Interesting article at the Post today talks about a Chinese officials calling on a “befuddled world” to “deAmericanise” in the wake of the IMF’s dire warning about another 2008 downturn should the US government default on its trillions of dollars of debt later this week. (Please read the complete editorial with commentary at Zerohedge: China’s Official Press Agency Calls For New Reserve Currency, And New World Order).
And you know what? It’s about time.
It’s past time really.
With FATCA looming and the US financial sector effectively holding everyone in the world hostage to their lunacy, why aren’t more countries working harder to find ways to exclude the United States and begin buying and selling in a currency other than the ubiquitous US dollar?
Sure, the US has held the monopoly and much that is money passes through their empire and greedy hands, but in terms of importance, dumping the dollar as the world’s reserve currency and moving to isolate America is probably more important to the survival of the people on planet Earth than figuring out how to minimize global warming.
It’s day 14 of the stand-off in Washington D.C. and despite the furious spinning of the media, none of the players in question are looking anything other than pre-schoolish and really, really wrong in terms of what they are doing. It would serve them and the misguided who voted for them (again) right if the default occurs on the 17th, but why should everyone else in the world suffer along with them?
And meanwhile in Canada? Harper is getting ready to set the population free … from cable tv bundling. Way to go, Prime Minister. Though it’s not quite fiddling while Ottawa burns, it’s close enough.
I cashed in my little amount of US dollars a few weeks ago…The dollar may crash…There is a strong possibility of the the debt ceiling not being raised. These are crazy times led by crazy Carnival Cruz .
The question is what currency would you replace it with? These days they’re all tied together and if one goes the rest suffer. Swiss Francs maybe, but not really a global currency these days. Euro – no, just as shaky as the dollar. The Yuan – not with China being so closely tied to the US. British pound? Australian or Canadian dollar?
I watched a very interesting documentary last night: “End of the Road: How Money Became Worthless”.
http://www.imdb.com/title/tt2325908/
http://movies.netflix.com/WiMovie/End_of_the_Road/70246361?locale=en-US
@Medea Fleecestealer, you’re right. The problem is that there is nothing to replace it with.
It all boils down to the Bretton Woods international monetary agreement of 1944, when all countries agreed to tie the exchange rate of the money to the dollar, which was backed by gold.
On Aug. 13, 1971, Nixon terminated the backing, rendering virtually all currencies fiat, when foreign countries were concerned about the mounting US debt, and asking for gold to be delivered.
The gold backing allowed government to be somewhat reasonable with their spending. With that out of the way, they could spend at will. Since 1971, the US ran deficits every year.
The documentary then describes the way the federal reserve and treasury work as the perfect model of a Ponzi scheme (Issue of government bonds, deficit requiring more bonds to pay for the debt etc…)
So yes, the collapse of the dollar is bound to happen when the Ponzi scheme falls apart.
Scary… especially since there’s not much we can do about it….
This is one of the first times I’d agree with Communist China.
Democracy, communism, socialism, marxism, dictatorship, monarchy … none of these terms apply 100% to any nation on this planet. Most nations are corporatocracies, in varying degrees of corporate control. The USA and other “western” nations are, in practice, run on a system of collusion between corporations (including the banking industry) and the government. In essence their so-called constitutions are just pretty pieces of paper. The masses are kept pacified by the mis-perception that they live blissfully in a democratic state. And yes, Chris, banking is a Ponzi scheme and those of us at the base of the pyramid are pretty much tapped out now. I wonder about China and Russia. Are they just play acting at being the antithesis to “Americanization”? Are they as much in on the grand scheme as America? Brighter minds than mind will have to figure that out.
https://en.wikipedia.org/wiki/Corporatocracy
http://www.thrivemovement.com/the_12_sectors-economics
https://www.youtube.com/watch?v=51CvlMEtf1A (WARNING: 3 1/2 hours long)
There is the added problem of oil being bought sold in USD as well. Libya tried to break away and ask for gold for its oil and well, you know how that worked out.
One of Iran’s major sins is wanting gold for its oil as well though they haven’t followed through.
What would we replace the USD with? Anything that could be reasonably backed with gold. So really, any country or groups of countries could conceivably make this happen but it wouldn’t happen overnight and let’s be real – when the USD ponzu collapses, the rest of the world has no choice but to start over fresh, so why not get started on it now?
Trouble is that current world leaders, or wanna be leaders, have no vision/imagination and certainly no ability to think beyond the US sanctioned box they have us all living in.
In some ways, everyone is a USC b/c they dictate they economic policy for the entire world regardless.
The international gold standard, which was in force when I was young. has its advantages over using fiat currencies like the US dollar, which are printed at will without backing. That standard does, however, give some slight advantages to countries which are major gold producers as well. According to the USGS Survey in 2012, China is now by a large margin the world’s largest gold producer (followed by Australia, the US, Russia, South Africa, Peru, and Canada).
And this US is not a gold producer, eh?
Yes, advantageous for those countries that can dig their own rather than “store” it for other countries.
Eventually though some group of countries is going to develop and work around and many others are going to pile on that fix. Probably can’t happen until the instigator can “protect” the system however but it will happen.
@Yoga Girl
I totally agree with you that something has to be done. With the US going off the rails, all countries are imperiled by having the US Dollar as a reserve currency. Hopefully we will see a solution come about. Some country or group of countries needs to take the lead. I was impressed that Brazil is now working up its own computer systems to safeguard them from spying by the US. Imagine a world free from financial intimidation and dominance by America, and one which is free from their spying agencies. That can happen if enough people and their governments care about what is going on.
What’s especially bizarre about the antics in Washington is the blanket assumption that as long as the US raises its debt limit, the rest of the world will continue to line up to invest in US Treasure bonds.
Reminder: much of the current Treasury bond debt is held by the US itself thru the Federal Reserve bank, Social Security, various govt agencies, and also state and US municipal pension funds, private pensions, banks, and insurers. They are their own best customer.
Today’s (Mon. Oct 14) yield on a 5 year US Treasury bond is 1.42%.
(according to CNNMoney)
To compare: a 5 year GIC at ING Canada Direct yields 2.25%.
Place your bets.
Wondering, a lot of investors will and they just might place them on the Canadian dollar, which actually doesn’t help our economy because we are so co-dependent on the US’s and when our dollar is stronger, we have a harder time exporting our goods.
But, you are right because the US basically backs its own currency with its own currency and nothing else. Well okay, and with the tax money it collects from all the USP’s it can collar but that is hardly enough to pay the bills they rack up over a fiscal year as evidenced by the amount of debt they carry.
I don’t understand at all how any sane person can look at the mess down there and not feel the need to run away, shower and then try to scoop the image from their mind’s eye with a spork.
Maybe time to buy gold?
For those wondering what would replace the US currency, it is not a question with a self-evident answer, but it does perhaps suffer from an inability to think outside the box: i.e., we all suffer from normalcy bias–it has always been this way and therefore how can it change. But the Chinese editorial is a very important historical landmark (see the editorial reprinted at Zerohedge): one of the US’s largest creditors has said that the emperor has no clothes.
On the gold front, the Chinese are stock piling it while the US is leasing their gold to the bullion banks, which is likely ending up in the Far East never to be seen again. Experts on precious metals investing, like Eric Sprott, believe that the line “gold leases” in the Treasury’s balance statements probably means that the gold is no longer physically present at stock piles like Fort Knox. This confirms the old saying, bad money drives out good. The Chinese use worthless fiat money to stockpile gold. Then, when the world switches to settling accounts either in gold or a gold backed currency, the Chinese will be the only player in town (along with certain private investors, esp. in India). The US government has acted in a very corrupt manner. First it confiscates all the gold of private citizens (under Roosevelt), and then, more recently, it leases that gold to the bullion banks, who then deliver it to those demanding physical delivery (“gold bugs”, Russia, India and China, and dozens of other central banks around the world who are no longer comfortable with holding only US dollars in reserve).
So the answer to what will replace the dollar is what has been money for probably about six thousand years: precious metals. A government which offers a currency that has solid backing in gold, meaning that it is actually redeemable in gold (as was the US dollar before 1971), will be able to establish a currency other than gold or silver itself.
Finally, it will be possible to pay for things in gold, because a person can hold gold in deposit at a third party dealer who then can give exchangeable credits in fractions of grams that would be spent on platforms like Bitcoin, Ebay or Amazon: it would be a sort of PayPal for gold (GoldPal?). Once the dollar collapses, such platforms should gain ascendency. James Turk has proposed such a platform.
Great to see that 3 of the BRICS are “gold bugs.” I know virtually nothing about economics so can’t evaluate this but it’s my understanding that the BRICS are working on replacing the US dollar as the reserve currency of the world. High time!
Last night – October 14/13 – on CNN Crossfire Newt Gingrich was quoting from this article.
http://politicalticker.blogs.cnn.com/category/newt-gingrich/
It may take a bit of time for this episode to be up.
This graph http://en.wikipedia.org/wiki/Gold_reserve shows that the US still has the largest gold reserves.
Actually, what’s important, is the gold to debt ratio of each country.
But to adopt a new Bretton Woods style system, wouldn’t all nations – including the US – agree to it?
Gresham’s law
To quote Wikipedia: “Gresham’s law is an economic principle that states: ‘When a government overvalues one type of money and undervalues another, the undervalued money will leave the country or disappear from circulation into hoards, while the overvalued money will flood into circulation.’ It is commonly stated as: ‘Bad money drives out good.’ “
DeAmericanization….What a wonderful concept!
@mister magoo, thanks for the explanation and correction (I have corrected my post). In the present case, bad money (US dollar) is driving out good (gold).
@Chris, Gold leases probably means that the physical is no longer in the stockpile and is now in China. China is not reporting their numbers accurately and no one knows how much they have, but it is clearly much higher than the official number.
THe NY times has an article about this today, although NYT has a US govt contract to reverse the information messages coming from outside the administration, and to chocolate coat information turds.
The magic formula, in my view, is:
value-adding assets + good governance = economic prosperity
Value-adding asset meaning resources and goods (both tangible and intangible) that benefit people’s lives. I’m thinking industrial consumables, natural resources like hydrocarbons, precious metals like silver (preferable to gold as it has many more practical industrial applications rather than being hoarded and guarded at big cost) and, probably most importantly, intellectual property on how to convert such hard assets into human benefits.
Good governance meaning a stable, self-sustainable and trustworthy polity that people feel comfortable storing their value-adding assets in. The US will lose this spot rather quickly and I don’t see any BRIC countries (economic miracles stories but hardly examples of good governance) coming to the forefront in this regard anytime soon.
I can only think of two countries at the very top in these two categories: Switzerland and Norway. The big problem is that the CHF and NOK are too small to replace the USD as the global reserve currency. In any event, do we really need one global reserve currency?
There has been very active commentary on the Telegraph web site – http://www.telegraph.co.uk/news/worldnews/us-politics/10376017/World-should-de-Americanise-says-China-following-default-fears.html
There has been very active commentary on the Telegraph web site – http://www.telegraph.co.uk/news/worldnews/us-politics/10376017/World-should-de-Americanise-says-China-following-default-fears.html
Some of the comments are typical Pro Obama defense trash and some are merely jingoistic comments by Americans – none the less keep reading … there is interesting commentary including contributions by yours truly.
Is the East Coast of the US not heavily dependent on (green-ish) hydro electricity from Canada? How ’bout a 50% export tariff on that?
Canada also produces gold. Canada is rich in raw materials and general advantage (including the ability to supply huge amounts of hydro electricity and with extensive Forrest lumber available) – the dependency comes when so much Canadian employment depends on exports to the USA. So we need more export markets away from the USA – how silly is that as the US is so close a neighbor – just the other side of the bedroom wall so to speak.
I see the Canadian dollar as a good reserve currency (better than the Euro) – at least as an interim measure until something more “global” can be established. Canada however must maintain its Sovereignty and Independence !
I believe that most people (not all but most) worldwide have an affectionate spot for the US and would love to get on famously with that country and its people who are mostly so hardworking and generous to others …. yet for some utterly illogical reason the US Government and Bureaucrats seem determined to spoil the relationships of the US with the rest of the world …. how utterly silly can so called leaders be …..