Kuwait abandons US dollar currency peg

Discussion in 'Politics, Religion, Social Issues' started by miloblithe, May 20, 2007.

  1. miloblithe macrumors 68020

    miloblithe

    Joined:
    Nov 14, 2003
    Location:
    Washington, DC
    #1
    http://news.yahoo.com/s/ft/20070520/bs_ft/fto052020071356196889

    If the level to which the dollar is backed by oil decreases (and these states aren't probably dropping the dollar entirely, just reducing it from 100% peg to as much as 80%), it seems to me that would only continue to weaken the dollar.
     
  2. OldCorpse macrumors 65816

    OldCorpse

    Joined:
    Dec 7, 2005
    Location:
    compost heap
    #2
    I love this topic, something of a favorite of mine - currency :)

    The world has been watching the sinking dollar for years now, wondering why they should get paid in a constantly depreciating currency. They're slowly trying to get out. And while there will be fluctuations of value for the greenback, the unmistakable long term is downward. This is due to the catastrophic debt levels we've accumulated under GWB. The world is (rightly) losing confidence that we can actually ever get out from under this mountain. The most frightening thing about the U.S. debt is that we most likely have entered a death spiral, where the payments that go to the interest on the debt will at some point consume 100% of our yearly budget. It starts slowly and then accellerates. Nobody can say when the point of no return hits. We're pretty far along the road.

    The world is now in a trap, including our creditors (China and Japan are some of the biggest ones). They've given us a ton of dollar denominated credit (our bonds), and we're paying them back in dollars. If they just dump our dollars, the value will collapse, and they'll get wiped out (left holding onto worthless currency). So, they must unwind carefully. There won't be enough time, and not enough market absorbtion for everyone to get out - who would be buying? So far, there's the terror of the first big move - if that starts, you'll see everyone racing for the exit at the same time, and they'll get jammed in the doors. It's a nasty dilemma. Simply holding on, means holding less and less value.

    So what you are seeing is small moves here and there. Kuwait is an example. There'll be more to follow.

    The theoretical end scenario is there will be no buyers for our debt - we can't get credit. All our income is going to pay the interest on the debt - and you can't really do that since that means the government has zero money to pay for the military, social services or ANYTHING other than servicing the debt. Obviously things will get extremely painful long before this ultimate theoretical scenario - which is why before that happens, there will be some kind of collapse, like Argentina or some African countries. Regardless, our age of empire is over - that's how empires die, overstretched, unable to pay for their vast military, exhausted and economically bankrupted. Prepare for lower and lower standards of living in the good ole U.S. of A., insane divide between the very few extremely wealthy and the vast masses of the destitute - the Haiti syndrome. It'll take time - and nobody can say how long, but that's where we are going. Thanks, GWB, thanks "fiscal conservatives", thanks rightwing nutjobs!
     
  3. miloblithe thread starter macrumors 68020

    miloblithe

    Joined:
    Nov 14, 2003
    Location:
    Washington, DC
    #3
    I think you're exaggerating a whole lot of things. First of all, the debt as a percentage of GDP has risen from about 59% to about 67% under GWB. Not exactly a completely different ballgame. Of course, he's saddled us with long term problems that aren't going to help reverse the rising trend, but it's not like he invented the national debt. On the other hand, of course, he and Reagan did far more than their share to increase it.

    Also, 67%, while bad, doesn't spell certain doom. Most other wealthy countries have similarly large amounts of debt. We're in the same ballpark as France and Germany. The UK has lower, around 40%. Italy (102%) and Japan (175%) have much bigger problems.

    http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

    I don't think the US is headed for any sudden catastrophic economic collapse. I think it's going to be a long slow decline. We'll probably always be able to get credit, just on increasingly disadvantageous terms.
     
  4. OldCorpse macrumors 65816

    OldCorpse

    Joined:
    Dec 7, 2005
    Location:
    compost heap
    #4
    Aah, you're missing two key points about our debt: first it's not the current number that's important, it's projected debt - what GWB roped us into - you are looking to add $3 trillion as a result of GWOT, plus a whole bunch of other stuff all thanks to Bush. Second, you must look at the entire balance of debt to assets. For example Japan which has nominally a huge debt has extraordinary offsetting assets: the credit they've extended to the world (and a lot of it is U.S.), plus, crucially savings (famouse postal savings accounts held by all Japanese - absolutely staggering numbers). The U.S. is a massive net importer of capital (unlike Japan) and our savings are pitiful - in fact the private debt (including consumer debt) is also huge. Meanwhile for Italy, it's a very complicated situation, I'd rather not get into through the medium of posts, but the upshot is that a lot of Italian debt is internal (unlike ours), plus being in the EU with a common currency and a central bank, you are spreading out the pain over the entire EU (which is at this point economically larger than the U.S.), so really all European countries should be seen in that context rather than individual accounts. Interesting topic, and very complicated. This isn't played out by a long shot.
     

Share This Page