Monday, October 5, 2009

Update on the decline of the U.S. Dollar.

I came across this short news article on Fox News dot com titled Arab States in Secret Talks to drop dollar.

"Gulf Arab states are in secret talks with Russia, China, Japan and France to replace the U.S. dollar with a basket of currencies for the trading of oil, Britain's The Independent newspaper reported on Tuesday.

"Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars," said the report, which cited unidentified sources in Gulf Arab states and Chinese banking sources in Hong Kong. It added that France had also been involved in the talks.

According to The Independent, the plans are to transition the trading of crude oil over nine years from the U.S. dollar 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 Cooperation Council, including Saudi Arabia, the United Arab Emirates, Kuwait and Qatar.

U.S. officials, which are 'sure to fight this international cabal,' are aware the meetings have taken place but have not fully discovered all of the details, the newspaper said.

The report cited an unnamed Chinese banker as saying the plan ['will change the face of international financial transactions.] America and Britain must be very worried. You will know how worried by the thunder of denials this news will generate.'

The issue of shifting oil trade away from the U.S. dollar has been raised occasionally in recent years, [but analysts and experts told Reuters it is unlikely to occur any time soon.]

In wake of the report, the U.S. dollar fell against the yen and euro on Tuesday.

'There are worries that Middle Eastern countries may stop using the dollar in oil transactions,' Yuji Saito, head of the foreign-exchange group in Tokyo at Societe Generale SA, told Bloomberg. 'This is causing the dollar to be sold across the board.'"

If read the report; you will see a shift in power throughout the world being stated, "The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. '[One of the legacies of this crisis may be a recognition of changed economic power relations],' he said in Istanbul ahead of meetings this week of the IMF and World Bank."

This transition will not occur until around 2018, "Chinese financial sources believe President Barack Obama is too busy fixing the US economy to concentrate on the extraordinary implications of the transition from the dollar in nine years' time. The current deadline for the currency transition is 2018." It seems that a lot of the ramifications, most are not good, of current economic policy--cap and trade, debt, the devaluing of the Dollar, and etc.-- will occur around the 2020 time frame. It seems like this time period will be a pivotal moment for the World Economy.

Well, it seems that the world is aware that the Dollar is on the decline due to the recent economic policies of our government. The world reaction to this development reveals a lot about the condition of America's economy. What does it mean for the U.S.? I can't give all the answers, but it is not good when a nation's currency is devalued. One important point to take away from these recent developments concerning the Dollar is that it is a indication of the decline of America, and this is leading to a stronger and more unified world. To me, this is an important development. Why is it not being reported in the major news outlets? Nothing that will be of concern for the average person until later down the road.

3 comments:

  1. s far as a global reserve currency is concerned, it's extremely unlikely that we can see a global united front to go with any one particular currency. That's why the proposals made have called for the creation of a new global currency and not a switch to a pre-existing currency. It's hard to abandon the current system for a new one that might benefit someone else (even if it isn't America) when that new person might be your neighbor. Since it will be so hard to develop something completely new from a collective action standpoint, a global replacement for the dollar is unlikely at best.

    The replacement of the US dollar for something else is the only thing the US needs to be actively seeking to defeat. Iran has been trying to switch over to Euro's for a long time, and so long as the dollar trades low, it only makes sense for Middle Eastern countries to want to sell their prime export in a currency that gives them increased returns. The reason this actually matters, is that the fluctuation of the dollar doesn't effect our ability to purchase a gallon of gas since a dollar is a dollar domestically, but if the currency is switched to a foreign currency, than based upon that currency's fluctuation we will see an actual change in prices on what we pay for gas. But the article's discussion of the use of mixed currencies might actually have a stabilizing effect on the price of gas which isn't something you can fault gov'ts from trying to seek.

    You're right that we face a crisis. The decline of the dollar represents a fact that we're unwilling to address, WE ACTUALLY HAVE TO ACCOUNT FOR OUR DEFICIT. There's no magical amount of debt (a bright line in debate terms) that we can accrue that will automatically say what the value of our dollar (and ability to repay) is, that bar is a fuzzy line set by the market. Absent such a line, policy makers think that they can say "Kenysian Spending is good" and use that as an excuse for lack of fiscal accountability. The fact that people are merely talking about switching currencies and changing the standard of oil is a reflection that the world is starting to hit that fuzzy grey area of uncertainty. We already see people/gov'ts slowing their lending to the US (which is the only way we're able to have the capital necessary to live in an Import/Export deficit) next it will trickle off all together, as soon as we see this rate match the people selling bonds instead of buying them, every rational bond holder will want to cash out while they think the US is willing to pay back a decent price and before the true "run on bonds occurs," which is exactly how such a rush will occur.

    Unfortunately Republicans were just as willing to over-spend as democrats so we can't get too high and mighty on this. But what we can do is demand a return to a conservative fiscal position, slash unnecessary programs for realz and not take on a dangerously large and bloated scheme like Gov't Healthcare.

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  2. The decline of the Dollar is helping to make America a poorer and a less prosperous Nation by driving out capital, in the form of investment by foreign nations, out of America. This is helping to build the world up by transferring the wealth throughout the world. A new world economic power standard and a new world power structure is in its early stages. America's influence is declining. Naturally, this power will flow to another country or an international body. While a truly united response to economic troubles or a truly new global currency will be a difficult and an unlikely thing to bring about; with other countries and the UN calling for a new global reserve currency, it seems like this power is flowing towards an international body. From the articles I read, this shift is coming about gradually over the time period of at least a decade.

    "The decline of American economic power linked to the current global recession was implicitly acknowledged by the World Bank president Robert Zoellick. '[One of the legacies of this crisis may be a recognition of changed economic power relations].'" I think this is interesting and would have an impact on the nature of the world.

    I thought the Dollar already acted as a type of global currency because the value of the currencies of the world are to some extent based off of the Dollar? Would it then be required to create a completely new power structure or international standard for currencies? To create a new global economic structure or new global reserve currency, would the only thing that need to happen is to transfer this power that is held by the Dollar and America to a new international currency and body? I think we are seeing the economic influence that currencies have coming together and being more centralized or united so as to make it more possible to have this influence put in the hands of some unified international body--globalization. This is the general direction the world is headed. Not necessarily some bad thing.

    Overall, I think that this development shows to what extent America's economic policies are doing harm to our nation's economy; and as a result, is causing a shift in power from America to other countries of the world. A new international power structure is in its early stages.

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  3. I think it's clear that, at least in the short term, the decline of the dollar will hurt the US, for reasons you guys mention above: foreign goods more expensive (noteably oil), which I suppose would push domestic goods higher as well, and foreign investors scared away from weak return on bond investment, so our ridiculous federal debt is no longer being funded. But what happens to the world if the 'Engine of Consumption' fails? When American consumers find themselves faced with a)more limited purchasing power, and b)cheaper American goods compared to the rest of the world, it seems to me that all the economies of the producer nations will crash. Foreign investors will be forced to do what they always end up doing: returning their investment to the good ol' safe USA (which I don't think even Obama can totally destroy, at least not immediately).

    I'm sure I'm missing things, but it seems like (and this isn't really fair to the rest of the world) we have two trump cards: 1)the only consumer nation that can power the world's economy, 2)the safest place to invest. We don't deserve it because we are so irresponsible, but it seems like it's something we do have. If the dollar collapses, it seems like we are the economy that would rise from the ashes of the ensuing depression. Maybe Obama really is a supergenius bent on permanent US hegemony over the world...nah.

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