Dedollarization

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craig
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Dedollarization

Postby craig » Thu Jun 03, 2010 5:17 am

The dedollarization of the Peruvian economy continues

Private sector credit dolarization has decreased by 3% in the last year, from 48.5% to 45.5%.

Best,

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Re: Dedollarization

Postby Alan » Thu Jun 03, 2010 6:20 pm

The article points out that part of the responsibility is that mortgage loans are being increasingly given in Soles, which I suppose is a healthy development. It´s ironic though, since housing for sale above the $20,000 range is still priced in dollars.

On a side note, my employees who I had been paying for years with dollars all requested to have their salaries switched to Soles earlier this year. Change is upon us.
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Re: Dedollarization

Postby scott » Thu Jun 03, 2010 9:08 pm

This is in Spanish but has a bit more background. When I first came to Peru in the late 90's it was over 80%. Seems they learned a lesson from the collapse in 98-99.

http://gestion.pe/noticia/340589/desdolarizacion-economia-evito-perdida-patrimonial-sustantiva
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Re: Dedollarization

Postby euroman » Fri Jun 04, 2010 3:19 pm

And the dollar is dropping.
Cambistas in Tarapoto only give you 1.70 soles for a dollar.
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Re: Dedollarization

Postby Kelly » Fri Jun 04, 2010 3:44 pm

I hope you meant 2.70, or else they're seriously ripping you off up there in Tarapoto.
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Re: Dedollarization

Postby american_in_lima » Sat Jun 05, 2010 2:22 pm

euroman wrote:And the dollar is dropping.
Cambistas in Tarapoto only give you 1.70 soles for a dollar.


If they are giving you 2.70 or 1.70, you are still getting taken for.
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Re: Dedollarization

Postby scott » Sat Jun 05, 2010 3:09 pm

We are getting 2.80 to 2.83 in Pucallpa.
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Re: Dedollarization

Postby LauraMH » Mon Jun 07, 2010 11:18 am

craig wrote:The dedollarization of the Peruvian economy continues

Private sector credit dolarization has decreased by 3% in the last year, from 48.5% to 45.5%.

Best,

Craig


thanks for this. i've been wondering what they are thinking being so closely tied to the $. smart move peru. maybe they are awake!
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Re: Dedollarization

Postby craig » Mon Jun 07, 2010 4:35 pm

LauraMH wrote:i've been wondering what they are thinking being so closely tied to the $. smart move peru. maybe they are awake!

It is my impression that the people managing the BCR have a much better grasp on reality and a more sincere interest in the welfare of the people of the country than the cloud-cookoo land crackpots running the Federal Reserve. Of course, that is not really saying all that much in their favor.

The decreased use of the dollar is mostly due to private decisions by borrowers and banks. The best thing that the government has done is leave people alone to make these decisions for themselves.

Peruvians seem to be prudently moving away from dollar use. They are not dumb. [I appreciated the example Alan gave of his employees.] I'm just not sure that the movement is fast enough to keep many Peruvians from getting badly hurt in the near future. They are hampered because of the lack of a readily available safe and stable alternative (like gold or silver) with which to preserve their savings. And that is entirely the fault of the stupid tax policies of the Peruvian government.

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Re: Dedollarization

Postby Alan » Mon Jun 07, 2010 9:54 pm

craig wrote:
LauraMH wrote:i've been wondering what they are thinking being so closely tied to the $. smart move peru. maybe they are awake!

It is my impression that the people managing the BCR have a much better grasp on reality and a more sincere interest in the welfare of the people of the country than the cloud-cookoo land crackpots running the Federal Reserve. Of course, that is not really saying all that much in their favor.

Craig


I have some personal experience with the BCR here. From 1999 to 2004 I taught hundreds of hours of private English classes to many of the upper management, including the GM and President. it was a great experience, since all of them had a good conversational level of English, which made it possible to have in-depth conversations. I was impressed by the professionalism and downright intelligence shown by these folks. There were some really bright people there. I think that is because the BCRP runs an internship program that attracts the best and brightest from national and public universities, and they also have a scholarship program that helps people on a management path to take masters degrees abroad.

One of my favorite students had studied at the London School of Economics. He was head of the Economic Studies Department at the BCRP, which meant that he sat on top of a pyramid of information being generated about Peru from a staff of a few dozen bright young economists, and he had had that job for years.Imagine! He displayed an understanding of Peru and its economy, and its place in the world like nobody I had heard before or since. I mean, this guy knew everything about everything. I believe he is now General Manager.

The BCRP enjoys a high level of autonomy and most were career central bankers that had seen governments come and go. I remember that they generally had a high respect for the Ministry of Economy at the time, but sometimes felt frustrated by the low level of understanding of monetary policy shown by the average Congressman.

I hope I haven´t broken any client-secrecy privileges :D , but I did want to share my great experience with this institution, since so much of what we hear about the government is negative. My sense is that Peru has an excellent central bank that ought to serve as an example for other areas of the public service. Go BCRP. Unsung heroes of Peru´s economic recovery.
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Re: Dedollarization

Postby mahou123 » Tue Jun 08, 2010 8:26 am

I would point out that US dollar has been around for much longer than New Sol and any of its predecessors (sol de oro, inti, etc.), and any paperwork they had for money in Latin America in republican times. Just comparing names and exchange rates of currencies from back in 1960s (and those were the boom times too), with today´s ones, gives an interesting perspective. New Sol had a healthy upward trend against USD since about 2004, backed by optimism in Peruvian economy, growing exports and good market for precious and base metals. Such trends, however, never did and never will last forever. Increasing number of ´smart Peruvians´ only now noticing this after all these years and switching to soles, might be a sign of a turning tide.

As far as PEN/USD pair is concerned. If anybody noticed, Peruvian stockmarket is falling through the floor right now, there is a clear bubble in land values and general public understanding that APRA people are trying to strip off as much assets as they can before being kicked out of power next year. There is a massive problem with enforcing law and order in Peru, and it will surely deteriorate closer to election time. On the other hand, USA is usually ahead of all other countries in any development. There is a growing sentiment among all sorts of investors and commentators, that US is about to hit the bottom and go up from there, again before everybody else does. Valuations of US companies are very cheap right now, earnings outlook is strong, so the capital is going that way. Elsewhere, there are massive debt problems in EU and asset bubbles in China/India/Russia etc., not looking very nice. EUR is trading around 1.19 lately.

I´m sure BCR people are bright and well informed, but people running central banks of EU and places like Argentina or Hungary, are not stupid either. What they do, maintaining stable exchange rate by trading local currency for foreign, is not a rocket science. If things go bad with their balance sheet, however, there is no way out but to inflate. Last time it happened in Peru, Alan García was the president too. Peruvian economy is oriented towards exporting USD-priced things, so there is no point in maintaining PEN exchange rate too strong (similar to what they do in China). I wouldn´t be surprised to see a sudden drop of PEN, and ´dollarization´ making a comeback again at some stage.
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Re: Dedollarization

Postby PTTurboe » Tue Jun 08, 2010 12:32 pm

The US Dollar will be toast by November at the latest.

Gold, silver, mining stocks, and Swiss Francs will weather the storm.

Not sure what will happen to the Sol.

The only way for the US to get out of the Depression is WWIII....
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Re: Dedollarization

Postby LauraMH » Tue Jun 08, 2010 12:53 pm

PTTurboe wrote:The US Dollar will be toast by November at the latest.

Gold, silver, mining stocks, and Swiss Francs will weather the storm.

Not sure what will happen to the Sol.

The only way for the US to get out of the Depression is WWIII....


swiss francs?
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Re: Dedollarization

Postby craig » Tue Jun 08, 2010 1:34 pm

mahou123 wrote:I would point out that US dollar has been around for much longer than New Sol and any of its predecessors (sol de oro, inti, etc.), and any paperwork they had for money in Latin America in republican times.

Actually that is false. The apparent longevity of the dollar is an illusion. The United States has had many different currencies in its history, none of which has lasted all that long. The contrary illusion is maintained by (1) ignorance and (2) deliberate deception. For example, when Peru changed its currency it changed the name and appearance making the change obvious to all. But when the US changes its currency it still calls it a dollar and deliberately makes the new currency visually similar to the old so that people will not notice.

The current dollar is less than 40 years old. It originated during the Nixon administration. There are actually two dollars currently in circulation. One is the post Nixon Federal Reserve Note. The other, of which very few are left around, are the old Treasury issued US Notes (none of which have been issued since 1972). The most conspicuous difference between them is that one has a green seal and the other a red one. But they are entirely different monies. The dollar of my youth was the Silver Certificate (it had a blue seal) but it has not been issued since 1964. This was also a completely different money but it was also called a dollar and looked very much the same. As you go back in time the US has changed its money every 30-50 years as the previous one failed and/or lost political favor for one reason or another.

mahou123 wrote:New Sol had a healthy upward trend against USD since about 2004, backed by optimism in Peruvian economy, growing exports and good market for precious and base metals. Such trends, however, never did and never will last forever. Increasing number of ´smart Peruvians´ only now noticing this after all these years and switching to soles, might be a sign of a turning tide.

I hope such a superficial exchange rate trend is not the motivation of Peruvians for switching to the sol. If it is then they are more clueless than I think. More likely is that they recognize that the dollar is unstable, unsafe and in danger of collapse in the near future. Peruvians have experience with that sort of thing that Americans and Australians lack so they are probably more sensitive to the danger.

The sol is not a particularly good refuge but it is better than nothing. Current BCR policy seems to be to try to maintain the dollar exchange rate more or less. If it continues that then it will have to inflate the sol to match the dollar and the sol will be no better than the dollar. The PEN/USD pair rate is entirely artificial and economically meaningless since it is determined by BCR monetary policy.

What makes the sol safer money than the dollar is that the BCR can choose its policy; it has the option to stop inflating to match the dollar when the dollar collapses, to not follow the dollar into the abyss. The Federal Reserve has no options that do not lead to monetary collapse (and probably hyperinflation). All the Federal Reserve can choose is the route it takes to that collapse. And political motivations are such that it is almost certain to choose the most destructive route.

mahou123 wrote:There is a growing sentiment among all sorts of investors and commentators, that US is about to hit the bottom and go up from there, again before everybody else does. Valuations of US companies are very cheap right now, earnings outlook is strong, so the capital is going that way. Elsewhere, there are massive debt problems in EU and asset bubbles in China/India/Russia etc., not looking very nice. EUR is trading around 1.19 lately.

Good luck with following that popular hype.

The US debt problem is greater than that of Greece. The difference is that Greece cannot print the reserve currency of the world to inflate away its debts. (Altho now the EU is inflating the Euro to try to inflate away European debts and making the same mistakes as the US.) But the ultimate consequences of the the US inflating the dollar (and the EU inflating the Euro) will be worse than a debt default.

mahou123 wrote:If things go bad with their balance sheet, however, there is no way out but to inflate.

That is what the BCR has intelligently avoided so far (unlike the US). The worst thing on the BCR's balance sheet is a mountain of dollars. They are going to lose all that. But Peru can take the hit and survive intact.

mahou123 wrote:Last time it happened in Peru, Alan García was the president too.

However unlikely, Garcia seems to have learned something by his previous disastrous presidency.

mahou123 wrote:Peruvian economy is oriented towards exporting USD-priced things, so there is no point in maintaining PEN exchange rate too strong (similar to what they do in China).

Yes, that is the current situation. For Peru to prosper in the future that has to change. Much will be determined by how well the transition away from exporting to and for the US market is managed. Peru has to find other markets to which to export its products when the US can no longer afford to buy them. But this can be done and current news indicates that it is taking place.


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Re: Dedollarization

Postby mahou123 » Tue Jun 08, 2010 5:51 pm

craig wrote:
mahou123 wrote:I would point out that US dollar has been around for much longer than New Sol and any of its predecessors (sol de oro, inti, etc.), and any paperwork they had for money in Latin America in republican times.

Actually that is false. The apparent longevity of the dollar is an illusion. The United States has had many different currencies in its history, none of which has lasted all that long. The contrary illusion is maintained by (1) ignorance and (2) deliberate deception. For example, when Peru changed its currency it changed the name and appearance making the change obvious to all. But when the US changes its currency it still calls it a dollar and deliberately makes the new currency visually similar to the old so that people will not notice.

The current dollar is less than 40 years old. It originated during the Nixon administration. There are actually two dollars currently in circulation. One is the post Nixon Federal Reserve Note. The other, of which very few are left around, are the old Treasury issued US Notes (none of which have been issued since 1972). The most conspicuous difference between them is that one has a green seal and the other a red one. But they are entirely different monies. The dollar of my youth was the Silver Certificate (it had a blue seal) but it has not been issued since 1964. This was also a completely different money but it was also called a dollar and looked very much the same. As you go back in time the US has changed its money every 30-50 years as the previous one failed and/or lost political favor for one reason or another.


Every paper US dollar ever issued is a legal tender up until now. It must be accepted in USA and would still buy you a tasty cheeseburger :lol: Unlike Argentine Austral or Brazilian Cruzeiro or whatever else in this part of the world from some time ago, every person in the world wouldn´t mind to own some USD.

If you ´dedollarized´ your money in Peru in, say, 1980, you would get Soles de Oro, which would be exchanged to Inti in 1985 at the rate of 1 Inti for 1,000 Soles de Oro. Then, in 1991 Inti would be exchanged to Nuevo Sol at rate of 1 Nuevo Sol for 1,000,000 Inti. In other words, you would get nothing. Dollars are still good, and actually buy much more silver and not that much less gold now (silver was up to 50 bucks an ounce at some stage around 1980, and gold about $800 an ounce).

People talk about death of the dollar for years by now, there is nothing new or original in such prediction. I think the common mistake in this analysis is assuming that law and order would be maintained if international currency collapses. Well, I don´t think so. There would be anarchy and war and total chaos. In which case, you´d be much better off being in a group of armed men, posessing a firearm, than owning all the gold in the world. Because you´d be able to collect all the gold you might want from unarmed ´investors´ free of charge. But you´d be more interested in rice and potatoes anyway.
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Re: Dedollarization

Postby craig » Tue Jun 08, 2010 7:50 pm

mahou123 wrote:Every paper US dollar ever issued is a legal tender up until now. It must be accepted in USA and would still buy you a tasty cheeseburger ...

Hardly! I can't enumerate all the previous forms of the dollar that are not now legal tender (many never were) there are so many. But one example is the original "greenback" (the so-called "Demand Notes"). They were eliminated by the Resumption Act of 1875 and replaced by the so-called "Legal Tender Notes". Incidentally, the Civil War Demand Notes were the first form of US money that were ever legal tender and the first that were pure fiat money. The various types of dollars circulated before that were never legal tender and always redeemable.

mahou123 wrote:Dollars are still good, and actually buy much more silver and not that much less gold now

Hardly. Twenty dollars of the 1920s would buy you an ounce of gold. Twenty of today's dollars will only get you one fiftieth as much.

mahou123 wrote:People talk about death of the dollar for years by now, there is nothing new or original in such prediction. I think the common mistake in this analysis is assuming that law and order would be maintained if international currency collapses. Well, I don´t think so. There would be anarchy and war and total chaos.

That might well be. Marc Faber, for one, predicts such. American politicians are unlikely to peacefully accept the consequences of their own failure and go quietly into the night. It could get very nasty as they desperately try to preserve their own power.

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Re: Dedollarization

Postby mahou123 » Tue Jun 08, 2010 9:17 pm

craig wrote:
mahou123 wrote:Every paper US dollar ever issued is a legal tender up until now. It must be accepted in USA and would still buy you a tasty cheeseburger ...

Hardly! I can't enumerate all the previous forms of the dollar that are not now legal tender (many never were) there are so many. But one example is the original "greenback" (the so-called "Demand Notes"). They were eliminated by the Resumption Act of 1875 and replaced by the so-called "Legal Tender Notes". Incidentally, the Civil War Demand Notes were the first form of US money that were ever legal tender and the first that were pure fiat money. The various types of dollars circulated before that were never legal tender and always redeemable.

mahou123 wrote:Dollars are still good, and actually buy much more silver and not that much less gold now

Hardly. Twenty dollars of the 1920s would buy you an ounce of gold. Twenty of today's dollars will only get you one fiftieth as much.


Come on, US civil war was quite a while ago :D I´ve seen US$20 bill issued in 1910, while working at a European bank, someone exchanged it. It was as good as a new one. It wouldn´t buy an ounce of gold now, but would buy 6 pack of beer and a whopper, still something! My point is, no paper money issued by Latin American government, and most probably anywhere in the world, would be valid for 100 years and still buy you something. Maybe British Pound is an exception, although I don´t think very old pounds are still legal tender, and inflation was higher there. There were times British people were offered relocation to Australia for 10 pounds, up to 1972. Which banknote issued 100 years ago would still be valid and still buy something of any value now, apart from US dollars? I can´t think of any.

And ok, gold was $20 in 1920 as you say, $1200 now: 60 times in 90 years. This is actually very good. Normal rate of inflation, you´d expect prices to double every 10 years, at least, which would be 512 times in 90 years. This really shows that USD performed very well historically.

Good luck with betting against USD, and I hope your savings will not be exchanged into some Nuevo Inti Dorado Fuerte by Ollanta Humala at a rate of 1 per everything you´ve got :lol: I sold all my US dollars early last year, for soles at about 3.15, but now am buying back little by little.
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Re: Dedollarization

Postby craig » Tue Jun 08, 2010 9:35 pm

mahou123 wrote:Which banknote issued 100 years ago would still be valid and still buy something of any value now, apart from US dollars? I can´t think of any.

And ok, gold was $20 in 1920 as you say, $1200 now: 60 times in 90 years. This is actually very good. Normal rate of inflation, you´d expect prices to double every 10 years, at least, which would be 512 times in 90 years. This really shows that USD performed very well historically.

OK. :) That is good for fiat money.

In the hundred years since the foundation of the Federal Reserve in 1913 the dollar has only lost 96% of its value. Few fiat monies would have preserved even that smidgen of value in a century. Hooray! Great performance!

But if you want to make a historical comparision you should compare that 100 years with the previous century in which the (non-fiat) dollar appreciated by 15%. Or with gold itself.

None of which is the least bit relevant to what is going to happen to the dollar in the next few years.

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Re: Dedollarization

Postby mahou123 » Tue Jun 08, 2010 10:15 pm

Whatever happens with exchange rates and financial markets, institute of central bank as such, issuing ´cash´, is very unlikely to go away. We´re not going back to 18th century, and pay for groceries with silver coins. And therefore, there will be issue of who do you trust in difficult times, which central bankers. Despite all the criticism US Federal Reserve attracted in recent years, and deservingly so, it is obvious that financial markets see no better alternative. In a total selloff like at the end of 2008, dollar goes up against everything, including any commodities, gold, etc. Ok, maybe Japanese yen or something like that holds value, but from the worldwide perspective, and in large volume, ´flight to quality´ in tough times means selling everything for USD and keep it. When cash is the king, this is really a dollar. The way markets go now, we might see such situation again soon.
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Re: Dedollarization

Postby craig » Tue Jun 08, 2010 10:30 pm

mahou123 wrote:Whatever happens with exchange rates and financial markets, institute of central bank as such, issuing ´cash´, is very unlikely to go away. We´re not going back to 18th century, and pay for groceries with silver coins. And therefore, there will be issue of who do you trust in difficult times, which central bankers. Despite all the criticism US Federal Reserve attracted in recent years, and deservingly so, it is obvious that financial markets see no better alternative. In a total selloff like at the end of 2008, dollar goes up against everything, including any commodities, gold, etc. Ok, maybe Japanese yen or something like that holds value, but from the worldwide perspective, and in large volume, ´flight to quality´ in tough times means selling everything for USD and keep it. When cash is the king, this is really a dollar. The way markets go now, we might see such situation again soon.


Time will tell.

Many people cannot believe that the happenstances of their own short lives are not a law of nature. Until things change.

Craig

BTW: I know I am old and my memory is failing, but I don't remember my youth being in the 18th century.
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Re: Dedollarization

Postby tomsax » Wed Jun 09, 2010 7:05 am

Craig,

I've got nothing against non-fiat currencies, or gold, or people discarding the dollar from the nuevo sol or otherwise. I just wonder if this prediction of collapse of the dollar is more to do with what you think should happen rather what has happened or will happen. Peruvians should realise the the dollar has and will depreciate with time and its good that they realise it might well depreciate less than the nuevo sol, but I don't think this is evidence that people think that the value the dollar will collapse or that it will collapse.

And indeed what do you mean by collapse? You seem to have been predicting this for the last few years now, if not longer and it still hasn't happened. Yes, the value of the dollar has gone down significantly but that is hardly the same thing.

I just suspect your bone with the dollar is more to do with your sense of outrage that governments are printing money and currencies are NOT collapsing (ie they are getting away with it) rather than clear evidence that is is going to happen.

I am against governments printing money just because it is an untransparent way of taxing people, but I don't see how you reach the conclusion of an imminent collapse.
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Re: Dedollarization

Postby PTTurboe » Wed Jun 09, 2010 8:01 am

Hi Craig,

There will be a collapse. Do some research and the writing is all over the wall.

They have done it with many countries - and the USA is next.

Do some research and don't be a sheeple American saying "not in the USA".

Sorry, but my gold, silver, Francs, and mining shares are up 50-60% in 2 years...

I plan on trading out of those and BUYING LAND which you can live on...
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Re: Dedollarization

Postby rgamarra » Wed Jun 09, 2010 11:48 am

My husband and I have learned our lessons about money. We've made good progress this year eliminating our debts and putting money away for investment. What we own, we own in cash now and we even have some acreage in Peru and CO that we bought in cash.

I personally do not think that the U.S. dollar will collapse. I certainly don't believe in printing money like crazy, which the current U.S. administration is doing, I don't believe in spending our way out of debt, and I very much dislike the idea of the value of the dollar being based upon speculation, instead of being tied to tangible assets, such as gold.

It's a common misconception that the Swiss Franc is a gold standard currency, but it is one currency that has proven stability so far.

Okay, so why do I believe that the U.S. dollar will not collapse...probably b/c China owns the currency and it wouldn't be good for trade if Chinese products became more expensive. Two other governments that hold the largest reserve of USD are Great Britain and Japan.

Peru also exports a great deal to Europe, but with the Euro also nearing parity with the USD, Peruvian products are going to become more expensive.

If Peru does dedollarize, then good for them. That to me is just one more sign that it's continuing its path of development as a nation, but I wouldn't put all my eggs in one basket with the Nuevo Sol, for me it's too soon to tell whether it's going to remain a stable currency...A far leftist President could easily derail the current money train.

I'm very fortunate to be living in a "recession proof" city (Dallas/Ft. Worth, Texas), but I have lived in FL and KY, which both have been affected by the current economic crisis. I think the future of the USD (domestically) is going to depend on each state's economic policies.

The US and the EU are going to do everything in their power to keep their currencies alive, so while in theory the currencies may be collapsing, in reality these economic zones are going to fake it until they make it.

BTW, I'd like to comment that this debate has been very enlightening and I've enjoyed reading everyone's opinions and observations.
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Re: Dedollarization

Postby JoshuS » Wed Jun 09, 2010 12:06 pm

PTTurboe wrote:Hi Craig,

There will be a collapse. Do some research and the writing is all over the wall.

They have done it with many countries - and the USA is next.

Do some research and don't be a sheeple American saying "not in the USA".

Sorry, but my gold, silver, Francs, and mining shares are up 50-60% in 2 years...

I plan on trading out of those and BUYING LAND which you can live on...


It's just a matter of time soon after they're done doing all their political manipulation to prop the dollar overseas, after that the chickens are coming home to roost.

Here's an interesting piece that puts a bit in perpsective what's going on:

A Plague Upon The World: The USA is a "Failed State"

Interview with Dr. Paul Craig Roberts
by Dr. Paul Craig Roberts

http://beforeitsnews.com/news/71/635/Th ... icial.html

Interview with Dr. Paul Craig Roberts, former Assistant Secretary US Treasury, Associate Editor Wall Street Journal, Professor of Political Economy Center for Strategic and International Studies GeorgetownUniversity WashingtonDC.



Question: Dr. Roberts, the United Statesis regarded as the most successful state in the world today. What is responsible for American success?

Dr. Roberts: Propaganda. If truth be known, the USis a failed state. More about that later. The US owes its image of success to: (1) the vast lands and mineral resources that the US “liberated” with violence from the native inhabitants, (2) Europe’s, especially Great Britain’s, self-destruction in World War I and World War II, and (3) the economic destruction of Russia and most of Asia by communism or socialism.


After World War II, the UStook the reserve currency role from Great Britain. This made the US dollar the world money and permitted the USto pay its import bills in its own currency. World War II’s destruction of the other industrialized countries left the USas the only country capable of supplying products to world markets. This historical happenstance created among Americans the impression that they were a favored people. Today the militarist neoconservatives speak of the United Statesas “the indispensable nation.” In other words, Americans are above all others, except, of course, Israelis.

To American eyes a vague “terrorist threat,” a creation of their own government, is sufficient justification for naked aggression against Muslim peoples and for an agenda of world hegemony.


This hubristic attitude explains why among most Americans there is no remorse over the one million Iraqis killed and the four million Iraqis displaced by a USinvasion and occupation that were based entirely on lies and deception. It explains why there is no remorse among most Americans for the countless numbers of Afghans who have been cavalierly murdered by the USmilitary, or for the Pakistani civilians murdered by US drones and “soldiers” sitting in front of video screens. It explains why there is no outrage among Americans when the Israelis bomb Lebanese civilians and Gazacivilians. No one in the world will believe that Israel’s latest act of barbarity, the murderous attack on the international aid flotilla to Gaza, was not cleared with Israel’s American enabler.

Question: You said that the USwas a failed state. How can that be? What do you mean?

Roberts: The war on terror, invented by the George W. Bush/Dick Cheney regime, destroyed the US Constitution and the civil liberties that the Constitution embodies. The Bill of Rights has been eviscerated. The Obama regime has institutionalized the Bush/Cheney assault on American liberty. Today, no American has any rights if he or she is accused of “terrorist” activity. The Obama regime has expanded the vague definition of “terrorist activity” to include “domestic extremist,” another undefined and vague category subject to the government’s discretion. In short, a “terrorist” or a “domestic extremist” is anyone who dissents from a policy or a practice that the USgovernment regards as necessary for its agenda of world hegemony.

Unlike some countries, the US is not an ethic group. It is a collection of diverse peoples united under the Constitution. When the Constitution was destroyed, the US ceased to exist. What exists today are power centers that are unaccountable. Elections mean nothing, as both parties are dependent on the same powerful interest groups for campaign funds. The most powerful interest groups are the military/security complex, which includes the Pentagon, the CIA, and the corporations that service them, the American-Israel Public Affairs Committee, the oil industry that is destroying the Gulf of Mexico, Wall Street (investment banks and hedge funds), the insurance companies, the pharmaceutical companies, and the agri-companies that produce food of questionable content.



These corporate powers comprise an oligarchy that cannot be dislodged by voting. Ever since “globalism” was enacted into law, the Democrats have been dependent on the same corporate sources of income as the Republicans, because globalism destroyed the labor unions. Consequently, there is no difference between the Republicans and Democrats, or no meaningful difference.



The “war on terror” completed the constitutional/legal failure of the US. The US has also failed economically. Under Wall Street pressure for short-term profits, US corporations have moved offshore their production for US consumer markets. The result has been to move US GDP and millions of well-paid US jobs to countries, such as China and India, where labor and professional expertise are cheap. This practice has been going on since about 1990.



After 20 years of offshoring US production, which destroyed American jobs and federal, state and local tax base, the US unemployment rate, as measured by US government methodology in 1980, is over 20 percent. The ladders of upward mobility have been dismantled. Millions of young Americans with university degrees are employed as waitresses and bartenders. Foreign enrollment comprises a larger and larger percentage of US universities as the American population finds that a university degree has been negated by the offshoring of the jobs that the graduates expected.



When US offshored production re-enters the US as imports, the trade balance deteriorates. Foreigners use their surplus dollars to purchase existing US assets.


Consequently, dividends, interest, capital gains, tolls from toll roads, rents, and profits, now flow abroad to foreign owners, thus increasing the pressure on the US dollar. The US has been able to survive the mounting claims of foreigners against US GDP because the US dollar is the reserve currency. However, the large US budget and trade deficits will put pressures on the dollar that will become too extreme for the dollar to be able to sustain this role. When the dollar fails, the US population will be impoverished.



The US is heavily indebted, both the government and the citizens. Over the last decade there has been no growth in family income. The US economy was kept going through the expansion of consumer debt. Now consumers are so heavily indebted that they cannot borrow more. This means that the main driving force of the US economy, consumer demand, cannot increase. As consumer demand comprises 70% of the economy, when consumer demand cannot increase, there can be no economic recovery.



The US is a failed state also because there is no accountability to the people by corporations or by government at any level, whether state, local, or federal. British Petroleum is destroying the Gulf of Mexico. The US government has done nothing. The Obama regime’s response to the crisis is more irresponsible than the Bush regime’s response to Hurricane Katrina. Wetlands and fisheries are being destroyed by unregulated capitalist greed and by a government that treats the environment with contempt. The tourist economy of Florida is being destroyed. The external costs of drilling in deep waters exceeds the net worth of the oil industry. As a result of the failure of the American state, the oil industry is destroying one of the world’s most valuable ecological systems.



Question: What can be done?



Roberts: The American people are lost in la-la land. They have no idea that their civil liberties have been forfeited. They are only gradually learning that their economic future is compromised. They have little idea of the world’s growing hatred of Americans for their destruction of other peoples. In short, Americans are full of themselves. They have no idea of the disasters that their ignorance and inhumanity have brought upon themselves and upon the world.



Much of the world, looking at a country that appears both stupid and inhumane, wonders at Americans’ fine opinion of themselves. Is America the virtuous “indispensable nation” of neoconservative propaganda, or is America a plague upon the world? 2
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Re: Dedollarization

Postby craig » Wed Jun 09, 2010 7:12 pm

tomsax wrote:Peruvians should realise the the dollar has and will depreciate with time and its good that they realise it might well depreciate less

Less or more?

tomsax wrote:than the nuevo sol, but I don't think this is evidence that people think that the value the dollar will collapse or that it will collapse.

I doubt that many Peruvians are expecting the dollar to collapse.

tomsax wrote:And indeed what do you mean by collapse?

That the US government default on its debt and, at minimum, that the value of the dollar substantially and rapidly decrease and the dollar cease to be used outside of the US. [By default I mean: fail to repay the debt with value commensurate with the original loan. And by value I mean: buying power for real goods.]

tomsax wrote:You seem to have been predicting this for the last few years now, if not longer and it still hasn't happened.

I presume you understand the fallacy of arguing that because a ponzi scheme has not yet collapsed it never will.

tomsax wrote:Yes, the value of the dollar has gone down significantly but that is hardly the same thing.

The main event has not yet happened.

tomsax wrote:I don't see how you reach the conclusion of an imminent collapse.

I am sure you are not sufficiently interested in this issue to be bothered with study. So I will try to explain as briefly as I can.

Fiat money regimes are inherently unstable systems. Since they lack any intrinsic value the only thing that gives a fiat money any value is its use in trade. That is, people only value it and accept it in payment because they expect to find a greater fool to whom they can pass it on. Governments are incapable of resisting the temptation to constantly print more of it so fiat money constantly loses value. But when it loses value fast enough people become unwilling to hold it and accept it any longer. When this begins to happen the fiat money loses even more of its value for trade which accelerates the process. The resulting positive feedback loop causes the money to lose all value very rapidly: the currency collapses.

So, there is a limit to the rate at which power hungry politicians can debase their money without destroying the money itself and ending the con game from which they derive so much of their power. It is a delicate and dangerous business to approach that tipping point because unforeseen events can trigger an uncontrollable collapse at any time. Theory and repeated historical experience show that the pencil cannot be balanced on its point indefinitely. All fiat monies eventually fail.

But why is the failure of the dollar now imminent? The reason is that the US government no longer has any option but accelerated debasement of the dollar. It cannot draw back from the brink and avoid pushing the dollar over the edge.

This is so because the government has gotten so far in debt that it is bankrupt. It cannot even pay the interest without borrowing more money with which to do so. As a result its options now all lead to collapse. The government only has three options.
1) Increase taxes. It is physically impossible for the US government to steal enough money. The American people simply do not produce enough to pay the interest it owes. And if it tried to take more from them it would destroy the economy and revenues would decrease. So this option results in default.
2) Borrow more. Borrowing to pay interest is an unsustainable exponential spiral. Eventually the creditors will refuse to lend more and/or demand a higher rate (which requires even more borrowing and compounds the debt faster). Both of these eventualities lead to default.
3) Print money. Trying to inflate away the debt is defacto default. It will debase the currency (making it impossible to roll over existing debt and precipitating a currency collapse) and likely drive up the interest rate (accelerating the rate at which money must be printed even more).
All options eventually result in a currency collapse.

The course with the best outcome would be
4) Open bankruptcy
which is the only way the dollar could be preserved but this is politically unacceptable. The politicians will take option 3) which will produce the most catastrophic outcome.

A process which cannot continue will soon enough end. We are already in the end stages.

Craig
Last edited by craig on Wed Jun 09, 2010 10:08 pm, edited 1 time in total.
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Re: Dedollarization

Postby mahou123 » Wed Jun 09, 2010 8:19 pm

craig wrote:
tomsax wrote:And indeed what do you mean by collapse?

That the US government default on its debt and, at minimum, that the value of the dollar substantially and rapidly decrease and the dollar cease to be used outside of the US.


This is really impossible, Craig, and that´s why US treasuries are considered ´risk-free´. If they have not enough dollars to pay debt, they create them. If US owes some dollars to anybody, it can´t default. It can´t say ´I have no dollars, I cant pay my debt´. They can produce as many dollars as they like.

It would be good to clarify the notion of ´value´ that you associate with money. Looking for this value in precious metals is really misleading. Gold is just a metal that you can´t use for much. I read that more than 70% of world´s market for gold, outside of central banks, is in India. There, people buy golden things to give to a lady that is marrying for wedding. It is a jewellery. As for producing gold, it is everywhere in the ground. If concentration is about 1oz/tonne of dirt, there is a gold rush. If it´s below 1g/tonne, usually is uneconomical to build up a mine. In any case, produce some gold is not a big deal. Notion of ´value´ is really something you might have, which might be easily exchanged for goods and services at local market. Paper money, especially USD, are still pretty good for it, have plenty of value, and it seems to me that it´ll be a losing strategy to assume all this value will disappear completely. They can of course print the whole lot of USD, pay the debt with it, and make a huge inflation. But, if, say, you´ve made 1000 US dollars now, by some activity in the US or anywhere else, you can go to Paris or Madrid for few days, have a good time, I don´t think this will change in future. Even if everything collapses, you´d need 1 billion or 1 zillion of dollars of Chinese Yuan for the same, but it will be as easy if not easier to achieve.
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Re: Dedollarization

Postby Wine Lover » Wed Jun 09, 2010 10:55 pm

A question for the economists

What effect would the following have on he US economy & currency?
The US prints the money needed to pay its debts.
This money then leaves the country and I would assume end up being used in the country that its sent to.
How this effect the US

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Re: Dedollarization

Postby PTTurboe » Thu Jun 10, 2010 9:16 am

http://www.blacklistednews.com/news-9060-0-13-13--.html

50 Statistics About The U.S. Economy That Are Almost Too Crazy To Believe

By Michael Snyder - BLN Contributing Writer
Most Americans know that the U.S. economy is in bad shape, but what most Americans don't know is how truly desperate the financial situation of the United States really is. The truth is that what we are experiencing is not simply a "downturn" or a "recession". What we are witnessing is the beginning of the end for the greatest economic machine that the world has ever seen. Our greed and our debt are literally eating our economy alive. Total government, corporate and personal debt has now reached 360 percent of GDP, which is far higher than it ever reached during the Great Depression era. We have nearly totally dismantled our once colossal manufacturing base, we have shipped millions upon millions of middle class jobs overseas, we have lived far beyond our means for decades and we have created the biggest debt bubble in the history of the world. A great day of financial reckoning is fast approaching, and the vast majority of Americans are totally oblivious.

But the truth is that you cannot defy the financial laws of the universe forever. What goes up must come down. The borrower is the servant of the lender. Cutting corners always catches up with you in the end.

Sometimes it takes cold, hard numbers for many of us to fully realize the situation that we are facing.

So, the following are 50 very revealing statistics about the U.S. economy that are almost too crazy to believe....

#50) In 2010 the U.S. government is projected to issue almost as much new debt as the rest of the governments of the world combined.

#49) It is being projected that the U.S. government will have a budget deficit of approximately 1.6 trillion dollars in 2010.

#48) If you went out and spent one dollar every single second, it would take you more than 31,000 years to spend a trillion dollars.

#47) In fact, if you spent one million dollars every single day since the birth of Christ, you still would not have spent one trillion dollars by now.

#46) Total U.S. government debt is now up to 90 percent of gross domestic product.

#45) Total credit market debt in the United States, including government, corporate and personal debt, has reached 360 percent of GDP.

#44) U.S. corporate income tax receipts were down 55% (to $138 billion) for the year ending September 30th, 2009.

#43) There are now 8 counties in the state of California that have unemployment rates of over 20 percent.

#42) In the area around Sacramento, California there is one closed business for every six that are still open.

#41) In February, there were 5.5 unemployed Americans for every job opening.

#40) According to a Pew Research Center study, approximately 37% of all Americans between the ages of 18 and 29 have either been unemployed or underemployed at some point during the recession.

#39) More than 40% of those employed in the United States are now working in low-wage service jobs.

#38) According to one new survey, 24% of American workers say that they have postponed their planned retirement age in the past year.

#37) Over 1.4 million Americans filed for personal bankruptcy in 2009, which represented a 32 percent increase over 2008. Not only that, more Americans filed for bankruptcy in March 2010 than during any month since U.S. bankruptcy law was tightened in October 2005.

#36) Mortgage purchase applications in the United States are down nearly 40 percent from a month ago to their lowest level since April of 1997.

#35) RealtyTrac has announced that foreclosure filings in the U.S. established an all time record for the second consecutive year in 2009.

#34) According to RealtyTrac, foreclosure filings were reported on 367,056 properties in March 2010, an increase of nearly 19 percent from February, an increase of nearly 8 percent from March 2009 and the highest monthly total since RealtyTrac began issuing its report in January 2005.

#33) In Pinellas and Pasco counties, which include St. Petersburg, Florida and the suburbs to the north, there are 34,000 open foreclosure cases. Ten years ago, there were only about 4,000.

#32) In California's Central Valley, 1 out of every 16 homes is in some phase of foreclosure.

#31) The Mortgage Bankers Association recently announced that more than 10 percent of all U.S. homeowners with a mortgage had missed at least one payment during the January to March time period. That was a record high and up from 9.1 percent a year ago.

#30) U.S. banks repossessed nearly 258,000 homes nationwide in the first quarter of 2010, a 35 percent jump from the first quarter of 2009.

#29) For the first time in U.S. history, banks own a greater share of residential housing net worth in the United States than all individual Americans put together.

#28) More than 24% of all homes with mortgages in the United States were underwater as of the end of 2009.

#27) U.S. commercial property values are down approximately 40 percent since 2007 and currently 18 percent of all office space in the United States is sitting vacant.

#26) Defaults on apartment building mortgages held by U.S. banks climbed to a record 4.6 percent in the first quarter of 2010. That was almost twice the level of a year earlier.

#25) In 2009, U.S. banks posted their sharpest decline in private lending since 1942.

#24) New York state has delayed paying bills totalling $2.5 billion as a short-term way of staying solvent but officials are warning that its cash crunch could soon get even worse.

#23) To make up for a projected 2010 budget shortfall of $280 million, Detroit issued $250 million of 20-year municipal notes in March. The bond issuance followed on the heels of a warning from Detroit officials that if its financial state didn't improve, it could be forced to declare bankruptcy.

#22) The National League of Cities says that municipal governments will probably come up between $56 billion and $83 billion short between now and 2012.

#21) Half a dozen cash-poor U.S. states have announced that they are delaying their tax refund checks.

#20) Two university professors recently calculated that the combined unfunded pension liability for all 50 U.S. states is 3.2 trillion dollars.

#19) According to EconomicPolicyJournal.com, 32 U.S. states have already run out of funds to make unemployment benefit payments and so the federal government has been supplying these states with funds so that they can make their payments to the unemployed.

#18) This most recession has erased 8 million private sector jobs in the United States.

#17) Paychecks from private business shrank to their smallest share of personal income in U.S. history during the first quarter of 2010.

#16) U.S. government-provided benefits (including Social Security, unemployment insurance, food stamps and other programs) rose to a record high during the first three months of 2010.

#15) 39.68 million Americans are now on food stamps, which represents a new all-time record. But things look like they are going to get even worse. The U.S. Department of Agriculture is forecasting that enrollment in the food stamp program will exceed 43 million Americans in 2011.

#14) Phoenix, Arizona features an astounding annual car theft rate of 57,000 vehicles and has become the new "Car Theft Capital of the World".

#13) U.S. law enforcement authorities claim that there are now over 1 million members of criminal gangs inside the country. These 1 million gang members are responsible for up to 80% of the crimes committed in the United States each year.

#12) The U.S. health care system was already facing a shortage of approximately 150,000 doctors in the next decade or so, but thanks to the health care "reform" bill passed by Congress, that number could swell by several hundred thousand more.

#11) According to an analysis by the Congressional Joint Committee on Taxation the health care "reform" bill will generate $409.2 billion in additional taxes on the American people by 2019.

#10) The Dow Jones Industrial Average just experienced the worst May it has seen since 1940.

#9) In 1950, the ratio of the average executive's paycheck to the average worker's paycheck was about 30 to 1. Since the year 2000, that ratio has exploded to between 300 to 500 to one.

#8) Approximately 40% of all retail spending currently comes from the 20% of American households that have the highest incomes.

#7) According to economists Thomas Piketty and Emmanuel Saez, two-thirds of income increases in the U.S. between 2002 and 2007 went to the wealthiest 1% of all Americans.

#6) The bottom 40 percent of income earners in the United States now collectively own less than 1 percent of the nation’s wealth.

#5) If you only make the minimum payment each and every time, a $6,000 credit card bill can end up costing you over $30,000 (depending on the interest rate).

#4) According to a new report based on U.S. Census Bureau data, only 26 percent of American teens between the ages of 16 and 19 had jobs in late 2009 which represents a record low since statistics began to be kept back in 1948.

#3) According to a National Foundation for Credit Counseling survey, only 58% of those in "Generation Y" pay their monthly bills on time.

#2) During the first quarter of 2010, the total number of loans that are at least three months past due in the United States increased for the 16th consecutive quarter.

#1) According to the Tax Foundation’s Microsimulation Model, to erase the 2010 U.S. budget deficit, the U.S. Congress would have to multiply each tax rate by 2.4. Thus, the 10 percent rate would be 24 percent, the 15 percent rate would be 36 percent, and the 35 percent rate would have to be 85 percent.
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Re: Dedollarization

Postby Kelly » Thu Jun 10, 2010 12:23 pm

I find this interesting.

http://www.usdebtclock.org/
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Re: Dedollarization

Postby tomsax » Thu Jun 10, 2010 12:41 pm

Thanks for the very interesting reply. I am not saying an imminent collapse won't happen, I just don't understand how you can be so sure. You may be right. I just profess a greater level of ignorance on the matter. But to answer some of the points you raise.

craig wrote:
tomsax wrote:And indeed what do you mean by collapse?

That the US government default on its debt and, at minimum, that the value of the dollar substantially and rapidly decrease and the dollar cease to be used outside of the US. [By default I mean: fail to repay the debt with value commensurate with the original loan. And by value I mean: buying power for real goods.


Without wanting to get over technical this seems a pretty wide definition of default. Isn't the whole point of your projected devaluing of the currency is that government wouldn't be paying back the full value of the debt, but does that qualify as default? My mother has taken our a 6% fixed rate loan in the UK over 12 years. If inflation is more than 6% per year then what she pays back less than the value of the original loan under your definition. That wouldn't mean that she has defaulted though. It just means under the terms of the contract with the bank she has come out the winner.

I guess if all countries sell their dollars and dollar securities then of course there will be a collapse. The question is though will that happen?

craig wrote:
tomsax wrote:You seem to have been predicting this for the last few years now, if not longer and it still hasn't happened.

I presume you understand the fallacy of arguing that because a ponzi scheme has not yet collapsed it never will.



A fair point if indeed it is a ponzi scheme. It is indeed about government robbing Peter to pay Paul. Is that the definition of a ponzi scheme? I'm sure some people will lose our over time, I'm just not so sure that this will involve a collapse of the dollar in the imminent future. And I presume you understand that being right that something will happen one day, and it will at some time be immiment is not the same as being right about when it is imminent. I can keep predicting the end of my life tomorrow and sometime I will be proved right, but that wouldn't be particularly clever.

craig wrote:Governments are incapable of resisting the temptation to constantly print more of it so fiat money constantly loses value. But when it loses value fast enough people become unwilling to hold it and accept it any longer. When this begins to happen the fiat money loses even more of its value for trade which accelerates the process. The resulting positive feedback loop causes the money to lose all value very rapidly: the currency collapses.

This is all self evident, the most important word is "when".

craig wrote:
So, there is a limit to the rate at which power hungry politicians can debase their money without destroying the money itself and ending the con game from which they derive so much of their power. It is a delicate and dangerous business to approach that tipping point because unforeseen events can trigger an uncontrollable collapse at any time. Theory and repeated historical experience show that the pencil cannot be balanced on its point indefinitely. All fiat monies eventually fail.



Yes, I agree. Nice image. So you mean it could be imminent?

craig wrote:
But why is the failure of the dollar now imminent? The reason is that the US government no longer has any option but accelerated debasement of the dollar. It cannot draw back from the brink and avoid pushing the dollar over the edge.

craig wrote:
3) Print money. Trying to inflate away the debt is defacto default. It will debase the currency (making it impossible to roll over existing debt and precipitating a currency collapse) and likely drive up the interest rate (accelerating the rate at which money must be printed even more).
All options eventually result in a currency collapse.



I must admit you have lost me here but the above reads to my ignorant mind a bit like "the dollar will collapse in value because it must go down in value." Why does one necessarily lead to the other. I agree whatever happens it will be painful but I think it's just as likely to be a long drawn out period without collapse.
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Re: Dedollarization

Postby Alan » Thu Jun 10, 2010 7:23 pm

Kelly wrote:I find this interesting.

http://www.usdebtclock.org/


Kelly... that is an amazing page. I was expecting just one measurement, not dozens. I am not sure if it was developed by a masochist or a sadist! Answer to that probably lies with their nationality...

Interesting the see China at the bottom of the pile GDP to Debt ratio (right hand side).

The rest of you... check the link out if you haven't already. It's truly worth a peek.
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Re: Dedollarization

Postby Kelly » Thu Jun 10, 2010 9:27 pm

It kind of made me a little ill the first time I looked at it. :(
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Re: Dedollarization

Postby craig » Sat Jun 12, 2010 5:19 pm

tomsax wrote: I guess if all countries sell their dollars and dollar securities then of course there will be a collapse. The question is though will that happen?

They will when they panic, thinking that if they don't sell they will lose all the value they have accumulated.

That is what makes fiat money an unstable monetary system.

And it always happens eventually absent active stabilization. Such stabilization cannot be continued indefinitely because it requires exponentially more money with time. Because of the existing debt such stabilization is already no longer possible.

tomsax wrote:A fair point if indeed it is a ponzi scheme. It is indeed about government robbing Peter to pay Paul. Is that the definition of a ponzi scheme?

A Ponzi scheme is when people are induced to "invest" money by an apparent return which, rather than coming from any genuinely productive activity, is just paid out of money received from new "investors". In order to keep a Ponzi scheme going requires an exponentially increasing rate of "investment". When that rate falters which it must eventually, payouts falter, people lose the expectation of a return, "investment" ceases, payouts cease and the scheme collapses.

US government debt is, in effect, exactly such a Ponzi scheme. Interest can only be paid by selling new bonds. Or by printing/debasing the money which is just another way of defaulting.

tomsax wrote: I'm just not so sure that this will involve a collapse of the dollar in the imminent future. And I presume you understand that being right that something will happen one day, and it will at some time be immiment is not the same as being right about when it is imminent.

My reason for thinking it is imminent is that what is happening cannot continue for much longer. Current events are not something that is sustainable. It may be possible to keep it going with trillion euro bailouts today. But the consequence of those bailouts will be that 10 trillion euro bailouts will be required in a year or so.

tomsax wrote:
craig wrote:Governments are incapable of resisting the temptation to constantly print more of it so fiat money constantly loses value. But when it loses value fast enough people become unwilling to hold it and accept it any longer. When this begins to happen the fiat money loses even more of its value for trade which accelerates the process. The resulting positive feedback loop causes the money to lose all value very rapidly: the currency collapses.

This is all self evident, the most important word is "when".

I don't know of any way to predict that. Historically, the proximate cause is always some unexpected, seemingly trivial event which knocks the unstable system into a death spiral. But the real cause is the instability of fiat money which is just waiting for some little nudge to cause it to collapse.

tomsax wrote:
craig wrote:But why is the failure of the dollar now imminent? The reason is that the US government no longer has any option but accelerated debasement of the dollar. It cannot draw back from the brink and avoid pushing the dollar over the edge.
craig wrote:3) Print money. Trying to inflate away the debt is defacto default. It will debase the currency (making it impossible to roll over existing debt and precipitating a currency collapse) and likely drive up the interest rate (accelerating the rate at which money must be printed even more).
All options eventually result in a currency collapse.

I must admit you have lost me here but the above reads to my ignorant mind a bit like "the dollar will collapse in value because it must go down in value." Why does one necessarily lead to the other.

Because it is a positive feedback loop (did you ever study differential equations?). And the debt must grow geometrically.

Craig
Last edited by craig on Sat Jun 12, 2010 10:57 pm, edited 1 time in total.
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Re: Dedollarization

Postby craig » Sat Jun 12, 2010 5:54 pm

Wine Lover wrote:What effect would the following have on he US economy & currency?
The US prints the money needed to pay its debts.
This money then leaves the country and I would assume end up being used in the country that its sent to.
How this effect the US.

Well, that is exactly what has been happening for the last few decades. The way it would effect the US is that it would put the US in the situation it is in now.

What happens (in general) is that the US gets real stuff from the rest of the world and the people who produced the stuff get some green paper. Almost all that paper ends up being sold to foreign central banks for local currency (not "used in the country it is sent to"). The CBs buy the dollars with newly printed local money. So the local money is inflated and loses value. In effect the US has exported much of its inflation to a foreign country.

The foreign citizens produced goods for Americans and in return got local money which promptly lost to inflation most of the value they thought they were getting. Since all the currencies of the world are losing value at about the same rate this loss of value is not apparent in exchange rates but only in purchasing power for real goods (like gold). So for the foreign producers the net effect is that they work and then get cheated out of most of their pay.

Then the CBs buy US government debt for the dollars. So for them they accumulate an ever increasing pile of US government debt.

For Americans, the net effect is to exchange government IOUs for imported goods rather than having to pay for them.

In order for the US government to avoid having to pay the IOUs and/or to keep them from losing their value, they must keep being rolled over in geometrically increasing quantities and the poor people of the world have to keep working for Americans for nothing. This is not something that can continue forever.

Craig
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Re: Dedollarization

Postby tomsax » Tue Jun 15, 2010 1:27 pm

Craig

very interesting though I must admit I haven't had time to really try and understand it all.

What is your take on the relatively low inflation rates ( in terms of rising prices for good as represented in the CPI etc.) They may be too high, but the inflation rates are hardly high astronoical in the US or in many other countries. The value of the dollar may have gone down dramatically in terms of its value in gold but not in terms of what it can purchase in many parts of the world. And if lcurrencies are devaluing at the same rate that would suggest that would be in other countries too. For instance in Peru the the Sol and the US may have devalued quickly in terms of gold but not in terms of what people want to usually buy with their money - food, clothes, shelter etc.

Is this because the banks are just hoarding the money? Is your theory that this will eventually unwind?

I'm not trying to score points, just trying to understand the full extent of your argument.
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Re: Dedollarization

Postby craig » Tue Jun 15, 2010 8:24 pm

tomsax wrote:What is your take on the relatively low inflation rates ( in terms of rising prices for good as represented in the CPI etc.)

The CPI, like production figures in the old Soviet Union, is a phoney figure concocted and circulated by the government for propaganda purposes. For example, they removed food and fuel prices from it because those prices were going up. There is a web site called ShadowStats, operated by the economist John Williams, which reconstructs the statistics using the original methods of calculation (essentially unwinding the successive layers of government fiddling) to give a consistent statistical series.

Rather than take the CPI seriously, it is more reliable for you to make your own estimate based on prices you actually know about, even tho that will be limited and uncertain. In my observations, prices of most of the few things I buy have gone up significantly in the US in the last year.

tomsax wrote:The value of the dollar may have gone down dramatically in terms of its value in gold but not in terms of what it can purchase in many parts of the world.

Well, I think what is true is that it has gone down much less in real terms than one might expect. The reason for this appears to be foolish behavior on the part of the world's largely ignorant (government education has done its real work well) population. That is, economic uncertainty has produced fear. Fearful people reduce their ecomonic activity and purchase of goods and instead seek some way to safeguard and preserve their savings and wealth. The knee-jerk way to do this is to buy dollars (even tho dollars are, perhaps, the riskiest place to put wealth these days) because dollars have historically been stable and reliable. This has created a large, unjustified demand for dollar holdings which has soaked up a lot of the money printed and bid up the value of the dollar higher than it would be in a more rational market.

It will take time and events for the vast majority to realize the error of what they have done. When they do there will be panic.

tomsax wrote:And if currencies are devaluing at the same rate that would suggest that would be in other countries too. For instance in Peru the the Sol and the US may have devalued quickly in terms of gold but not in terms of what people want to usually buy with their money - food, clothes, shelter etc.

I think the sol has devalued significantly. Not long ago there were a whole series of posts in this list about how much the prices in Peruivian markets have risen.

Personally, my observation is that the price of almuerzo, for example, has risen by about 20% in the last year.

tomsax wrote:Is this because the banks are just hoarding the money? Is your theory that this will eventually unwind?

Not only banks; mostly the investors of the world. It should either unwind as people gradually wake up or it will exacerbate the collapse as they are jolted back to reality. There is some sign of a little unwinding starting to taking place: recently the gold market has shown signs of decoupling from the equity and commodity markets.

Craig
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Re: Dedollarization

Postby Wine Lover » Wed Jun 16, 2010 10:23 am

Regarding Inflation in Lima, you don't need to read any statistics or be an economist to see that inflation is quite high at the moment. Perhaps its due to the decrease in value of the USD.

I would say inflation of goods is around 6-8% in the past 12 months while inflation on services is pretty much the same.

What has everyone else noticed?

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