wkmac,
It will get very interesting if and when we are forced to purchase all imports in a "foreign currency"
We will immediately see the difference between a Producer nation and a Consumer nation.
The Dollar will plunge in value, Prices on oil and the very basics for life will skyrocket.
The Government will impose wage controls and price controls with unintended consequences.
There will be country wide strikes, riots in the streets and interest rates will skyrocket.
Chaos will reign --How it all ends and begins again --anyones guess !!
The U.S. dollar has lost over 11% of its purchasing power in just the last seven months.
The price of oil is skyrocketing, Gold has doubled,copper is up 200% in two years,and cotton is up 102% in 12 months --watch the price of clothing.
I believe the "world bank" has a world currency ready to go --the banc ??
I would think many Americans have never heard of QE2 !!
Island,
I sense some pessimism here when in fact, not to suggest there won't be some tough times, I'm pretty damn optomistic going forward. First off, let's make note that until Bretton Woods in 1945' there was no global reserve currency. It was BW that created what is actually called an
"anchor currency" (we use global reserve currency) so this whole idea of a globlal reserve currency as we know it is only 66 years old to begin with. Understand something else in regards to BW and dollar supremacy, at the end of WW2 outside the US, the world's industrial productive capacity literally lay in ruins from the effects of war. Europe was in bombed out ruins and former powerhouse Japan was not only in ruin but now and even today a subject state of the US. America because of it's geographic isolation was spared direct assaults on it industrial capacity and now to some measure was the only shop in town. The Marshall plan wasn't about the goodness of America, it was a mechanism to flood foreign markets with dollars to prime the new global reserve currency pump and the American taxpayer foot the bill while Corp. American skimmed off profits in this new manner of capitalist socialism. This is another reason the dollar granted it's status and there are many other connected facets to this but that's for another day.
The problem with a nation having it's currency as a global reserve currency also created a paradox in that economic policy would begin to conflict national eg domestic and international needs against each other. Trade deficits would be required in order to prime foreign markets with cash in order to fulfill the reserve currency status but such policy would cause an imbalance in the Balance of Payments (BOP) as it relates to domestic economic transaction to the rest of the world. Not to mention that in "printing" such dollars into existence also creates an inflationary aspect to it on the domestic front. Robert Triffin, an economist, came up with what is called the Triffin Dilemma explaining this natural conflict between domestic needs verses international needs. Triffin also based a lot of his ideas on the fact that the dollar was pegged to gold and IMO it wasn't gold itself so much as the dollar was pegged to a finite commodity that limited the expanison of the dollar supply to begin with.
The International Monetary Fund has a short review of
Triffin's paradox but the solution at the time was to separate the dollar from gold but the next problem is if you did that, what would compell other nations to then use your currency? Economic Statists on the home front decry gold or silver backed money because it limits domestic expansionism of domestic monies eg forces you to direct tax instead of borrowing against the future to pay for gov't expansion but then the reality is, something has to be in place to make using that currency of purpose so when Triffin's paradox reached the boiling point, Nixon closed the gold window which also created a nightmare scenario on the domestic front while solving the international needs at the moment. Deficit spending and massive national debt going forward. The international purpose won the day over domestic concerns AGAIN.
But internationally, what was going to now back those pieces of paper so other nationstates would use it? Oil! Gold had a ceiling problem in that it was of limited supply thus currency levels could only go so high but in the world of 1971' oil was gushing out everywhere and we'd not even tapped into fields known to exist. Thus the creation thanks to OPEC of the PetroDollar and that all global oil exchanges had to take place in dollars. Oil ran the world so in order to run, you needed oil and to get it required dollars. So the new world of the petro dollar came into play and all seemed pretty good but then just a few years out, a problem started to appear on the horizon. Oil may not be a plentiful as once thought and the same ceiling as seen with gold (Triffin's paradox) may indeed also come about with oil. President Carter took the
first step in shoring up the PetroDollar in telling the world that the US would not tolerate other nationstates eg Russia incurring on Middle East Oil. Now the oil does have strategic value but it is more economic driven IMO than we want to realize. Kings immemorial have fought wars and positioned garrisons to protect their gold and now oil serves the purpose of gold in the economic realm. Good, bad or otherwise, this is what it is!
Taking Triffin's paradox, drill here/drill now seems to make perfect sense on the domestic front and in the national interest but on the international scene as a commodity backing a reserve currency in the face of shrinking supply, don't drill here/don't drill now is the cry. Gotta keep the gold in Fort Knox so to speak. Ah, Triffin's paradox again. Like gold, you need enough oil supply to back the current currency plan but as the same time, and this is important to contemplate IMO,
you don't need to much at any given time either! Gold based on known supply was once pegged at $35 an ounce but what would happen if a major find of new gold (pulled out of the ground) was then introduced onto the international market, what just happened to the price of gold (oil) based on new supply? What would happen if some rogue state who had gold (oil) also had been limited on how much went into the market and then started sneaking around selling gold (oil) behind the market's back? What might that excess gold (oil) in the market do to the value of dollars? What would happen if that oil (gold) was being traded in another currency? Is the supply of known oil (gold) really in decline or is there something else at play here? Is the price of oil (gold) really a reflection of supply and demand, a reflection of oversupply of dollars eg inflation or is something else going on here? Is Middle East instability real or is it a cover for something else so oil (gold) prices can increase? The questions are endless and clear answers not forthcoming either. Notice how gold and oil can also easily interchange? Hmmmm.
That rabbit hole can be a bit scary and very boring but it's not anything near the X-Fileish world a lot of people would like for us to believe it is. I still believe a full and transparent audit of the Federal Reserve is a means of clarity but we run into the Triffin paradox again of domestic needs verses international desires. Also domestically, alternative energy away from oil seems such a no brainer, shaking off the smelly dog that is the Middle East makes tons of sense but if we did, what would happen to our currency in it's reserve status and who might oppose based on their vested interests? Triffin Paradox again!
We had our problems, our faults and yet we did pretty good before global reserve currency in 1945' and even before a central bank in 1913'. But when you look at all our problems today verses what solutions seem obvious, our political will seems denied access too the best domestic solutions. I think losing the status of global reserve currency could in fact be a blessing, lead to massive leaps in innovation, vastly better quality of life and a vastly more free society than we have today. Interventions that force innovations and jobs overseas would not make economic sense and now these jobs and innovations instead would stay home, many would return home. Goods and services would return to local and regional structures and wealth would also return and reboost the middle class we once had. Prosperity would spread out instead of being consolidated and controlled by some top down central plan.
Nope, I'm not pessimistic, I'm excited about the real potential out there for us as a country if we return to a pre-1945' currency status. Whether this happens or not is still not clear but the possibility is there if we choose to grasp it. If the global reserve currency that is the Federal Reserve Note (notice I did not say dollar and for good reason) collaspes, Triffin's paradox disappears and domestic needs will then vastly overpower and common sense may thus return.
That's my take!
