Let's talk the U.S. dollar. Why no collapse?

[ctiger2]

Wait a sec. Canada was off the gold standard before the U.S. . Canada has a central bank that prints money...They have a fractional reserve system. Where did you hear this? We don't want to get misled here.

How is the Bank of Canada backing it's money via gold? how is Canada different from us? I'm not looking for an argument, I just want to be clear about this. I'm not sure myself, but I believe Canada is in the same situation we are in...in terms of currency that is. Their currency is NOT back by commodities...please, correct me if I am wrong.

http://online.wsj.com/article/BT-CO-20091210-714941.html

Commodity-linked currencies such as the New Zealand, Australian and Canadian dollars rallied sharply overnight and held onto their gains throughout the New York session on the back of encouraging employment data in Australia and Canada and signs that New Zealand's central bank may end monetary stimulus by mid-2010.

 

[YumYum]

http://online.wsj.com/article/BT-CO-20091210-714941.html

The link you provided comes up black and can't be read. I don't know if the problem is on my end or not. I would like to read the article. Exactly what commodities are backing these currencies? This is news to me.

 

[YumYum]

For the last 5 years I've been listened to how the U.S. dollar is doomed. The U.S. dollar is going to collapse. It's history...it's over. There is nothing that can prevent the fall of this global currency. So far it has depreciated VERY SLIGHTLY compared to other currencies and commodities.

Because none of this doom and gloom has come true I need to ask the question:

What is going to replace the U.S. dollar? Not gold...there is no plan for that that I can tell. And gold is nowhere compared to it's highs in the 80s when large financial institutinos hoarded gold to drive up the price.

Other currencies are not going to compete with the U.S. dollar. Almost all countries have a central bank that uses a fractional reserve banking system. Canada is printing money like crazy. China, that wonderful country that is so economically stable is printing more money than Satan.

http://www.businessinsider.com/chin...ess-treats-this-as-a-glorious-success-2009-12

200 billion for the Chinese is trillions for us due to our superior productivity.

So let's get serious about the U.S. dollar. Why has it not collapsed? What is going to happen? Where is it going to go and why?

You have begun an excellent thread.

 

[Dunedain]

http://online.wsj.com/article/BT-CO-20091210-714941.html

Some currencies will do better if commodities rise...no question. Some countries, like Canada, have heavily resource based economies...but is their currency redeemable in gold or any other currency? No. Their banks create money out of think air just like ours. They are all redeemable in nothing. They're banks can create 90% of the money they keep in deposit.

Once again. How is the U.S. dollar different fundamentally from other non-gold standard currencies?

 

[silverhandorder]

I think my answer to the OP is that unlike America who is burrowing money to continue it's life style countries like China are doing the opposite. At one point we will reverse they will be the dominant power house and we will be the decayed empire.

Now this is the best possible prediction. It can very easily turn into a giant crash as Peter Schiff predicts. He continues to point out that it is all up to China.

In the best case scenario we as American citizens will continue to decline in our standard of living. Even if the rest of the world will decline far faster and even if Chinese standard of living will be far bellow we are still undeniably screwed.

If you are happy about other people being more screwed then us then that is rather shallow.

 

[ctiger2]

The link you provided comes up black and can't be read. I don't know if the problem is on my end or not. I would like to read the article. Exactly what commodities are backing these currencies? This is news to me.

Here it's entirety.

The dollar declined against most higher-yielding currencies Thursday, as investors favored currencies that offer advantageous yields and are underpinned by strong fiscal positions.

Commodity-linked currencies such as the New Zealand, Australian and Canadian dollars rallied sharply overnight and held onto their gains throughout the New York session on the back of encouraging employment data in Australia and Canada and signs that New Zealand's central bank may end monetary stimulus by mid-2010.

"They're the standouts," said Brian Dolan, chief currency strategist at Forex.com in Bedminster, N.J., of the commodity-backed currencies. "They're really differentiating themselves in terms of growth outlook" as well as expectations for increases in key interest rates, he said.

Against this background, the dollar advanced on the yen, as investors moved out of this traditional safe haven, but was little changed compared with day-earlier levels against the euro and U.K. pound. The euro suffered from continued worries over the high debt levels of some of its member countries.

Late afternoon in New York, the euro was at $1.4729 from $1.4725 late Wednesday, according to EBS via CQG. The dollar was at Y88.21 from Y87.80, while the euro was at Y129.97 from Y129.30. The pound was at $1.6267 from $1.6260. The dollar was at CHF1.0263 from CHF1.0266.

The U.S. Dollar Index, which tracks the dollar's value against a trade-weighted basket of six currencies, was at 76.011 from 76.043.

The euro was under pressure again as investors still fretted that debt ratings of some members of the euro zone may deteriorate after Greece had its rating downgraded and Spain had its outlook lowered to negative.

"It's nothing that suggests a risk of euro zone breakup or government default," said Sacha Tihanyi, currency strategist at Scotia Capital in Toronto, "but the euro is going to feel some of that impact" as countries with challenging fiscal situations sort through the mess.

As "underlying fundamentals and cyclical issues" become more relevant for investors, demand for risk "is going to be more selective and reward currencies with higher yields," said Omer Esiner, senior market analyst at Travelex Global Business Payments in Washington.

Investors have become pickier when it comes to placing bets, sticking mostly to the high-flying commodity currencies that are backed by a sunny economic picture, said Alan Ruskin, global head of currency strategy for RBS Global Banking and Markets in Greenwich, Conn.

The New Zealand dollar performed strongly, gaining more than 1.3% against the dollar by afternoon trading after the Reserve Bank of New Zealand left rates unchanged at 2.5% but dropped its pledge that rates would remain low until the second half of 2010. The Australian dollar gained nearly 1% after reporting a fall in its unemployment rate to 5.7% in November from 5.8% in October.

To see the New Zealand dollar's moves against the U.S. dollar, please see:

http://dowjoneswebservices.com/chart/view/3162

Central banks elsewhere also made headlines, though the impact on currencies was muted. The Swiss National Bank left interest rates unchanged as expected, but announced that it would stop buying bonds, essentially a signal that its own version of unconventional policy measures is now being lifted.

Also, the SNB pledged that it would continue to curb any appreciation of the franc while the economic recovery remains uncertain.

The Bank of England on Thursday left key U.K interest rates unchanged, at 0.5%, as expected, and made no changes to its bond-buying program known as quantitative easing, as was also expected. There was little immediate reaction in the pound.

In Iceland, the central bank unexpectedly cut key rates by one percentage point, to 10%, as the country seeks to bolster its troubled economy amid currency weakness. In afternoon New York trading, the euro traded at 183.22 Icelandic krona, from 183.29 late Wednesday.

 

[ctiger2]

Once again. How is the U.S. dollar different fundamentally from other non-gold standard currencies?

It's not, and they're all going to go down compared to real money, Gold. The major problem the US has is the deficit. Many of the Asian countries are creditors. The US has to refinance 2 trillion of debt this summer and supposedly they're going to run another 1.5 trillion deficit for 2010. The Fed will have to monetize that debt. When the Fed monetizes that's pure inflation. The problem with this financial stuff is it takes a while to play itself out. So, we keep reading about a dollar collapse and we're all wondering when it's going to come. Suddenly it will just happen in a couple days or a week.

Maybe try watching this one:

YouTube - The Dollar Bubble

 

[Dunedain]

It's not, and they're all going to go down compared to real money, Gold. The major problem the US has is the deficit. Many of the Asian countries are creditors. The US has to refinance 2 trillion of debt this summer and supposedly they're going to run another 1.5 trillion deficit for 2010. The Fed will have to monetize that debt. When the Fed monetizes that's pure inflation. The problem with this financial stuff is it takes a while to play itself out. So, we keep reading about a dollar collapse and we're all wondering when it's going to come. Suddenly it will just happen in a couple days or a week.

Maybe try watching this one:

o.k. so "The Dollar" is not special for being in trouble. Amazingly, the Chinese currency is in worse trouble than the U.S. dollar. consdier this
http://www.24-7pressrelease.com/pre...prospects-for-sustainable-recovery-105338.php

 

[silverhandorder]

o.k. so "The Dollar" is not special for being in trouble. Intersetingly, the Chinese currency is in serious trouble. consdier this
http://www.24-7pressrelease.com/pre...prospects-for-sustainable-recovery-105338.php

Unlike China our industry is declining.

 

[erowe1]

I haven't read any of this thread yet. But I think the short answer is that banks are sitting on larger than their required reserves, since they don't perceive the current economic climate as one where the loans that are any riskier than the ones they've already made would be wise investments for them. But this won't last forever. The Fed will continue to make sure that deflation doesn't occur, which will eventually mean compelling the banks to lend down to their legal reserves, at which point all that extra money that has been created over the past year will pour into the economy and they won't be able to hold back the inflation.

But I'm no more qualified to try to explain this than a bunch of other people here who know more about banking than I do.

On that note, I definitely recommend the recent series of articles on money by Gary North at lewrockwell.com. He gets into the OP's question in depth.

 

[YumYum]

Here it's entirety.

I read it and I see where it says they are commodity backed currencies, but the question is, what commodities? Gold, Silver? If it is true that these countries have paper backed by commodities, why haven't we declared war on them? Their paper would have already wiped out our dollar.

 

[Bossobass]

Thank you. I was hoping someone would mention this so I could ask another question.

You need 2,000 Korean won to get on a bus in Seoul, Korea. They've devalued their current a lot more than ours. What's the big deal? U.S. wages have risen much more than 90% since 1913. So we're better off right?

This is simple math. The dollar has lost more than 95% since 1913. That does not mean that you must have a 95% raise to keep up. It means you have to make 20 TIMES to keep up.

Then... consider that:

There was ZERO income tax in 1912. This makes it impossible to know what average salaries were then.

Today there are A to Z taxes, and every one of them has outpaced inflation.

In 1912 there was no VISA/MC charging non-deductible 20% interest.

In 1912 there were no Medicaid/Medicare/Social Security taxes.

In 1912 total spending was 4% of GDP and total national debt was 2.8 Billion.

Today, total spending is 12.5% of GDP and total national debt is 12 THOUSAND Billion.

All of these taxes, including the inflation tax, and interest on the debt are eating your salary and didn't exist in 1912, so one can only guess how many times more your pay has to be to equal pay in 1912.

How long can it continue? Ask Argentina, Germany and Zimbabwe.

Bosso

 

[nayjevin]

On that note, I definitely recommend the recent series of articles on money by Gary North at lewrockwell.com. He gets into the OP's question in depth.

http://www.lewrockwell.com/columnists.html

The minute China stops devaluing its currency, the dollar is done.

It can very easily turn into a giant crash as Peter Schiff predicts. He continues to point out that it is all up to China.

I haven't found a source that lays out why this is the case. Would make a good video if it can be verified.

So what's the solution? Competing currencies? Less taxation and no more 'printing press' spending by congress via the (un)FEDeral Reserve comes to mind. Bailout bonanzas and mounting social security + health care obligations = grandkids future tanked. Something's got to give!

 

[Austrian Econ Disciple]

I just thought this was funny.

Pertinency to the thread? Not much. Hilarious factor? A lot.

 

[nayjevin]

Pertinency to the thread? Not much. Hilarious factor? A lot.

Lord have I been guilty of that

 

[Paulitician]

"Loans" hahaha, fucking awesome.

 

[not.your.average.joe]