now, which could have its benefits in terms of risk diversification, but the net overhang would remain, and the country’s reserve holdings (in non-Dollars) might not prove nearly as liquid as they are now.
In fact, as long as the U.S. remains a major net export market for Chinese goods, China has a fundamental choice: it can either continue to sell in exchange for Dollars, or it can decline those Dollars (or demand more) and accept the consequences of foregoing the U.S. market, in terms of lower revenue and employment. The only way China can escape this dilemma is by reducing its trade surplus, by encouraging domestic consumption not only of Chinese-made goods and services, but importing more as well. It can also find better uses for the Dollars it does acquire by eliminating capital controls that prevent its citizens from investing abroad. Such changes will involve a major structural adjustment for China’s real economy. The problem cannot be “solved” merely by promoting the Renminbi or other currencies versus the U.S. Dollar.
The second point is that China has already accumulated massive holdings of U.S. Dollars (by most estimate, Dollars account for 70% of China’s $2 trillion foreign reserves), and as I’ve noted above, will likely continue accumulating more until some very profound economic changes can take place. In the meantime, China has every reason to want to use those Dollars, or at the very least retain their value.
The fact that oil and other natural resources are priced in U.S. Dollars is actually a huge boon to the Chinese. It gives them a way to use their Dollars to buy something they need, and at least partially counter the inflow of funds, rather than just store them away in passive investments. The problem the Chinese have is they don’t have enough uses for their Dollars. Why in the world would they want to cut off one of the major outlets they do have? So they could be stuck with more Dollars unspent, which would be worth much less overall because the Dollar has just been dethroned from key commodity markets?
By undermining the U.S. Dollar in this way, the Chinese would incur huge financial losses in order to diversify away from the Dollar, a policy whose sole purpose in the first place is to avoid huge financial losses from a feared weakening of the Dollar. It would be a classic case of cutting off their nose to spite their face. The Chinese, despite their rhetoric, have every reason to want a Dollar that has as strong a role in as many markets as possible, at least until they can gradually restructure their economy and develop their own currency. In my opinion, they are only trying to goad the U.S. into defending the Dollar’s position.
It is true, as the article points out, that the Chinese appear to be trying to buy as much gold (and other commodities) with their Dollars as they can get away with without spiking the market or tanking the Dollar — which is actually not much, relative to the size of their reserves. But the whole point of these moves is that China wants to dispose of its Dollars without provoking a general collapse in their value. Organizing a global “cabal” (as Fisk terms it) to dump the Dollar collectively runs completely contrary to China’s interests. Nor is it clear, by any means, how Arab oil producers would be better off holding unconvertible Renminbi instead of widely-accepted Dollars.
I’m not trying to contest Fisk’s reporting. I’m sure the “Chinese bankers” and other inside sources who served as the basis for his story said what he indicates they did. But I wouldn’t accept their revelations at face value.
Partly, I think it’s chest-beating on the part of some Chinese — including so-called bankers — who are proud of their country’s accomplishments but do not fully appreciate the true economic dynamics at work. Partly it’s a tactical bid by Chinese and Arab holders of Dollar investments to get the U.S. to take its debt situation and consequent inflation risks seriously. And partly, it’s a bit of wish projection that substantive economic problems could be solved so easily, with secret handshakes and clever conspiracies.
If the answer were that simple, the Dollar would have been dethroned years ago. To the extent the Chinese and others place their faith in such “solutions,” they are wasting their time and shooting themselves in the foot. Personally, I think they’re smarter than that.
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This article has 72 comments:
" In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years."
Next, comes Brown Brothers rebuttal:
" There is a UK press story suggesting a secret meeting has been held between numerous Gulf states, Russia, China and France ostensibly to develop a multi-year plan to ditch the dollar for oil and use the euro, yuan, yen, and the Gulf Common Currency. Numerous countries took the unusual step to respond to the unsourced press reports and denied the charges. Most countries, including Japan, Saudi Arabia, UAE, and Russia have denied the allegations. Of course, the conspiracy-minded among us will see the denials as a further confirmation. "
This reminds me of the old Saturday Night Live skit titled "Point...Counter-Point"
Does anyone else know for a fact the The Independent's article was based on unsourced press reports?
Petrowealth is also rumbling....
You work and in exchange for your work you are paid in a currency called fiatorium. Fiatorium is the currency of a country called Disneyland, you do not live there, you do not vote there, you have no power whatsoever over what happens in Disneyland. The monetary policy in Disneyland is controlled by a character called Mickey Mouse (or it could be Goofy, we are not sure). Either way you have no control over Mickey, or Goofy, and you do not trust their judgment anyway. You live and shop in a place called World, where many shops take fiatorium, no problem there, but more and more shop-keepers are weary of Mickey (or Goofy) and are making noises that will stop taking faitorium, they want dollars instead (they are even willing to barter with you).
Now, you are rational person, what do you do? ask to be paid half in fiatorium and half in dollars? Start getting rid of all the fiatorium you have in the bank, but how? you have enough for 100 trips to Disneyland, but you do not have time to go there so many times...they could sell you Magic Mountain, but you do not need a Magic Mountain.
Think though it and you will come to the conclusion that the Chinese (and Brazilians, and Japanese....) are all being VERY rational. And I do not believe they are colluding.
Thus, they have transferred the risk of inflation to their suppliers who want the money to go to Disneyland or Los Vegas- I guess.
They are not dummies and do not want to reveal the terms of these contracts for fear of destroying the dollar before they shed as many as they can.
well Folks... They can bark all they want about a strong dollar.
FACT is. 1050/oz is the target for the day.....
Seems like they have all already sold their souls and thus their future. Do the Arabs really trust the Chinese and Russians more than the west? If so, good luck to them. Past and recent history shows they will be on a death march. Maybe that is not so bad...
Currently all of the above mentioned regions perceive weakness in the U.S. and rightly so.
France? Assuming they are involved in the "conspiracy" I would guess that it's because Sarkozy just doesn't like our current administration very much.
To deny that other nations would want their turn at the top of the mountain in global power and would use economic strategy to weaken the current top dog is to deny the natural competitive nature of humanity.....
We're simply making it easier for them with the current administration's seemingly rudderless domestic and foreign policy decisions based more on political payback than any discernable desire to keep this country great.
Why would oil producers want to continue selling a depleting resource by pricing it at a steadily devaluing currency?
Even if Fisk's sources are merely sending a warning to the US about its fiscal and monetary policies, it is still a warning that should be taken very seriously.
And Fisk is decidedly NOT naive about sources in the region, being the world's premier Middle East correspondent for over 30 years.
With Trillions in Debt.... Suddenly the Arabs feel they are holding Mickey Mouse Money.....
The nations of the world got screwed by the U.S.A. and these creative schemes to sell our debt from over consumption as though it were some form of "investment."
Well, reality started to set in last year and these countries are starting to get the big picture of what has been going down. If you're holding a bag of US$$$ you are holding a bag of B.S. and other nations know that.
I'm an American and I hope other nations understand that it was not the American people who screwed them, but a corrupt financial system and government that did the dirty deed.
None-the-less, the US$ is toast, sooner or later.
On Oct 06 11:20 AM User 170589 wrote:
> I agree with the author's analysis. If, in fact, Chinese bankers
> are confirming this hypothesis, it remains nothing more than a head-fake.
> Sure, Russia and China are doing the best they can to buddy-buddy
> with the Arab states (and where the heck did France come from? Is
> this Sarkozy frustrated he no longer has the reigns?), but that doesn't
> mean anything like this would happen anytime soon. Not to mention
> a private consortium would be spitting in the face of the most recent
> world leaders meeting in Pittsburgh. Greedy, yes. Power hungry,
> yes. Stupid, no.
When you make this statement:
"By undermining the U.S. Dollar in this way, the Chinese would incur huge financial losses in order to diversify away from the Dollar, a policy whose sole purpose in the first place is to avoid huge financial losses from a feared weakening of the Dollar. It would be a classic case of cutting off their nose to spite their face."
But take a look at the losses by holding on to the US$. China was/is buying up gold at a fantastic clip -- You don't even have to ask, "Why?" It's self-evident... As someone said, they aren't stupid...
On Oct 06 11:25 AM bottoms-up wrote:
> Honestly now, can anybody blame anybody for wanting to dump the US$?
>
>
> The nations of the world got screwed by the U.S.A. and these creative
> schemes to sell our debt from over consumption as though it were
> some form of "investment."
>
> Well, reality started to set in last year and these countries are
> starting to get the big picture of what has been going down. If
> you're holding a bag of US$$$ you are holding a bag of B.S. and other
> nations know that.
>
> I'm an American and I hope other nations understand that it was not
> the American people who screwed them, but a corrupt financial system
> and government that did the dirty deed.
>
> None-the-less, the US$ is toast, sooner or later.
Finding out that major trading partners are going to stop accepting USD for trading will only cause a huge acceleration of new USD being printed in order to monetise debt.
NOW THE USA HAS THE PERFECT REASON TO PRINT ANOTHER 2 TRILLION USD.
the problem they face is how to increase the velocity of this printed cash to make its way into the hands of joe public? the bush/greenspan coalition paradoxically used cra type legislation along with fannie/freddie to get the banks to lower lending standards and flood the market with liquidity. i somehow doubt though, that the 'no money down', '105% mortgages' and 'liar loans' will make a wholesale comeback any time soon.
so what will we get? i don't underestimate any action on the part of the fed/govt. doubling, tripling of the tax credit? another huge round of stimulus? 1,2,.....10 times greater than the 2 already passed? cash for clunkers, appliances, golf clubs, plasma tv's? 40,50, 60 year mortgages? i wouldn't even put it past them to send out another round of stimulus checks only this time they might add another zero!
when this happens, and i'm pretty sure it will, it remains to be seen what china and the bric countries do with regard to reserve currencies
post hoc ergo propter hoc
But an important fact to realize is that a HUGE portion of the outstanding US$ treasuries are owned by none other then the US Fed itself. The Fed holds more than several of the top countries combined, including China. Even if countries start pulling out and stop buying debt, the Fed can easily delay the "moment of reckoning" by purchasing more Treasuries. In the very long run of course, even that's unsustainable and there wouldn't be any other recourse left for the US$
For more analysis, check out my blog: youngandinvested.com
He nailed the turning point for gold to the day - it had had an awful battering and was cringing at $868 - and the Middle East is his patch.
We're doing more damage to ourselves than the Chinese could ever do. If the US government doesn't care enough about its own citizens who have saved up assets denominated in dollars, what makes you think it's going to care about China?
Irresponsible fiscal and monetary policy isn't about China. It's about us.
Six months ago Geithner made some noise about how the Chinese should let their currency appreciate, the remarks were not well-received at the time. But the US dollar is being permitted to lose value against world currencies. So it's raise the bridge or lower the water, something has to give.
Agree with posters who mention the role of excessive US debt, irresponsible fiscal policy, too much government spending. Our best defense against all of these plots, actual or suspected, is to set our own house in order.
On Oct 06 10:41 AM GotLife wrote:
> And who will consume all the oil? The US has the infrastructure and
> markets to consume oil production, the rest of the world simply does
> not. Until that changes, will the Cabal withhold production until
> they the get a more "stable" fiat currency. And, how will any fiat
> currency ever be completely stable and noninflationary?
>
> Seems like they have all already sold their souls and thus their
> future. Do the Arabs really trust the Chinese and Russians more than
> the west? If so, good luck to them. Past and recent history shows
> they will be on a death march. Maybe that is not so bad...
To make it clear and simple so that is does not sound as complicated as it is, lets keep it simple:
China exports 5 fourtune cookies to US each worth US$1. US$5.
US sells 1 Big Mac to China worth US$3 each.US$3.
Thus since China sells more to US than US sells to China, in order to balance it out, China will have to keep the US$ dollar if it chooese to sell to US.
Here try this and it gets even simpler.
If Donald Duck chooses to sell icecream to Mickey mouse, Donald Duck must have to accept the Mickey mouse currency. Otherwise Donald Duck has noone else to sell the icecream to. Well the question is, what the hell is a Mickey Mouse currency and why the hell does anyone want it or need it?
People used to want it because in Disney Land, you can exchange 1 package of potato chips with each Disney Dollar. However, Disney Land decides to print as much Disney dollar as they want and now Donald sees that it takes 1.5 Disney Dollar to buy 1 package of chips instead of 1 disney dollar.
What Michale is saying is no different than a mom teaching her son that when one goes to the supermarket, one must pay the cashier money because the export of a package of potato chips must be balanced by an import of a dollar.
No offense, but no shit sherlock we learnt that since day one we went for shpping. But why put all those terms to make it seem so complicated all the time when we all know it already since 5 years old.
The question is not when one buys something one must pay so that it equals out.
BUT THE QUESTION IS PEOPLE ARE GETTING WORRIED ABOUT THE DISNEY DOLLAR, AND PERHAPS AS PETER SCHIFF QUOTES, " IT IS BETTER FOR THE CHINESE TO CONSUME THEIR OWN PRODUCED GOODS INSTEAD OF RECEIVING ALL THOSE DISNEY DOLLARS!"
If there's paper to be had to be had to shore-up a failed economic system, the Fed is in there buying it hand over fist and treasuries are no exception.
It's like having a factory and then buying up all your own products at whatever price you set, then coming out on CNBC or CNNMoney and telling everybody how "great" your factory is doing.
Buying-up worthless treasuries with worthless dollars is just another sham of Ben and Tim's
On Oct 06 02:21 PM Shishir Nigam wrote:
> There may be many countries who are considering whether and when
> to stop buying US Treasuries because it's just not worth the risk
> anymore. The paradox they face is they would want to reduce the amount
> of reserves held in US$ but by doing so, they would just be speeding
> up the decline of the dollar, which would affect their remaining
> US$ treasuries anyway. The scenario is a very good candidate for
> a tipping point..
>
> But an important fact to realize is that a HUGE portion of the outstanding
> US$ treasuries are owned by none other then the US Fed itself. The
> Fed holds more than several of the top countries combined, including
> China. Even if countries start pulling out and stop buying debt,
> the Fed can easily delay the "moment of reckoning" by purchasing
> more Treasuries. In the very long run of course, even that's unsustainable
> and there wouldn't be any other recourse left for the US$
>
> For more analysis, check out my blog: youngandinvested.com
Didn't somebody say "...in the very long run" we'd all be dead?
Just had to comment on that line of yours...
Cheers! :-)
The Chinese with its hand on the "dump the dollar button" and the US with its hand on the "Monetize the debt" button. Beads of sweat gather on Uncle Sam's brow, the Dragon's eye twitches slightly. Makes for a good movie. I'll have to make some popcorn and watch the show...
Would you accept your salary paid in Disney Dollar if you realized that Disney Land can print as much disney dollar as they want, and there is little collateral to back up the Disney Dollar, execpt perhaps the Mickey Mouse Logo on the Disney Dollar?
Or how about this. Disney Land offers to buy your house and pay you in Disney Dollar? You might be tempeted so because they have lots of interesting rides and yummy food in Disney World, but there is a limit to how much Disney Dollar you would like to keep in your wallet even while you are in Disney World. Last but not least, the value of your disney dollar is declining rapidly because they are doubling the amount of Disney Dollar in circulation every 3-4 years.
I would agree your comment could receive an a for a Western School political science class final exam.
On Oct 06 03:59 PM Towgunner wrote:
> As another poster put it, you can't deny that other nations want
> global dominance. As Americans we have trouble, interestingly, understanding
> that concept because we have lived a-top this mountain for generations
> now. But, using history as guide gives us a more complete picture
> of real intentions. Indeed, if I were China, knowing that the 21st
> century will likely be dominated not by the US but by Asia whether
> it is China, India or both (probably). I would look at the situation
> like this: As a controlled society, I can continue with the incremental(ism)
> of under-mining American hegemony and arrive as the un-disputed global
> leader in 20 to 25 years. Or, do I hasten the inevitable process
> by exploiting a rare economic calamity to my benefit. If that includes
> shocking the system and even hurting China, they at least can quell
> civil disturbances. Using an historical perspective and looking at
> things from a generational time-frame vs. market based minute to
> minute, one can assume that an opportunity to un-seat the dollar
> cannot be ignored. After all, it’s a win-win for the Chinese, with
> an accommodative and capricious administration that is likely socialistic
> themselves, and China holding so much of our debt the repercussions
> are almost a moot point. Now, if the dollar survives, the Chinese
> will have to wait longer - that’s all. You see, the dollar as the
> global reserve currency is the enabler of American hegemony. Take
> that away and we become irrelevant. In the late 1990's the Chinese
> published their new doctrine for 'war' with the United States. Bottom-line:
> the Chinese acknowledge they will loose against the US in a straightforward
> fight. Rather, they endorsed a concept to 'expanded the parameters
> of war', broadly defined as convert attacks on financial systems,
> cultural institutions, political systems, electricity grids, cyber
> attacks, etc. I am not suggesting they have initiated covert attacks,
> but exploiting this ‘crisis’ is in their playbook. And here we are
> in 2009; the Empire state building just lit up with their national
> colors commemorating the communist revolution and their flag flew
> over the White House. Need I say more?
On Oct 06 02:00 PM Mad Hedge Fund Trader wrote:
> asg Of course you knew it was going to happen like this. After churning
> around just below the old high, and sucking in as many profit takers
> and short sellers as possible, gold blasted through to a new high
> for the year of $1,038. Never mind that the triggering event is complete
> balderdash, a story in Britain’s Independent newspaper asserting
> that the Middle East is holding secret global talks to price crude
> in the yellow metal or other currencies (click here for story at
> www.independent.co.uk/...
> ). It didn’t hurt that Australia cut its interest rates by 0.25%,
> the first G-20 country to do so. There probably isn’t enough gold
> in the world to finance more than a few weeks of global oil production.
> Total gold holdings would only fill two Olympic sized swimming pools.
> But never let the truth get in the way of a good trade. The confirming
> moves couldn’t be more ubiquitous, with the Canadian, New Zealand,
> and Australian dollars all up big, commodities strong, and silver
> also going ballistic. Regular readers will all recognize these as
> old friends of mine, core longs that I have been strongly recommending
> since the beginning of the year. I have been trying to get investors
> into gold since it was at $800. If you aren’t in gold by now, I can
> only tear my own clothes and flagellate myself for my abject failure
> to convince you of gold’s merits. US government debt is exploding,
> and with foreigners holding a large part of our paper, the only way
> to get out of this mess is to devalue the dollar. It’s like Obama
> invited China’s president Hu Jintao to dinner at an expensive Upper
> East Side restaurant, and was suddenly called away by a crisis, leaving
> him with a big fat bill. Next stop $1,200, then $1,500, then the
> old inflation adjusted high of $2,400. If you want me to help you
> get set up to trade futures in any of this stuff, please email me
> at madhedgefundtrader@yah... If you want to know where to buy physical
> gold and silver in size with the tightest spreads over spot, check
> with the experts at www.millenniummetals.net
I hate to tell you this but australia raised interest rates, now lowered them.
the dollar bulls drive me crazy because all they do is cloud the game and prevent people from taking the the clear trade, which is agais the dollar. the dollar has been going down for years and years except in times of stress and when volker did something about it. Bernanke is going to ruin the dollar and try to drive in inflation to bail his wall street buddies out. It has been clear from day one this is his plan, because his actions make no other sense. If it is taking you this long to decide to get out of the dollr you are clearly behind the curve. as for the deflation assholes, tell me how you can have deflation in an ever dropping currency. Just look at the structural problems we have, and then look at the lies our government tells. Oh, our unemployement numbers were wrong by 800 plus K, oh, our inflation numbers are wrong. I have now asked 50 regular people if they see inflation or deflation all say inflation. Nothing is decreasing in price. You fools believe what you want. we are likely to have major problems in the future and I would advise a study of the french revolution, because everything we are going through has happen over and over again in the past 800 years (see new book by Rogoff). this isn't a topic for speculators, the history is already written, it is only the path we take to get there that is uncertain. Esp with the crooks we have in Fed, treasury, white house, and wall street there.
On Oct 06 02:00 PM Mad Hedge Fund Trader wrote:
> asg Of course you knew it was going to happen like this. After churning
> around just below the old high, and sucking in as many profit takers
> and short sellers as possible, gold blasted through to a new high
> for the year of $1,038. Never mind that the triggering event is complete
> balderdash, a story in Britain’s Independent newspaper asserting
> that the Middle East is holding secret global talks to price crude
> in the yellow metal or other currencies (click here for story at
> www.independent.co.uk/...
> ). It didn’t hurt that Australia cut its interest rates by 0.25%,
> the first G-20 country to do so. There probably isn’t enough gold
> in the world to finance more than a few weeks of global oil production.
> Total gold holdings would only fill two Olympic sized swimming pools.
> But never let the truth get in the way of a good trade. The confirming
> moves couldn’t be more ubiquitous, with the Canadian, New Zealand,
> and Australian dollars all up big, commodities strong, and silver
> also going ballistic. Regular readers will all recognize these as
> old friends of mine, core longs that I have been strongly recommending
> since the beginning of the year. I have been trying to get investors
> into gold since it was at $800. If you aren’t in gold by now, I can
> only tear my own clothes and flagellate myself for my abject failure
> to convince you of gold’s merits. US government debt is exploding,
> and with foreigners holding a large part of our paper, the only way
> to get out of this mess is to devalue the dollar. It’s like Obama
> invited China’s president Hu Jintao to dinner at an expensive Upper
> East Side restaurant, and was suddenly called away by a crisis, leaving
> him with a big fat bill. Next stop $1,200, then $1,500, then the
> old inflation adjusted high of $2,400. If you want me to help you
> get set up to trade futures in any of this stuff, please email me
> at madhedgefundtrader@yah... If you want to know where to buy physical
> gold and silver in size with the tightest spreads over spot, check
> with the experts at www.millenniummetals.net
The French population were highly opposed to supporting the invasion of Iraq and will not tolerate an invasion of Iran. It would be political suicide for Sarkosy to support the US and Israel. China and Russia are heavilly dependent upon Iranian oil and any attack against Iran could as well destabilize Saudi Arabia. That is the connection between these 4 countries. Iran quit selling oil in dollars in September and now uses the Euro. This is why the Western Media has recently turned up the "nuclear threat" on Iran.
I believe these countries are sending a message to the US, Britain and Israel not to attack Iran or they will drop the dollar as well and collapse our funding for the military. The days of US dollar hegemony are coming to an end. The world will no longer tolerate being forced to use the dollar at gunpoint.
One thing that hasn't really been mentioned, though at least a couple of commentors sort of skirted around and alluded to it, is the separation between political and economic interests.
Granted, there's a connection between the two, but I'd say there are times when political interests may well trump pure economic interests. Consequently, I'm not convinced by those who say China would never deliberately undermine the dollar because of the financial pain it would cause them.
Conventional wisdom in economics and market analysis talks in terms of actions by "rational actors", but how often is "irrational" behavior seen? This can beg the definition of "rational". Keep in mind that Asian cultures are vastly different than Western ones, and even in the Middle East, there are large numbers of people who call Westerners "Crusaders", a reference to the series of wars starting in roughly 1100 AD, and continuing to not quite 1300 AD.....talk about "taking the long view", and "holding a grudge"!
Nobody (to my knowledge, anyway) is saying the dollar's going to be dumped next week, next month, or even next year, but taking a long term view, I can see how all of the parties currently "unhappy" with the staus quo might well view it to their benefit to see it changed, even if there was some short(er) term pain.
They don't just dump the dollar, but the oil countries can slowly wean themselves (probably they're driving it as much as the Chinese) and Chinese can still use all their dollars to buy oil in the medium term as well.
They can sell to India, Brazil, Russia. If they undermine the dollar and collapse our economy, they can shift their production capacity to serve other markets and to fuel a war footing.
If you don't believe that is possible, reference history.
And the commodity producers, other than the US, don't have the critical size, markets or population. In the Arab's case, they also don't have food, water or arable land. So while I want to personally denominate my portfolio in something other than the dollar, I just don't think the globe will pull it off as easily or quickly as I can.
As far as Sarkozy is concerned, Do you really think he would pass up the opportunity to hurt Germany?
More to the point is Arab nations who may feel that they could get better pricing on crude accepting say Euroes directly than having to buy and convert to dollars. Of course the US tries to facilitate dollar transactions to nations by offering currency swaps when neccesary which if anything helps stabilize other currencies.
In general the move away from the dollar will be gradual. We will see it in the dropping appitite to buy US Treasuries which is the main issue at hand. As long as the Federal Reserve tries to underpay on US Treasury rates there will be a lower appitite for countries to want to accumulate more. Which brings us to the crux of things. Either the US needs to cut back its Federal Debt growth to fit demand or deal with paying a lot higher interest payment for poor monetary behavior.
Of course, cutting back it's imports would also help although if we take overt measures to do that (like institutiong a protectionist VAT tax like the EU or import barriers like China) people would accuse the US of protectionism. Ironic to say the least.
On Oct 06 10:53 AM rich168 wrote:
> US is the no. 1 consumer of OIL and pays in US dollars.
> With Trillions in Debt.... Suddenly the Arabs feel they are holding
> Mickey Mouse Money.....
The Chinese are stuck between a rock and a hard place because they are the main holders and don't want to do anything to 1) crash the dollar and 2) jack up the yen against the dollar. I'm sure they'd rather not be holding a declining "asset" but that's where their trade policies have put them. Nobody wants their dollar holdings, i.e. "the money's no good here." Except the USA would take dollars if there was an asset the Chinese would be permitted to buy by Congress. Certainly not Lockheed Martin or New Jersey (just kiddin').
OPEC is another situation. They have regular transactions where they can launder themselves of dollar holdings.
As far as the article at hand, because of the transformational ease (liquidity?) of almost all currencies through the FOREX, it really doesn't make much difference what currency assets are priced in. The appropriate exchange can be made to complete transactions. See Mike Shedlock for more info on this subject.
Two concerns- Exchanging dollars for other currencies in quantity on the FOREX can only drive the USD down further, just what the Chinese are trying to avoid.
At some point in the future, it will be subtly be noticed that the dollar is not the de facto reserve currency anymore since everyone is using something else. When this happens, we will be not unlike any other banana republic and the IMF will be called in to clean up our mess and it won't be pretty. I suspect "everyone" is trying to avoid this from happening now, which is why a basket of currencies is being discussed instead of just one primary. Another reason there is no immediate reserve substitute.
Bottom line- I see no bottom for the dollar in the next year.
However what other currency would you choose over it?
Now ask yourself if you trust that countries government to be competent and HONEST
Why does China peg its currency to ours if our currency is so bad?
Where else do you think China is going to place their massive surplus?
Can the Chinese economy survive along agreat depression type economy in the u.S?
These are all questions to ponder
Speaking of Birthers, the world's developing nations are driven to produce, scientists, engineers, and educators, while the US fills the room with 7.5 watt "night lights". Not a pretty picture in the least!
On Oct 06 11:43 AM Socialism cannot compete! wrote:
> Author says there may be a secret cabal acting against the U.S. dollar.
> I say it is no secret to Obumma -- he is not loyal to the U.S., and
> it would not be surprising at all if he told the other nations to
> dump the dollar and thereby "redistribute" value more equitably around
> the world. After all, he is a "citizen of the world"...has foreign
> allegiances (Kenya, Indonesia...Saudi Arabia?) stronger than anything
> he has to America -- as witnessed by his constant apologizing for
> America (when has he said anything negative about Indo or Kenya?).
> The man is fine with the dollar tanking. It may well be part of the
> strategy for taking more control -- an even weaker economy is needed,
> but it has to look like it happened from without.
On Oct 07 09:11 AM MJJP wrote:
> Oil at this very moment is priced in both dollars and EUROS despite the fact oil is priced in dollars.
> So oil does not have to be traded in EUROS to be traded in EUROS.
Oil is priced in dollars; a price in Euros is a spot quotation. Please get the CPU checked.
If I want to buy something from you I have to pay you what you want or no sale.
If you keep asking more for what you are selling I will not be buying from you. There are so many things I don't need anyway.
Who buys more junk & throws away more than the US?
All nations have internal problems & none have a better track record (As bad as It is) as the US in backing its dollar.
So to the rest of the world stop taking what we have to offer & we will bring home our troops & stop buying so much of what you have to offer. Life will still go on.
You missed a big one, or at least you skirted the issue. The Chinese are not obligated to hold onto the dollars they get from their trade imbalance, that is just what they have done so far. They could just as easily use that to buy gold, silver, oil, scrap copper, bauxite, or any number of other commodities with a long shelf life. With the US printing money like it is, the dollars they hold are losing value, and they know it. They know that the only way to preserve the savings that they produced over the last thirty years it to buy STUFF. Even a kindergardener could read the writing on the wall at this point.
It's just a matter of quietly offloading the dollars while quietly talking with other nations about what to do after the dollar is toast. It's just that they weren't as quiet as they thought, on either count, really.
On Oct 06 10:27 AM bindlepete wrote:
> Believe it China is dumping the US dollar and has been doing so for
> well over a year. Their mechanism is to sign LT contracts fror raw
> materials with foreign states such as Russia Brazil Venezuela Nigeria
> Sudan and so on for materials or assets to be delivered over time
> but paid for in a fixed US dollar amount.
>
> Thus, they have transferred the risk of inflation to their suppliers
> who want the money to go to Disneyland or Los Vegas- I guess. <br/>They
> are not dummies and do not want to reveal the terms of these contracts
> for fear of destroying the dollar before they shed as many as they
> can.
It is a psychological exercise in futility.
On Oct 07 05:02 PM tmosley wrote:
> Patrick:
>
> You missed a big one, or at least you skirted the issue. The Chinese
> are not obligated to hold onto the dollars they get from their trade
> imbalance, that is just what they have done so far. They could just
> as easily use that to buy gold, silver, oil, scrap copper, bauxite,
> or any number of other commodities with a long shelf life. With the
> US printing money like it is, the dollars they hold are losing value,
> and they know it. They know that the only way to preserve the savings
> that they produced over the last thirty years it to buy STUFF. Even
> a kindergardener could read the writing on the wall at this point.
>
>
> It's just a matter of quietly offloading the dollars while quietly
> talking with other nations about what to do after the dollar is toast.
> It's just that they weren't as quiet as they thought, on either count,
> really.
On Oct 06 01:06 PM Thomas J. Gordon wrote:
> This uk "cabal" article must have some credibility or gold and silver
> wouldn't be rising as much today. So how can the u.s. stock market
> be going up like it is today if the dollar is in danger of losing
> reserve currency status? I know some hard asses like Faber say it's
> better to be in equities than dollar balances or treasuries. But
> how can U.S equities be going up when the dollar is in danger of
> losing it's reserve currency status?
> BUT THE QUESTION IS PEOPLE ARE GETTING WORRIED ABOUT THE DISNEY DOLLAR,
> AND PERHAPS AS PETER SCHIFF QUOTES, " IT IS BETTER FOR THE CHINESE
> TO CONSUME THEIR OWN PRODUCED GOODS INSTEAD OF RECEIVING ALL THOSE
> DISNEY DOLLARS!"
Exactly and they can't do that because
1. They have a cultural savings bias. That bias cannot be changed fast enough to get a 10% growth rate year over year.
2. They have a demographic shift to an older population due to the 1 child policy. 1 child policy also favored men over women reducing family formation.
3. Too much money decentralized in the hands of consumers threatens the control of the communist party.
IMF Special Drawing Rights are pegged to a basket of currencies with the dollar being 65% of the basket, so even using more of that keeps the China et al within a dollar framework.
IMF Special Drawing Rights are pegged to a basket of currencies with the dollar being 65% of the basket, so even using more of that keeps the China et al within a dollar framework.