NationStates Jolt Archive

The United States operates under a 'trust us and our money has value' system. Without the global trust in the U.S. economy, the dollar would collapse. I always found it interesting that there is nothing backing up the dollar except the trust in the government. It used to be gold, but now its nothing. I'm also suprsied the world still trusts us financially, what with our debt at 7.3 trillion and the annual deficit past 500 bn.

If no government (not just the US) has nothing backing up its money, what happens when trust collapses or trade drops? What happens when electronic money no longer means anything? Where will our economic system be when the current method fails?

cf. the slide in the dollar against the euro and various other currencies.

The United States operates under a 'trust us and our money has value' system. Without the global trust in the U.S. economy, the dollar would collapse. I always found it interesting that there is nothing backing up the dollar except the trust in the government. It used to be gold, but now its nothing. I'm also suprsied the world still trusts us financially, what with our debt at 7.3 trillion and the annual deficit past 500 bn.

If no government (not just the US) has nothing backing up its money, what happens when trust collapses or trade drops? What happens when electronic money no longer means anything? Where will our economic system be when the current method fails?
Oil is traded in dollars. Should the euro take it's place, the dollar will be valued against the euro.

Here is what I don't get. Our currency is falling fast.
The fed thinks that the dollar will probably devalue another 20 percent or so against the Euro, if there is a panic perhaps as much as 40 percent. Why doesn't everyone in America simply convert all their savings into Euros? I would but I am $80,000 in debt (student loans). You would pretty much be guranteed to become 20 percent richer, or 20 percent less poor depending on how you look at it.

I know the dollar is down against the pound and the Euro, its also down (overall) against the peso. I'm just wondering what will happen to the U.S. economic system when the dollar finally crashes to the level of the yen, where 80 or so dollars equals one Euro.

Here is what I don't get. Our currency is falling fast.
The fed thinks that the dollar will probably devalue another 20 percent or so against the Euro, if there is a panic perhaps as much as 40 percent. Why doesn't everyone in America simply convert all their savings into Euros? I would but I am $80,000 in debt (student loans). You would pretty much be guranteed to become 20 percent richer, or 20 percent less poor depending on how you look at it.

Yes, but you have to know for certain that the slide will continue.

If the government does nothing (both here and in euro zone), the as things satnd you will make money. On the other hand you run the risk of either one of the governments stepping in and adjusting the dollar/euro exchange rate. Then you could lose money pretty quick.

So there is actually a fair amount of risk involved.

I know the dollar is down against the pound and the Euro, its also down (overall) against the peso. I'm just wondering what will happen to the U.S. economic system when the dollar finally crashes to the level of the yen, where 80 or so dollars equals one Euro.

It won't go that low. That's impossible.

Here is what I don't get. Our currency is falling fast.
The fed thinks that the dollar will probably devalue another 20 percent or so against the Euro, if there is a panic perhaps as much as 40 percent. Why doesn't everyone in America simply convert all their savings into Euros? I would but I am $80,000 in debt (student loans). You would pretty much be guranteed to become 20 percent richer, or 20 percent less poor depending on how you look at it.


Or invest in bonds...the interest rate in the US is much higher; it evens things out.

It won't go that low. That's impossible.

Famous last words? :p

I know the dollar is down against the pound and the Euro, its also down (overall) against the peso. I'm just wondering what will happen to the U.S. economic system when the dollar finally crashes to the level of the yen, where 80 or so dollars equals one Euro.

That's ridiculous...money is relative. It doesn't have to be a 1 to 1 basis.

Famous last words? :p

Long before it ever got near that level, there would be such an influx of money to the US because investments were so attractive at that price, the slide would stop. Not to mention we would become an exporting powerhouse.

I know the dollar is down against the pound and the Euro, its also down (overall) against the peso. I'm just wondering what will happen to the U.S. economic system when the dollar finally crashes to the level of the yen, where 80 or so dollars equals one Euro.



It's hard to imagine that happening without hyperinflation (caused by budget deficits).


In any case though, the yen is a very strong currency. Consider one yen to be one cent US and you get the picture.

You have to remember purchasing power parity.

The dollar slide is due to Americas actions on terroism in the Middle east and, to a lesser extent, around the world.

The reason that the Euro is up is because the majority of countries in the EU are taking a backseat, hoping to stay out of the fray. Stability gains the investors blessing, so they invest where things are more predictable. Which is why they are up in value, comparitively, to other countries. Their increase is not due to added efficiency, or greater GDP compaired to the rest of the world. It's just that their economies are viewed as more stabile as long as the terrorism factor is around.

The dollar is traded like a commodity. The slide is due to idea the the US is assuming risk in the wars it has undertaken. When the wars were to end, the US dollar will climb back up again to where it was or posibly higher.

The monetary speculators are currently taking their money out of the US dollar and placing it in the next largest valued currency, the Euro (Or shorting the US dollar to buy it back once it is asssumed to have reached the bottom.) . Once the world settles back to where things used to be, the dollar will once again gain in value back to where it was, while the Euro drops.

One thing to remember is that the US dollar is accepted in every country at face value. There is no other currency that holds that distinction. The US has the lowest unemployment figure in the world, there is no other economy as stabile, or as efficient.

To make a remark that you would be better off spending Euors then US dollars is short sighted. You will still earn the same amount of money, you will neither have greater return on your assests, nor earn income off switching to another dollar. You will owe 10-20% more in the conversion (plus an additional 5%-10% broker commision), and only see a benifit if the dollar raises in value 20-30% from the point that you made the transfer. Though considering that the Dollar is very low right now, you would probably make a killing doing this. Though I dout you would get the 1-4% intrest rate you are paying now in some foreign.

Many investment companies make millions off speculation on the value of currency. This is just a cycle, don't think that the world is going to end because the value is decreasing, it just means that we will have more jobs that pay better and our trade balance is that much more in US favor. I.E. US product are cheaper, so other countries buy more of our goods. Might even be able to afford American made industrial products like cloths, cars, and such more easily.

There's ample evidence that the dollar slide is designed with the sole intent of making it more attractive to export from the US. It is a somewhat risky scheme to bring manufacturing jobs back into the US. There is evidence that this scheme might be working.

product are cheaper, so other countries buy more of our goods. .
America produces goods !? :)

There's ample evidence that the dollar slide is designed with the sole intent of making it more attractive to export from the US. It is a somewhat risky scheme to bring manufacturing jobs back into the US. There is evidence that this scheme might be working.


The dollar slide may well also to be due to the inflation that accompanies massive government deficit.

The dollar slide may well also to be due to the inflation that accompanies massive government deficit.

Inflation has been quite low for many years. Government spending does not create inflation unless it does not contribute to economic expansion.

If the US dollar were to crash like the Yen in the mid-late 80's what would happen is that the rest of the world would come to a stop.

Any nation that could produce anything would find themselves being outbid and out produced by the US.

Think of it like China in reverse, then tack every posible technology advance in the world. Basically the rest of the world would become a 3rd world country, because no one could afford anything but US products.

This will never happen unless the US either turns into a comunist state, or is nuked to ashes.

The reason I say this?

Most all new technology and advances in all fields are made in the US. And it won't be till Russia (est. 10-15 years) gets up and running that there will be any competition. China has it's hands full maintaining their multi-billion population with food and basic necessities, add to that that China is comunists and do not have any value to their currency, and you will see that there is no way for the US to implode...

...for now.

To make a remark that you would be better off spending Euors then US dollars is short sighted. You will still earn the same amount of money, you will neither have greater return on your assests, nor earn income off switching to another dollar. You will owe 10-20% more in the conversion (plus an additional 5%-10% broker commision), and only see a benifit if the dollar raises in value 20-30% from the point that you made the transfer. Though considering that the Dollar is very low right now, you would probably make a killing doing this. Though I dout you would get the 1-4% intrest rate you are paying now in some foreign.



That's not really an issue. You can buy a mutual fund that specializes in Euro zone bonds &ct, and get exactly the same benefit.

Inflation has been quite low for many years. Government spending does not create inflation unless it does not contribute to economic expansion.


We havent run massive (and for the record non-contributional to economic expansion) gov't deficits for 'many years.'

In fact, we've just begun to, and we may well be beginning to see some of the results.

If the US dollar were to crash like the Yen in the mid-late 80's what would happen is that the rest of the world would come to a stop.

Any nation that could produce anything would find themselves being outbid and out produced by the US.

Think of it like China in reverse, then tack every posible technology advance in the world. Basically the rest of the world would become a 3rd world country, because no one could afford anything but US products.

This will never happen unless the US either turns into a comunist state, or is nuked to ashes.

The reason I say this?

Most all new technology and advances in all fields are made in the US. And it won't be till Russia (est. 10-15 years) gets up and running that there will be any competition. China has it's hands full maintaining their multi-billion population with food and basic necessities, add to that that China is comunists and do not have any value to their currency, and you will see that there is no way for the US to implode...

...for now.



The problem with your scenario is the fact that as cheaply as the US could produce something, china could do it *more cheaply* because they have a humongously larger capacity to produce things.

We havent run massive (and for the record non-contributional to economic expansion) gov't deficits for 'many years.'

In fact, we've just begun to, and we may well be beginning to see some of the results.
http://research.stlouisfed.org/fred2/data/CPIAUCNS_Max.png

The only period with rampant inflation was before the massive deficit spending of the 80's. It picked up a little at the very end of the 80's but remained the same throughout most of the nineties as it did in the eighties - deficit spending or not.

Actually, what I said was wrong. The inflation rate was higher in the eighties, most of the time, then the nineties. It is either lower or on par with the nineties numbers now, however. The biggest increase in inflation came before the massive deficits of the Reagan administration.

Actually, what I said was wrong. The inflation rate was higher in the eighties, most of the time, then the nineties. It is either lower or on par with the nineties numbers now, however. The biggest increase in inflation came before the massive deficits of the Reagan administration.


thanks kwang, always glad to have you on board

The United States operates under a 'trust us and our money has value' system. Without the global trust in the U.S. economy, the dollar would collapse. I always found it interesting that there is nothing backing up the dollar except the trust in the government. It used to be gold, but now its nothing. I'm also suprsied the world still trusts us financially, what with our debt at 7.3 trillion and the annual deficit past 500 bn.

If no government (not just the US) has nothing backing up its money, what happens when trust collapses or trade drops? What happens when electronic money no longer means anything? Where will our economic system be when the current method fails?
The Dollar is no more or less secure than it was under the gold standard. Gold was just as easily open to the effects of supply and demand as the dollar is (look at how the price of gold has fluctuated over the past few years).

The supply of the dollar today is backed up by the ability of the fed to issue government securities. Which is a far more useful system than a gold standard.

In either case, people are putting their trust in something that doesn't really have any intrinsic value. Why people love gold is beyond me. They act like the valuation of gold is somehow more 'real' than the valuation of a currency, but in either case it's just some people's subjective judgements all coming together.

One economist did observe that it's ironic that government securities are seen as good investments because of the ability of the government to legislate its own income to repay it, but that same legislative powers allows the government to legislate away their debt (as many investors in undeveloped countries have found out in the past). But that was always the case with our without a gold standard.

As for the inflation issue. What really pulled down the inflation rate was the massive hike in interest rates in the early eighties of the federal reserve.

If the US dollar were to crash like the Yen in the mid-late 80's what would happen is that the rest of the world would come to a stop.


Umm...when did the yen crash? Are you referring to the government re-evaluating the value of the yen?

In either case, people are putting their trust in something that doesn't really have any intrinsic value. Why people love gold is beyond me.


Same here. Gold is worthless, unless you are using it to conduct electricity.


As for the inflation issue. What really pulled down the inflation rate was the massive hike in interest rates in the early eighties of the federal reserve.

Ah, but interest rates will rise naturally with increased inflation. How much impact do you think the FED had?

I want to say that the decline of the dollar began in the 1970's when Nixon pulled out of something (Breton Woods pledge?) because of the phony free trade thing.

I want to say that the decline of the dollar began in the 1970's when Nixon pulled out of something (Breton Woods pledge?) because of the phony free trade thing.


No, it did not...the dollar was very strong in the 80s. The phony free trade thing? What is that?

The only reason the dollar has been able to retain any value at all over the last 3 years is that Asian (Chinese) banks are buying US government bonds. Their support of the dollar is based on the fact that if the dollar slides too far, their competitive advantage in manufacturing will dissappear, quickly followed by foreign investment. The flipside of this is that Asian central banks are in a position whereby they can crash the Dollar simply by selling off those bonds at below face value. This will be a major problem for the US if China gets upset about missile sales to Taiwan etc.

The flipside of this is that Asian central banks are in a position whereby they can crash the Dollar simply by selling off those bonds at below face value. This will be a major problem for the US if China gets upset about missile sales to Taiwan etc.

Bonds never sell (on the secondary market) at face value. They change depending on the current economic climate and interest rates. However, the amount the US must pay is fixed. They can "sell" them off all they want.

Bonds never sell (on the secondary market) at face value. They change depending on the current economic climate and interest rates. However, the amount the US must pay is fixed. They can "sell" them off all they want.

Ah, but if they sell all their bond holdings the price of the dollar will fall a lot.

(Of course that is bad for them, and good for us).

Umm...when did the yen crash? Are you referring to the government re-evaluating the value of the yen?

Heh, yeah that and the depression that the Japanese market has been in for a long time. They are now starting to show signs of getting out of that. Forgive the lack of description. I was rushing, and I shouldn't, thanks for correcting me.

The US is a huge buyer of China's products. Without the infusion of real capital the Chinese economy, which is growing so fast that they are purposely restricting the internal values, would enter a very difficult time. No one wants a few billion people to have no jobs and no food.

That and buying US bonds is a pretty safe investment. I am pretty sure that the US will be here for a long time. I can't say the same for a couple places in Africa...

The severe decrease in interest rates from somewhere around 9% to now 5% was to soften the blow of the tech crash, and the subsequent WTC attack. In the late 70's though 82ish (If I remember correctly) it was around 13-15%. The 01'-02' interest rate drops were orchistrated to afford people and companies the chance to refinance, lower overhead, expand, and to create jobs for the millions who lost their jobs in that year.

Anyone that wasn't paying attention in 99' and 00' should realize that the US market was insanely-inflated. And Greenspan was bringing up the interest rates to deflate these numbers to correct the market before it crashed and burned. I know of a few people that wished he broadcast this a little louder instead of stating "irrational exuberance."

PS: Thank you all for having this discussion. It's a pleasure reading this thread without moronic montra. :D

That's not really an issue. You can buy a mutual fund that specializes in Euro zone bonds &ct, and get exactly the same benefit.

I agree with you on your point, but he was talking about saving money by transfering his debt, not making money by buying bonds.

Right now, If I had any money laying around I would be buying US dollars and shorting the Euro. Currently it is invested in the walls that I surrounded by right now.

I agree with you on your point, but he was talking about saving money by transfering his debt, not making money by buying bonds.

Right now, If I had any money laying around I would be buying US dollars and shorting the Euro. Currently it is invested in the walls that I surrounded by right now.

I d/k, I think the dollar may fall a little way yet against the euro. There has been no definite signal that the Eurozone is going to take positive action yet.

What do you think about buying Yuan ?

I think the chinese are going to have to unpeg soon.

Well considering the Yuan hasn't budged in the last 5 years (according to the commodity site I listed below), I would go for the India Rupee. They have the knowledge, education, and freedom to build the buisnesses of the next generation. (Edited)

A fun site that I took a look at is: www.oanda.com

I like the Big Mac chart. Makes this a lot more interesting.

Well considering the Yuan hasn't budged in the last 5 years (according to the commodity site I listed below), I would go for the India Rupee. They have the knowledge, education, and freedom to build the buisnesses of the next generation. (Edited)

A fun site that I took a look at is: www.oanda.com

I like the Big Mac chart. Makes this a lot more interesting.

Yeah the Yuan is pegged to the dollar artificially. My point is I can't see that going on much longer, and it is never going to be as cheap as it is now.

I liked the look of India, until they voted the congress party back in. I am waiting to see if they return to their usual tricks or they keep on the modernisation track.

I don't expect that till the next leader takes over.

I wouldnt consider it unless North Korea gets a good smacking by China. If they let Il get out of hand, it's not going to happen till Jiang leaves. If they put him back in his place? I would expect it right after a full season with the 3 gorge dam in place and running smothly.

But this is severe guessing. I have no real idea. You think it will happen anytime soon?

I don't expect that till the next leader takes over.

I wouldnt consider it unless North Korea gets a good smacking by China. If they let Il get out of hand, it's not going to happen till Jiang leaves. If they put him back in his place? I would expect it right after a full season with the 3 gorge dam in place and running smothly.

But this is severe guessing. I have no real idea. You think it will happen anytime soon?

Yeah, within the next twelve months. The import/export imbalance is getting out of hand. I think washington is going to put pressure on them to do that - or make it's own move.

But like you said, who knows.

Here is what I don't get. Our currency is falling fast.
The fed thinks that the dollar will probably devalue another 20 percent or so against the Euro, if there is a panic perhaps as much as 40 percent. Why doesn't everyone in America simply convert all their savings into Euros? I would but I am $80,000 in debt (student loans). You would pretty much be guranteed to become 20 percent richer, or 20 percent less poor depending on how you look at it.

Prospecting with currency in such a way is one of the leading factors of currency devaluation. People will millions of dollars can shift it from currency to currency, drastically affecting countries. Say a business man with $500,000,000 converts it all into Euros. You've suddenly got $500,000,000 dollars flooding the US market, and €700,000,000 less Euros. Supply and demand, the dollar falls against the Euro.
When the dollar slides down, more people convert their savings into another form to prevent their savings from becoming worthless, pretty soon you have a massive devaluation which eventually leads to rampant inflation. The only way the government can deal with this is to buy up lots of dollars to prop it up. It does this by selling masses of its gold reserves.
Britain did this in 2001 to help keep the Euro afloat. We sold a vast quantity of our gold reserves to buy Euros, increasing the value of it.

Bring back the Spanish dollar (8 reales) ! It was once the trading currency of the world.

OOC

I've got one, nice big silver coin. The way coins should be ie worth something in metal not just face value.

Bring back the Spanish dollar (8 reales) ! It was once the trading currency of the world.

OOC

I've got one, nice big silver coin. The way coins should be ie worth something in metal not just face value.
Oh, yeah. I still got a couple of those nice Mexican Pesos made of silver from 60, 70 years ago. Very nice ring.

Prospecting with currency in such a way is one of the leading factors of currency devaluation. People will millions of dollars can shift it from currency to currency, drastically affecting countries. Say a business man with $500,000,000 converts it all into Euros. You've suddenly got $500,000,000 dollars flooding the US market, and €700,000,000 less Euros. Supply and demand, the dollar falls against the Euro.
When the dollar slides down, more people convert their savings into another form to prevent their savings from becoming worthless, pretty soon you have a massive devaluation which eventually leads to rampant inflation. The only way the government can deal with this is to buy up lots of dollars to prop it up. It does this by selling masses of its gold reserves.
Britain did this in 2001 to help keep the Euro afloat. We sold a vast quantity of our gold reserves to buy Euros, increasing the value of it.

In a free-float system, there is a private buyer for every seller. Money is not created, just exchanged. People invest in a variety of things that are insulated from inflation risk, such as metals and even stocks.

Devaluation does not lead to inflation unless it is coupled with an increase in the money supply.

Prospecting with currency in such a way is one of the leading factors of currency devaluation. People will millions of dollars can shift it from currency to currency, drastically affecting countries. Say a business man with $500,000,000 converts it all into Euros. You've suddenly got $500,000,000 dollars flooding the US market, and €700,000,000 less Euros. Supply and demand, the dollar falls against the Euro.



George Soros is a great man.

We need to return to the Gold Standard, there's no question about it. The IRS, the Fed, and the income tax should also go. Government spending should be drastically reduced. Etc.

George Soros is a great man.

He exploited fixed-exchange rates, probably with insider information.

He was convicted in France of insider trading.

He's scum.

Of course a dollar itself is useless. This is old news. All a dollar is now is a promise. Nothing more nothing less. Why people trust us? i don't know.

Of course a dollar itself is useless. This is old news. All a dollar is now is a promise. Nothing more nothing less. Why people trust us? i don't know.

If You have a debt of 1000 dollars, that is your problem.
If you have a debt of 100000000 dollars, that is the bank's problem.

The US is consuming ahead of its possibilities. Basically, you are only wealthy because the world lended you too much money.

The thing is, the US as such a huge debt, that if it falls, the entire world falls with it. So no one really trusts you. But no one as much choice.

If You have a debt of 1000 dollars, that is your problem.
If you have a debt of 100000000 dollars, that is the bank's problem.

The US is consuming ahead of its possibilities. Basically, you are only wealthy because the world lended you too much money.


Yes, it was all the money we borrowed :rolleyes:

Which is why the EuroZone with its much larger debt per capita is so much wealthier.

The thing is, the US as such a huge debt, that if it falls, the entire world falls with it. So no one really trusts you. But no one as much choice.

This doesn't really make sense. No one trusts the US? We have the highest credit rating possible. No one has much choice? How is that? What do you mean?

He's scum.


Prescott Bush had companies seized by the government for trading with the enemy during WW2.

Nazi money paid for george jr to go to yale, he's scum.

We need to return to the Gold Standard, there's no question about it. The IRS, the Fed, and the income tax should also go. Government spending should be drastically reduced. Etc.



Dont want to pay taxes?
There are lots of countries you can go to and not pay any taxes!
Haiti
Somalia
Ethiopia
DR Congo
Dominican Republic
Ecuador
Timor


When will you people begin to realize the direct relationship between taxes and standard of living and development?

Prescott Bush had companies seized by the government for trading with the enemy during WW2.

Nazi money paid for george jr to go to yale, he's scum.

Hey, I'm no Bush fan, but that's not QUITE true.

http://www.straightdope.com/columns/030214.html

Prescott Bush had companies seized by the government for trading with the enemy during WW2.

Nazi money paid for george jr to go to yale, he's scum.


Well, true or not, what does that have to do with my statement?

Dont want to pay taxes?
There are lots of countries you can go to and not pay any taxes!
Haiti
Somalia
Ethiopia
DR Congo
Dominican Republic
Ecuador
Timor


When will you people begin to realize the direct relationship between taxes and standard of living and development?

what's your source? I just did a quick search on Haiti and they pay taxes all right.

Ah, but interest rates will rise naturally with increased inflation. How much impact do you think the FED had?
Quite a lot. The economics is sound, and the historical record backs it up. The effect is caused by the real interest rate rising, not the nominal rate. The real rate doesn't rise with (moderate) inflation, but the nominal rate does. However, jacking up the rate as the Fed did definitely raised the real rate.