U.S. dollar --What happens if Dollar is Replaced as world's currency ?

[island1fox]

I have already posted some of my thoughts on this on the "who is following Wisconsin" in the Union forum.
I would be very interested in hearing everyone who frequents current events. Many of you are very up to speed on historical events and well as what is happening in the world today.
I cannot wait for --and I hope you post --will be wkmac's take on the subject .
I also hope many of -with all respect -the right wingers and the left wingers do a little research and share their thoughts.
I thank you in advance for what I believe to be a very lively discussion

 

[curiousbrain]

I'll throw out some initial thoughts, but these are by no means recently researched concepts; instead, they are aggregations of things I seem to recall having read at some previous point - otherwise known as memory. Considering that my memory has been known to be faulty and/or inaccurate, my initial thoughts may be poisoned by that fact.

Also, I have purposefully avoided the `Who is following Wisconsin` thread (I've occasionally peaked, but never read through it) for various reasons; as such, I cannot be held responsible for recapitulating previous ideas/thoughts/posts.

Considering that it is helpful to know what words mean, I think I would first define what it is that I, personally, mean when I refer to a reserve currency (relative to what others may mean - others may have a more involved and expansive definition, or a more narrow and restricted one): the currency that the majority of the central banks around the world prefer (or are compelled, as the case may be) to purchase in order to form the bulk of their foreign exchange reserves.

Given that such a definition is fairly unitary (i.e. it implies that there is a single currency that is better than all other possibilities), it occurs to me that there will come a day where the U.S. dollar is no longer the preferred option (whether that is approaching now or not is debatable and outside the scope of the OP's inquiry). As such, to me, when that day arrives is not so much as a "what if" as a "when"; to the meat and potatoes of the question.

Given the state of international finance, (as I see it from my largely irrelevant perspective), I think that all wealthy institutions (which, for brevity in future paragraphs, I consider to include individuals) have an interest in finding the best opportunity for their money, regardless of the suffering, panic, or fiscal devastation it causes. If the dollar were to fall far enough out of favor with the powers that be (read: wealthy institutions), is there some patriotic reason they would try and artificially support the dollar? I would argue "no", and would advocate the position that they would move their money as discretely as possible before the reality became unavoidable.

Once reality set in (i.e. the public and the masses realized that the dollar no longer represented what it once did - guaranteed ROI, stability, etc), I think the middle class would probably evaporate into a higher and lower strata, and whether the majority landed in the higher or lower section would determine whether a violent revolution or a loud groan would occur - a brief description of what I think I mean can be found in a previous post I made here -

[...]

Outside the realm of what the masses would do (revolution vs non-revolution), I don't think the world at large would skip more than several beats. Central banks around the world would establish equilibrium elsewhere (presumably, at this point, the Euro or some other quasi-stable, plentiful, and manipulable currency), and would let the masses do what they may. From their point of view, what do they care what others do - as long as my wealth is worth what it was previously (or thereabouts, within reason), there is no difference; in my opinion, that is the beauty of currency baskets and exchange rates.

A particular example of the world not skipping but several beats can be found in the dissolution of the Soviet Union; yes, people were in awe and could barely believe it at first - then, after a month or so, people adjusted to the new power structure (i.e. a U.S.-centric model of the globe) and began to find new ways to exploit it for their own personal or organizational gain. Why would the collapse of the dollar be any different?

In conclusion, I would put forth yet another of my opinions, which is that the dollar is not inherently sacred or valuable, it is only a storage unit of perceived value; any other currency (be it cat poop, dog hair, or the euro) is equally capable of having value - which is the elegance (or danger, depending on your perspective) of a fiat currency.

The people who control/are employed in international finance get this, in my opinion. It's why they don't care whether the U.S. dollar is replaced or not; it's entirely irrelevant to them - they will simply bolster a new unit of value.

edit: I would clarify that the perceived unit of value of the dollar is global; that is to say, there is a single currency that is above all others at one point in time, and that there is no room for any others. An alternative would, by definition, not facilitate a global reserve currency of any kind. This is a preemptive response to the thought that local or regional bargaining units (i.e. currencies, bartering units, etc) are an effective alternative to global commerce via national and international currencies - in my humble and possibly worthless opinion, they are not.

 

[island1fox]

brownbaggin,
Some interesting comments but I must confess I have been doing some research on this topic.
A good place to start was the British Sterling that was replaced by the dollar after WW2.
The ramifications to England were devastating with the period referred to as the "lost decade"
England would not have made it without much help with the U.S. as Europe was rebuilt after the war.
The U.S. press has not been up front in reporting that the "world community" has been very recently looking at real alternatives to the dollar.
China, Russia, Japan and the opec countries had a meeting with the U.S. not invited.
I wonder --if the dollar was replaced and because of our printing of money -we would be subject to a tidal wave of inflation--would we be helped ??
I doubt it--people do not realize how close to the edge we are.

 

[curiousbrain]

brownbaggin,
Some interesting comments but I must confess I have been doing some research on this topic.
A good place to start was the British Sterling that was replaced by the dollar after WW2.
The ramifications to England were devastating with the period referred to as the "lost decade"
England would not have made it without much help with the U.S. as Europe was rebuilt after the war.

I tentatively covered this in my first response; the world goes on - and what I meant was exactly what you highlighted; more specifically, England held a commanding height of the global economy, then was vanquished by the culmination of various forces. The U.S. is no different, and the world response will be no different now then it was then - find a new commanding height, and move on.

The U.S. press has not been up front in reporting that the "world community" has been very recently looking at real alternatives to the dollar.
China, Russia, Japan and the opec countries had a meeting with the U.S. not invited.

I wouldn't disagree with any of that, but I would, however, make the case that the wealthy institutions (see previous post) that matter were invited or, at the very least, tacitly represented. To think otherwise would be, in my humble opinion, to misunderstand the nature of the global economy.

I wonder --if the dollar was replaced and because of our printing of money -we would be subject to a tidal wave of inflation--would we be helped ??

There is no such thing as printing money anymore; this is one fundamental misunderstanding of how a modern economy works. Modern western nations do not print money; they change numbers in an account that only mean something when compared relative to other economies on the planet. That is to say, if the U.S. economy "injects" a billion dollars into its economy, it does not print anything; instead, it changes numbers in an accounting spreadsheet and informs the IMF and other international actors. IMHO, this is why our federal government functions on an operational accounting basis.

I doubt it--people do not realize how close to the edge we are.

That's subjective; your opinion of how close to the edge we are is no more or less valid than how close to the edge we are or are not as given by me.

edit: As usual, this is just my opinion; I readily confess I don't know anything.

 

[wkmac]

In conclusion, I would put forth yet another of my opinions, which is that the dollar is not inherently sacred or valuable, it is only a storage unit of perceived value; any other currency (be it cat poop, dog hair, or the euro) is equally capable of having value - which is the elegance (or danger, depending on your perspective) of a fiat currency.

Good point. Now I'm not a fan of fiat currency not because fiat currency can't work but when one grants a monopoly to any fiat or for that matter any form of currency, even gold and silver, the fact that any one entity holds that monopoly presents a danger for possible exploitation. And no, I'm not a bullionist either but in a monopolized currency system, a gold and/or silver backing does work best. Currency as a means of exchange unit is something 2 parties to a market contract should decide for themselves. If Joe's rocks are of value as an exchange unit, then use Joe's rocks but let the parties of the contract decide. Like all other things, I also believe in a true free market with currency as well. Let open competition between currencies in the market determine what works best. BTW: A number of States have introduced legislation to allow gold and silver to be used as currency so we'll have to see how that goes going forward.

There is no such thing as printing money anymore; this is one fundamental misunderstanding of how a modern economy works. Modern western nations do not print money; they change numbers in an account that only mean something when compared relative to other economies on the planet. That is to say, if the U.S. economy "injects" a billion dollars into its economy, it does not print anything; instead, it changes numbers in an accounting spreadsheet and informs the IMF and other international actors. IMHO, this is why our federal government functions on an operational accounting basis.

Excellent analysis. In the 1980's I became aware of a Federal Reserve Bank of Chicago publication entitled, Modern Money Mechanics and it details just how money is created. It's dry, boring reading and most just want to ignore it for that fact and one might argue that's why it's dry and boring. A couple of years ago after mentioning Modern Money Mechanics, someone told me to lookup a documentary called Zeitgiest Addendum and watch the first 30 minutes and I did. Their coverage of Modern Money Mechanics was excellent and thus the first 30 minutes of this video (available for free on google video) is worth the view. After the 30 minutes however, depends on the person as to where they want to go with the rest. The first hour or so is very good in a number of areas but in the 2nd half as to solutions, the idea of a society run by technocrats just reminded me to much of the scientific social theories advocated by Friedrich Engles not that the econocrats and bureaucrats have done any better.

Now that said, I've seen the "Wisconsin thread" and commented a couple of times but felt the whole thing was more politically driven than the forum it was in dictated so I stayed out for respect of how BC has tried to segregate it's topic forums. Something I did want to post and it does kinda fall into what Island was speaking of is an article from Global Research entitled: "How Wisconsin Can Turn Austerity into Prosperity-Own A Bank". Now if I were god for a day other than my first duty being to declare there is no god so I'm powerless to do anything in the first place, I'd go another route but in the context of state systems, this idea does offer some merit to consider, especially if one wanted to try and maintain the current system as it is while removing the burden of the taxpayer directly. Then again, could the taxpayer be a 2nd partner to the state employee pension fund with the bank and thus profits from the bank offset taxbills for state services? From a "statist" POV, it does offer some interesting options to consider.

As to the collaspe of the currency, I say watch the Middle East oil producers first and foremost. When Nixon closed the gold window for all time and Bretton Woods faded into the night, OPEC, Big Oil, Federal Reserve and Uncle Sam cut a deal to make the US dollar the lone currency that all global oil transactions would take place in. If you wanted oil, you had to buy it in dollars and nothing else. Thus goods and services are sold in dollars by foreign countries and entities and between them so they can buy the oil they need to keep going. Our money isn't backed by gold or silver but it is backed by a barrel of oil as as long as that transaction monopoly stays in play, the dollar will remain. This is also another reason any push to move beyond oil for an energy commodity is blocked and also the reason true energy conservation never goes anywhere. If all cars and oil consuming instruments could overnight get twice as far on the same oil consumed, this would cut the exchange of currency being traded in half and if the global market only needed half the currency to operate, what becomes of the other half? Overnight a lot of rich people might not be as rich as they were the day before.

So many have said the dollar is history as reserve currency and on a technical level I'd agree but the powers that be are able to play beyond technical boundaries so trying to call the dollar collaspe may indeed be a fools errand. I think it is although I'm not blindly naive to be unconcerned either. In fact, all bad things considered, I'll openly admit I want it to collaspe and I've got no magic carpet out of here either. I'll be riding the same wave as everyone else so to speak.

What would the collaspe of the dollar do? Without knowing what or who would take it's place, one of the first things to happen is that foreign made goods and services would go up in America. Walmart wouldn't be the cheap discount store it is now although of late someone else has been taping their lunch money! Prices would go up so that the nice comfortable seat that American companies have enjoyed pumping out jobs to far lands and pumping in goods from afar would end because the economic advantage would then shift to making it at home and moreso making it very close to home. Transport costs are already eroding into the advantage and then add in exchange rates and the gig is up! Why pay for the goods and then the exchange rate on top of that to get the same thing you could make cheaper here at home? If the currency has collasped, seems logical another would emerge not burdened with debt and inflation so labor rates and all other values would have collasped to reset making the homefires very warm and inviting.

Before you jump up and down thinking this is good and in some respects I'd agree, the downside is that a lessened global trade would likely harm UPS for obvious reasons if it wasn't already obvious anyway. Some if not a lot of us might not enjoy the life we've been living so fair warning here. This beast has many faces and many fangs dug in deep so pulling out one could lead to lots of blood loss so this is not painfree at all. I have my other reasons, mostly philsophical, as to why I want the US Dollar to collapse but I'm not naive to the toll it's gonna take or could take. As I said, I'm not convinced yet that this is going to happen anyway as long as oil remains king and the dollar continues it's primacy as the only buyer of oil. This is another reason behind the spinface of Washington DC as they in reality are scared schittless of the threats to the US puppet govt's that control the Middle East Oil Countries. Those 2 change, oil and dollar and all bets are off.

That's my take for now!

BTW Island: You brought up the meeting that many of the OPEC nations had with Russia, China, Japan but the US wasn't invited? Watch the whole first hour of Zeitgiest Addendum and then look again at the recent turmoil across the Middle East. Does make one wonder.

 

[curiousbrain]

I require at least a day or two to formulate a cogent (read: reasonable and persuasive) response. For the time being: touche, sir, it seems there is a lot there to consider.

 

[wkmac]

I require at least a day or two to formulate a cogent (read: reasonable and persuasive) response. For the time being: touche, sir, it seems there is a lot there to consider.

That's cool, no sweat. I think we both want to get to a similar kind of location at the end of the day, we just may go different routes in getting there!

I appreciated a lot of what you said as well. Your understanding of money creation made my day. Love to see when more and more people grasp that no matter what kinda car they drive for the trip!

 

[Babagounj]

I would have to find another hobby.
Where's George? (www.wheresgeorge.com) is an interesting web site that tracks the travels of dollar bills through circulation. Its users, most of whom mark their bills with the web site address, follow the adventures of their money after it leaves their hands. (Reasonably marking bills with www.wheresgeorge.com is legal.) There is also much more on the site to check out, like forums, user profiles, and the George Store. Some users of Where's George, called Georgers, have created cool Where's George related pages for all Georgers to enjoy.

 

[island1fox]

Wkmac,
Thank you. Always a very thorough presentation of your thoughts.
I do not want to post "hearsay or rumers" but I have read an article that I must research further. It dealt with the subject you spoke about oil. The article stated that Russia and China have already replaced the dollar on the oil transactions between those two countries.
From this the additional meeting was held with the OPEC countries and Japan.
I have always looked at things in the "worst light" I obviously have more research work to do --but at this point I believe the collapse of the dollar will have long lasting ramifications on ALL American's.
I know we have "privacy laws in the U.S. but one has to wonder how much Gold,Silver,Copper, other precious metals the politicians have acquired.
I do not believe Harry Reid is a stupid person. When he was speaking on the Senate floor concerning Federal funding for the Nevada Cowboy Festival --of course all the right wing pundits made a joke out of it.
What was Harry really doing ?? Telling the American people that there really is no debt crisis --Like Michael Moore stated "There is plenty of money to go around" The question is whose ??
What is behind the Huge purchase of Gold ?--that has doubled in value oover the past few years.
Are the rich ,powerful and politicians dumping their dollars ??? Someone besides Beck has been buying loads of it.
Also need to research how "short term" is the debt that China holds ??

 

[bbsam]

With the vast amount of wealth held by so relatively few, will it even matter what any of us think? Seems like to the real "money people" the "playground status" of the dollar would be insignifican to their wealth regardless the standard.

 

[island1fox]

bbsam,
If I understood you correctly -their wealth , the uber rich certainly would not be impacted if their wealth was diversified among many monetary standards.
Also people like Gates and Buffet if their wealth was cut in half -so what !!
This yankee star Derek Jeter was "REDUCED" in salary to 15 million per year.
If the dollar crashed and Derek's buying power was now 7.5 million -so what.
The people that concern me -the average joe -like a retired UPS driver on a set pension--when his 3500 or so only has the buying power of 1750 --real problems.
When Gas is eight dollars a gallon and a loaf of bread could well be over ten ----all hell breaks loose.
I cannot see the point of any American hoping the dollar is replaced as the "worlds currency" The housing bubble burst would only look like a hiccup in comparison to the consequences, with the poor and middle class taking the brunt of it.

This dollar replacement and skyrocketing inflation is what we hear today in wispers same as people silently went along their merry ways until the housing bubble broke.
Our politicians are so concerned with their own power and position-they have no clue on how to get us out of this mess.

 

[packageguy]

I think our somewhat pull and power around the world would end. nothing but paper. For those who have millions they would have nothing anymore. Would it be china, they been buying our bonds and so on. Can you beleive we asked them for money.......

 

[UpstateNYUPSer(Ret)]

I think our somewhat pull and power around the world would end. nothing but paper. For those who have millions they would have nothing anymore. Would it be china, they been buying our bonds and so on. Can you beleive we asked them for money.......

...did we have a choice?

 

[packageguy]

No not really, but who thought we would see that day.

 

[bbsam]

Let me try to make myself clear. If I have $4.8 billion dollars worth of wealth and two years from now it is worth $6.8 billion dollars but it is not traded in dollars but in euros, do I really care? That the dollar is the "world" currency seems more like bragging rights than anything. I'm more about buying power and if the world markets prefer euros, then euros it will be.

 

[bbsam]

As I understand economics in the US (and admittedly it is very little), we are a boom and bust society and until we reform our banking practices (didn't do it last year), we will continue to be a boom and bust society. Whether it's housing, dot.coms, or maybe health-care, it's what we do. Fill in the blank and ride the roller-coaster. That's the wind-fall of the deregulation of the banking industry.

 

[island1fox]

Let me try to make myself clear. If I have $4.8 billion dollars worth of wealth and two years from now it is worth $6.8 billion dollars but it is not traded in dollars but in euros, do I really care? That the dollar is the "world" currency seems more like bragging rights than anything. I'm more about buying power and if the world markets prefer euros, then euros it will be.

bbsam,
That is chystal clear if your checking account or your pay or pension is paid in Euros.

Buying power is exactly what I am talking about ---U.S. dollar buying power is in Clear and Present Danger !!!

I do not know why people keep referring to the super rich unless they are among us here in the cafe.

I am being very clear on saying if the dollar is replaced the middle class and poor will be devastated.
I could care less about who is counting billions --now or then !

 

[bbsam]

But the important part is that the middle class and the poor aren't the ones who get a say in monetary policy.

 

[wkmac]

Wkmac,
Thank you. Always a very thorough presentation of your thoughts.
I do not want to post "hearsay or rumers" but I have read an article that I must research further. It dealt with the subject you spoke about oil. The article stated that Russia and China have already replaced the dollar on the oil transactions between those two countries.
From this the additional meeting was held with the OPEC countries and Japan.
I have always looked at things in the "worst light" I obviously have more research work to do --but at this point I believe the collapse of the dollar will have long lasting ramifications on ALL American's.
I know we have "privacy laws in the U.S. but one has to wonder how much Gold,Silver,Copper, other precious metals the politicians have acquired.
I do not believe Harry Reid is a stupid person. When he was speaking on the Senate floor concerning Federal funding for the Nevada Cowboy Festival --of course all the right wing pundits made a joke out of it.
What was Harry really doing ?? Telling the American people that there really is no debt crisis --Like Michael Moore stated "There is plenty of money to go around" The question is whose ??
What is behind the Huge purchase of Gold ?--that has doubled in value oover the past few years.
Are the rich ,powerful and politicians dumping their dollars ??? Someone besides Beck has been buying loads of it.
Also need to research how "short term" is the debt that China holds ??

Late last year, Russia and China did announce an agreement to trade between each other with their own currencies valued at spot market. Some have alleged a currency war is taking place. I think there is and it's enough that the G20 recently came out calling for such to end but whether it will is another matter. We devalue our curency by flooding the market with more dollars but the problem here is that the American Taxpayer is on the hook for the monthly payments while the global corp. balance sheets profit and the corp. sock puppets in gov't we call "our elected leaders" who do their bidding gain more power and self importance not to mention a fatter bank account. Ever wonder why so much money is spent to achieve elective office and then once there how so many leave far richer than when they first arrived?


If the banks and international capitalist players want to play this type of gaming which in many a sense is nothing more than gambling or lottery ticket for the suppose sophisicated, I'm fine with that but do so like true free marketeers. Create your own private currencyand markets, play economic hardball all day long but leave the American taxpayer out of it. Don't play the game, reap the rewards and yet make the taxpayer the poor sucker on the hook if the bet doesn't work out. Same goes true of a foreign commodity or resource. You want that market as a big corp. player? Go for it but you also take on all the risk from top to bottom and if you need a policeman cause you got robbed, then go hire one with your own money and don't demand my son or daughter fill that role and then compell me through taxation to pay for it all. Same goes true for creating debt obligations so the big boys can sit around smoked filled rooms, thumping each other with their love commandos in a show of domination just so they can feel self important.

BTW Island, 2nd part was not directed at you or anyone, just a rant!

 

[wkmac]

With the vast amount of wealth held by so relatively few, will it even matter what any of us think? Seems like to the real "money people" the "playground status" of the dollar would be insignifican to their wealth regardless the standard.

Your comment made me think of G. William Domhoff's 1967' book "Who Rules America" that argues the existence of a heirarchial or power elite but they are not covert but very overt in their institutional power. No conspiracies, secret handshakes and other cloat and dagger nonsense. There are later updated editions. And Domhoff argues it's not individual, personal power like a David Rockerfeller runs it all but rather these people all belong to the same institutions (networking perfected if you will) and it's these institutions that live on throughout the years and individuals aspire to those institutional ranks and from there outwards they get to play big boy ball while we "little people" get to sit in the stands and cheer them on. I mean, no matter which party is in power, the head guy over Treasury seems more often than not to come from Goldman-Sachs. How is that?

We aren't important enough to attend a BuildABurger meeting. No sliced American cheese allowed. I am hoping this fall to attend the EatARib meeting up at Jack Daniels however!