Greenback tumbles.. demise?

[Stuart Mackey]

New Zealand Herald

Greenback tumbles on reports of its demise
11:00AM Wednesday Oct 07, 2009
By Stephen Foley

The price of gold is surging on world markets amid fears that the old economic order, based on the supremacy of the US dollar, could be breaking down.

A new spike has sent the cost of the precious metal to a level not seen before. The dollar slid sharply after yesterday's report in The Independent that Gulf Arab states are secretly planning to stop trading oil in dollars, and a senior UN official said that the US should be stripped of its position as the main source of currency reserves for other countries.

The developments come on top of speculation that the Obama administration is operating a policy of benign neglect of the dollar, engineering a devaluation that could help repair some of the economic damage caused by the recession.

Not since the collapse of the Bretton Woods system in 1971 has gold been treated as the equivalent of a world currency, but The Independent reported that it could form part of a basket of currencies that would be used for oil trading by the end of the next decade.

The dollar index - which measures the greenback against other currencies - fell 0.7 per cent yesterday and the dollar was lower against all major currencies except the British pound.

The US government's $11.86 trillion debt would be easier to repay if the value of the dollar was lower. There is growing concern among economists that the Obama administration could be content to see the currency fall. That would make US exports more competitive and could spark a manufacturing jobs revival.

Overseas governments are in a bind because they hold trillions of dollars as currency reserves. The situation is particularly sensitive for oil-producing nations, who are paid in dollars for their exports and therefore hold particularly high dollar reserves.

Gulf Arabs have begun planning n 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, which includes Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

Secret meetings have been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme.

The revelation was met with public denials yesterday. The Saudi central bank governor, Muhammad al-Jasser, said: "The future is in god's hands. Today, the conditions are good for the arrangement we have." The Japanese Finance Minister, Hirohisa Fujii, said he "doesn't know anything about it".

Dennis Gartman, the US investment guru who writes the daily Gartman Letter, said that no one should be surprised to hear denials. "We are certain that spokespeople for every single nation will be brought to the fore to deny that any such meetings have occurred, that no such decisions have been made, that it is not in anyone's interest to have held such meetings or made such decisions," he told clients as The Independent's story broke. "The market will care not a whit."

Simon Johnson, the IMF's former chief economist, said the countries involved would calculate it was not in their interests to drive the dollar down. " It would only be great news for the US. They have to pay lip service to the strong dollar policy, but if someone else were to engineer a devaluation, that would be lucky break for the US."

- THE INDEPENDENT

That would make an interesting shift in world affairs.

[CJvR]

Mmm...

The last time the world currency of choice changed was after WWI.
What would it change to though? There isn't a clear successor around.

[Stuart Mackey]

Mmm...

The last time the world currency of choice changed was after WWI.
What would it change to though? There isn't a clear successor around.

It was mentioned that a basket of currencies would be an option.

[bobalot]

This is a good thing for America, it will help cut imports and stimulate exports.

[ArmorPierce]

The negative is that it will be harder to fuel deficit spending, which may actually be a positive.

[LadyTevar]

In the 1980 and early 90s, it would have fallen to the Yen, but Japan's nearly as unstable as the US at this point iirc.

Is the Euro stable enough to take over?

[Vympel]

I'm just loving that it's even cheaper for me to order shit from the states now than it was last months. The exchange rate is orgasmic.

[Darth Wong]

I'm just loving that it's even cheaper for me to order shit from the states now than it was last months. The exchange rate is orgasmic.

It's cheaper to order stuff from the US but it's killing business for anybody who exports to the US.

[mr friendly guy]

I'm just loving that it's even cheaper for me to order shit from the states now than it was last months. The exchange rate is orgasmic.

Yeah, it was good for me as well when I went over there recently. I apparently tipped the waiters generously as well, although that had as much to do with the fact I needed to get rid of my greenback as its not likely I will be going back there for several years, as much as the strength of the AUD.

[Surlethe]

This is a good thing for America, it will help cut imports and stimulate exports.

Is it good? That depends - when you're a reserve currency, you're essentially exporting paper and importing real, tangible things. When you get dumped as a reserve, you go from importing to exporting, which means the people who previously sold you stuff for your paper now want to sell you your paper in return for stuff.

[Ma Deuce]

In the 1980 and early 90s, it would have fallen to the Yen, but Japan's nearly as unstable as the US at this point iirc.

Is the Euro stable enough to take over?

Stability isn't the only concern. I don't think many people realize just how all-powerful the US was when the dollar became the world's reserve currency at the end of WWII (thanks in part to most of the other major economies being either devastated or efficiently bankrupted by the war). At that point in time, the US economy generated over 50% of the world's GDP, which is exactly why it had the leverage to make it's currency the world's reserve. No single economic entity is going to be in that position for the foreseeable future, so if the greenback stops being the world reserve, no single currency can replace it. Instead, by necessity it would have to be a basket of several major currencies (which would almost certainly include the USD anyway).

[Darth Wong]

In the 1980 and early 90s, it would have fallen to the Yen, but Japan's nearly as unstable as the US at this point iirc.

Is the Euro stable enough to take over?

Maybe they should emulate prisons and adopt a cigarette-based monetary system.

[TheMuffinKing]

In the 1980 and early 90s, it would have fallen to the Yen, but Japan's nearly as unstable as the US at this point iirc.

Is the Euro stable enough to take over?

Maybe they should emulate prisons and adopt a cigarette-based monetary system.

This would work wonders! I have a carton of Marlboros sitting in a trunk from when I stopped smoking 5 years ago, I figure that on a cigarette economy those would be worth a hundred times their dollar value! This assumes a positive interest rate in consideration of nicotine.

[RedImperator]

In the 1980 and early 90s, it would have fallen to the Yen, but Japan's nearly as unstable as the US at this point iirc.

Is the Euro stable enough to take over?

Maybe they should emulate prisons and adopt a cigarette-based monetary system.

This would work wonders! I have a carton of Marlboros sitting in a trunk from when I stopped smoking 5 years ago, I figure that on a cigarette economy those would be worth a hundred times their dollar value! This assumes a positive interest rate in consideration of nicotine.

No way. Even with unbroken seals, 5 year old cigarettes will be stale as shit.

Even without that, I would presume a cigarette-based economy would have serious inflationary pressures. Even if the tobacco companies didn't start "printing money" as fast as they could, the growers would plant every square inch of their land, generating a huge surplus of raw tobacco.

[Winston Blake]

Gulf Arabs have begun 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, which includes Saudi Arabia, Abu Dhabi, Kuwait and Qatar.

There are people out there, right now, trying to remember 'Was it 7 horns and 12 heads, or was it 12 horns and 7 heads?'. Can you say 'New World Order'?

Even without that, I would presume a cigarette-based economy would have serious inflationary pressures. Even if the tobacco companies didn't start "printing money" as fast as they could, the growers would plant every square inch of their land, generating a huge surplus of raw tobacco.

Ah but raw tobacco is not cigarettes. If the state controls the cigarette factories, then they just have to worry about counterfeiting, much like paper vs paper money. Except you can smoke it. I mean... smoke it more easily. Cigarettes with holograms and little plastic windows, coming to a store bank near you!

[LadyTevar]

Even without that, I would presume a cigarette-based economy would have serious inflationary pressures. Even if the tobacco companies didn't start "printing money" as fast as they could, the growers would plant every square inch of their land, generating a huge surplus of raw tobacco.

Ah but raw tobacco is not cigarettes. If the state controls the cigarette factories, then they just have to worry about counterfeiting, much like paper vs paper money. Except you can smoke it. I mean... smoke it more easily. Cigarettes with holograms and little plastic windows, coming to a store bank near you!

So what happens when people start making reefers for trade?

[Stark]

I'm just loving that it's even cheaper for me to order shit from the states now than it was last months. The exchange rate is orgasmic.

Fuck yeah. My plastic robots and guitars are now even cheaper!

[Count Chocula]

Wait, what...we make plastic robots?? I thought we sent that to China.

If you're jonesing for a nice Les Paul, Gibson or Fender, yeah...you might get a deal. Unless inflation comes home for real and the price of everything in dollars goes to the moon.