The Dollar Will Not Crash

[Crewleader]

October 19, 2009
Back to Business as Usual
The Dollar Will Not Crash

By MIKE WHITNEY

The dollar is not going to crash. There may be grumblings in foreign capitals and "secret meetings" between finance ministers but, for now, the dollar appears to be safe.

Foreign countries don't trade in dollars because they like America. They do it because they have no choice. If they want oil, they need dollars; it's as simple as that.

It's great to talk about a "basket of currencies" replacing the dollar, but that's still a work-in-progress. It might happen, or it might not; no one really knows. What's clear, is that we still live in dollar-centric world where paper claims on wealth are arbitrarily increased at will by a handful of unelected officials at the Federal Reserve. It's a process which relies more on Gutenberg than moral authority.

There's no sign that the dollar is about to lose its position as the world's reserve currency. For that to happen, central banks would have to start unloading US Treasuries, which they are not. Despite record government spending and mushrooming deficits, there is still a strong appetite for US debt. Treasury data show that foreigners purchased $28.6 billion more in US assets in August than they did in June. The flows are not enough to offset downward pressure on the dollar, but that could change in the months ahead. As capital flows increase, dangerous imbalances will reemerge, and the prospect of another financial calamity will become more likely. The Fed is rebuilding the system that just blew up using the same blueprint as before.

http://www.counterpunch.org/whitney10192009.html

[closeupready]

1. And the sun will never set on the British Empire.

Oh, and the sun also rises.

[imdjh]

3. You are mixing two scriptures there.

[closeupready]

6. I guess. Regardless, point is, continuing to incur debt will destroy the dollar.

Maybe not tomorrow, but at some point.

[Craftsman]

2. I hope you are right, but think you are wrong

Besides even if it doesn't inflation is coming hard.

[imdjh]

4. Stiff upper lip! Perseverance! Time for the world to see why we rule it.

[Uben]

5. Imagine the logistics of changing the reserve currency

.....just making it happen would be an astronomical achievement, and I'm not sure if there is any organization out there who could pull it off. I'm sure it would cost billions of dollars to make a switch, and don't think the U.S. does not have influence. OPEC could quit selling oil for dollars, and that would have the biggest impact, but who is using most of that oil? The United States and China, who is heavily invested in the American dollar!

I'd say it's near impossible for it to happen.

[Grinchie]

40. Yeah, too many people are trained to use Shift+4 on the keyboard.

It's much too difficult to use another currency, so why not use derivatives instead? They are so much more easily understood than applying a slightly different formula to financial transactions.
:sarcasm:
We can calculate the orbits of electrons and atomic struucture via X-Ray diffraction. We can manipulate individual atoms at will using Atomic Force Microscopy, yet it would be "near impossible" to abandon a fiat monetary system that has been compromised in the greatest fraud of the Century.

I think you are confusing laziness with the grim reality of the U.S. Dollar, which is backed by nothing tangible, yet allows Americans to consume 25% of the World's resources, and build a Military that surpasses any real need.

Uh Huh.

Good luck with that Near Impossible theory.

[Warpy]

7. No, but it will continue to slide until the government does two things

First, raise revenue by ending the ruinous tax cuts before they expire and raising taxes on the richest immediately, at least back to Reagan levels in order to raise revenue.

Second, cut military spending by speeding up the withdrawal from Iraq and reducing the overall Pentagon budget 10% per year until we're in line with military spending by other countries.

We can't afford to lavish tax cuts on the imperial rich while maintaining their imperial military on the backs of working people. That's why we're in so much trouble right now and it's why the dollar will continue to fall.

There's just nothing holding it up any more.

[imdjh]

8. What other countries spend on military is irrelevant. We export security. But we need to charge...

.... more for it.

[nebenaube]

11. Funny, that was Hitler's business model.... n/t

[imdjh]

13. No it wasn't.

[closeupready]

15. That almost sounds like you are describing a protection racket.

As long as other states do our bidding, we've got their backs (for a heavy price).

[The2ndWheel]

16. No government or entity can stop the US government from bombing

whoever it wants to, whenever it wants to, wherever it wants to. What other government can say that?

The funny, or sad, part is that it's the US taxpayer paying the heavy price. We're the only people paying for the global military. That's because there is no actual global infrastructure for an actual global military though. So we got stuck with the check, being the last power left after the 20th century dinner.

[closeupready]

17. I see your point, though, it's not entirely accurate.

Look at Afghanistan. They live in the Stone Age, we bomb with abandon there - Taliban, civilians, who cares as long as lots of people die - and yet, they have not succumbed.

Many warmongers and chickenhawks want us to keep it simple and just nuke Afghanistan and Pakistan and Iran, as if murdering those inhabiting trouble spots is within the realm of the feasible for the force that conquered Adolph Hitler and his Final Solution. Let's try to remember that Mein Kampf is available because its ugliness is self-evident and as such discredits nazism and fascism, not because it's inspirational.

[The2ndWheel]

19. The US Government may not be successful each time

but when has that ever stopped it? It bombs because it can. It bombs because no other governing body can tell it no and be listened to at this point.

We live in an increasingly global world which requires cooperation, with a few hundred regional governments which act in their own interests. Something has to give.

[phasma ex machina]

24. Betcha the "entangling alliances" that Jefferson warned the US government to avoid

can stop it from bombing. If both Pakistan and China hate India and the feeling is mutual who does the US government bomb when Pakistan bombs India and India bombs China?

[Grinchie]

42. If the US were to Bomb China or Russia, Americans would be in for a big surprise

The American Military Superiority is a well funded Hollywood PR campaign, and is nothing more than set dressing on a bunch of pathetic weaklings that are relying on bluster and total world anhilation to get there way.

Despite what you are indoctrinated into believing, the Russians and the Chinese would give the U.S. a run for the money, if not a 100% ass whooping.

Regardless of High Tech weaponry, you still need boots on the ground, and sadly, the American boots are too fat and don't fit into the GI Boots anymore.

Then there is the fact that every U.S. Soldier consumes a minimum of 16 Barrels of Oil per day..

[imdjh]

20. No, it doesn't.

[closeupready]

25. Um, actually, it does.

Your turn.

[imdjh]

27. Where's our payoff?

[closeupready]

28. The currency of nation states - enhanced access to consumer markets, natural resources,

favorable trade agreements, and on and on.

[eridani]

29. WE don't get the payoff. The shitstain corporadoes do n/t

[NickB79]

39. Well, the oil companies made a killing following the Iraq War and Iran saber-rattling. NT

[Grinchie]

41. Export security....

Tell that to the Iraqi's, the Hodurans, the Chileans, the Bolivians, the Iranian's.

Hate to break it to you, but your security xport business is run by a bunch of criminals.

[dmallind]

9. Don't go bringing facts to a potluck of orgiastic doom and gloom now will ya?

Let the reverse Cassandras (Cassandra was always right and never believed. DU economic Chicken Littles are always wrong and always believed) of DU have their "woe is me" fun.

[girl gone mad]

21. I agree with the OP and I'm a doom and gloomer.

I'm also usually right.

Go figure.

[ixion]

10. I must respectfully disagree with Mr. Whitney on this one:

It might happen, or it might not; no one really knows.

That's an unsafe statement, in my opinion. On a long enough timeline, no currency stays around forever. To make the assumption that -- because no one is dumping treasuries on the short term -- the long term, then, is safe.

That's a flawed premise.

Never say never.

[closeupready]

30. But wait! I thought history was finished! That this time, it's different!

the business cycle will just continue rising! :sarcasm:

[Better Today]

12. Y'know if it does, WHO CARES really?!?! It would just mean that all

the rich assholes who have been holding me and others like me (middle class and lower) in stagnant or declining positions throughout our lives, will be as miserable as we are. That's sound great to me, a bit schadenfraude (sp?) I admit, but that's how I feel today.

[Craftsman]

18. We will sink into poverty long time before they will

[phasma ex machina]

26. Wealth actually seems to innoculate patricians against plebeian poverty pathogens. nt

[DemReadingDU]

14. The dollar will be saved, for now

Too many people all over the world happily spend the dollar. The government will not let it crash, yet. Can you imagine the angry people not being able to spend their dollars? The stock market will decline first, and the dollar will increase. The dollar will be the last thing standing, but it too will crash, someday. Maybe in a couple years, but not now.

[girl gone mad]

22. I think this is the correct trade, for now.

Despite the current effort underway to weaken the dollar, we still have far too much private debt to unwind. The signs of deflation are all around. As of today, we are on course for Japanese style economic stagnation and deflation.

Over the long term (years) it is possible that we will have hyperinflation and that it could come on rather suddenly. For the moment, there is no currency or asset class in a position to replace the dollar.

[wuvuj]

35. Wrong...?

"For the moment, there is no currency or asset class in a position to replace the dollar."

Commodities are the new world currency. All other currencies will adjust to commodities.

Why? Because commodities are scarce...and in demand...and currencies are plentiful...especially the US$. Some still want the dollar...but there are a lot of them.

[roamer65]

23. The dollar is going to die a slow, gradual death.

M1 money supply is increasing at record pace and that will affect the dollar's value. While it may not crash, I do expect a gradual devaluation of at least 50% over the coming years.

[barb162]

34. It's already happening.

China's waiting in the wings

[Yupster]

31. Hasn't it already crashed?

How much is it down this year?

[abelenkpe]

33. Still worth more than last year

Oddly no one seemed to gripe much when the dollar was at it's lows last year dipping below 70. But all this year as the market has risen against all expectation everyone is screaming about the dollar collapsing. It was collapsing for eight years during the housing bubble but no one said a single thing. Gonna hold off worrying about it until it's below 68 for a sustained period of time or appears to be going lower.

[notesdev]

32. Reliance on reserve status is overblown

The more we rely on it - and screw everyone else in the process - the faster they will replace it.

I really can't see it being that hard for other countries to buy oil in their own currencies, or in euros or yen or yuan.

[Art_from_Ark]

36. If you were selling oil, which currencies would you accept?

Argentine pesos?
Chilean pesos?
Zimbabwe dollars?
Malaysian ringgits?
West African francs?
Costa Rican colones?
Colombian pesos?
Mexican pesos?
Egyptian pounds?
Algerian dinars?
Vietnamese dong?
Brazilian cruzeiros?*
Kenyan shillings?
Nepalese rupees?
Burmese kyatts?
Sri Lankan rupees?
Yemeni rials?
Laotian kips?
North Korean won?
Fiji dollars?
Peruvian nuevo soles?
Paraguyan guaranis?
Serbian dinars?
Romanian leus?
Estonian kroons?



*This is a trick question-- Brazilian cruzeiros have been demonetized. The current currency unit is the real.

[roamer65]

37. If the competitive currency devaluations keep up, only one currency.

Gold.

[SlowDownFast]

38. "Dollar Will Go To A Value Of Exactly Zero"

Marc Faber On The Death Of Fiat Money - "Dollar Will Go To A Value Of Exactly Zero"

Bloomberg clip courtesy Zerohedge:
http://www.zerohedge.com/article/marc-faber-death-fiat-money-dollar-will-go-value-exactly-zero