Quote: (12-23-2013 11:24 PM)Tail Gunner Wrote:
Problem #1:
So, what does this mean? It means that the world is engaged in a massive forty-three year experiment in using a world reserve currency, backed by no asset to restrain money printing, with completely unknown consequences for the world's economy. This scenario has never before occurred in human history. What if that experiment fails? Are you ready?
Problem #2:
Most of the dollars circulating today are not in the U.S., but outside of the U.S. What happens when the rest of the world, fearful of trusting a currency not backed by any asset and a nation with a debt load that no nation has ever survived, decides to drop the dollar as the world's reserve currency? What happens when no one wants all those extra dollars?
The U.S. government can afford its current debt levels only because of current historically low interest rates (see next section) and because of the dollar's status as the world's reserve currency, which creates an artificial demand for dollars amongst every nation on Earth.
The USD is almost assured of losing its status as the world's reserve currency within the next ten years. Are you ready for that?
Problem #3:
The Federal Reserve has artificially suppressed interest rates, because the government cannot afford to borrow money to pay the interest on its debt at real market interest rates. In the meantime, mom and pop who worked all their lives to save $1 million for their retirement have to eat cat food, because they can only earn less than one percent annually on their money ($10,000) because the Fed has suppressed market interest rates.
(I cut some of your post just for brevity)
For 1 and 2 -- if the USD will fail to remain the world reserve currency in the next 10 years, what will replace it? It has to be a currency with a) a large market (supply) b) backed by a relatively stable and transparent government with good monetary policy
The a) requirement eliminates just about all currencies except the Euro and RMB. Then, b) eliminates RMB for sure, and probably the Euro. The ECB and EU, partly due to their complicated structures which hinder decision-making, haven't proven very good at responding to problems in a rapid manner.
For 3 -- the US's ability to borrow at low interest rates is primarily driven by investors willing to loan money to the US (in the forms of T-bills) at that rate. A decent amount of that money is coming from foreign governments and investors. So, if they're willing to give the US a loan of money at such a low rate, why should the US not accept it? (The reason they do it, IMO, is that there are no other "risk-free" options for holding large sums of money.. i.e. the US is the best of the worst when it comes to safe investments).
Moving on to the overall apocalypse I think you allude to. What happened in 2008? From a numbers standpoint, that was pretty bad. Markets down, home values down, unemployment up. But it still wasn't Mad Max style armageddon. We didn't have wide-scale riots in streets; a collapse of order, etc. People for the most part went about their usual routine, though with a lighter wallet and a smaller bank account.
But let's just pretend the USD fails entirely. So what? The US produces a surplus of food and has abundant resources notably fresh water and energy. The next day, the Mint can just start printing some new currency, and all domestic transactions will take place using that. We can just ignore world trade (which is the only place where a currency's value is compared anyway) and still at least get by.
The reason I don't think the USD will fail is that would imply some other world currency will take its place as the global currency, and I don't see any good candidates. On top of that, so many countries and businesses are tied to the USD, whether it be due to trade or just holdings, that there's so much to be lost if that were to happen.. I don't think they would let it reach that point.