OK, Lysander, etc. let's hear your take on this...

[O.S.O.K.]

What is going to happen when the US dollar is dropped as the world's reserve currency in favor of one or more other currencies?

My understanding is that we (the FED) have only been able to "get away" with printing dollars because of our 50+ year status as the world's reserve currency.

That is, if for example, China wants to purchase oil, it must first purchase dollars and use the dollars to pay for the oil from Saudi Arabia. The dollar is the standard for international trade.

Prior to the dollar, it was the Pound Sterling... which held reign for over 200 years.

I would expect that we would see an imediate inflationary effect. Think $6/gallon gas.

From what I understand, there have already been meetings by the larger countries in the world (to the exclusion of the US) to discuss this.

So... what are the opinions of our more astute financial guys here? And what advice to hedge or prepare?

[old Grump]

Precious metals, booze and ammunition. Better than the dollar.

[Lysander]

I guess your first question to ask is "What is in position to replace the dollar?"

That was simple in 1945 when we replaced the British Pound. Our economy was the only one left not in a shambles, our influence was on the rise, and Britain had suffered multiple issues first with the Depression, and then saw that exacerbated when they switched back to the gold standard, then the war, and her Empire was collapsing around her. The short answer to that, at this time, is "nothing". Nobody is going to use the Chinese Yuan, the Euro is too volatile in the long term (and short), nobody trusts the Russians enough, the Brits are almost as bad off, economically, as the EU, so maybe the Indian Rupee. Except that India likes it having a relative low value as it helps to grow their economy. That benefits no one at this point.

All that we're hearing from China, Opec, et al is sabre rattling. They're skeered that our reckless fiscal policy is threatening their investment.

Even more to the point; if everyone dumps the Dollar, to whom are they going to sell those dollars to?

Now, is there a chance that Opec might dump the dollar for something else? Sure, but once again, the question to ask is "what will they replace it with?"

[O.S.O.K.]

So for now, we are "safe".

I sure would like to see some cutting and slashing and austerity right fricken now to head-off any motivation for this to happen.

It's good to be king... we have been spoiled and think that it's supposed to be this way.

[HDR]

All that we're hearing from China, Opec, et al is sabre rattling. They're skeered that our reckless fiscal policy is threatening their investment.

Even more to the point; if everyone dumps the Dollar, to whom are they going to sell those dollars to?

As their vaults are filled to overflowing with "dollars" watching 0bama's irresponsible fiscal policies gives them a damned good reason to be afraid. "They" can envision a trillion dollars be worth 500 billion the same as we can see 100 dollars worth 50 dollars.

If and when everyone dumps the "dollar" the reason will be "us" printing too many "dollars." The cost of foreign products will sky rocket and salaries will not increase. The poor will be devastated and the middle class destroyed.

[Lysander]

As their vaults are filled to overflowing with "dollars" watching 0bama's irresponsible fiscal policies gives them a damned good reason to be afraid. "They" can envision a trillion dollars be worth 500 billion the same as we can see 100 dollars worth 50 dollars.

If and when everyone dumps the "dollar" the reason will be "us" printing too many "dollars." The cost of foreign products will sky rocket and salaries will not increase. The poor will be devastated and the middle class destroyed.

No doubt, but at the end of the day, they still have to find someone to buy those dollars, even at their depreciated value. Once again, they also have to find another currency to replace it with, and for the foreseeable future there isn't anything.

Now, with that said and done, if things don't change with the influx of new Republicans, we (the US and all the other countries) will hang together from the rope of our stupid fiscal policy.

[O.S.O.K.]

So you are saying that it won't really matter given the current stupidity - that we will still see the de-facto effects. Rapid inflation.

[Lysander]

So you are saying that it won't really matter given the current stupidity - that we will still see the de-facto effects. Rapid inflation.

Maybe, maybe not.

If you look, you'll notice every 5 years or so folks start screaming about hyperinflation, hyperdeflation, or something else. It's cyclical. So far, they've been dead wrong every time. It also shows their lack of understanding on the subject. In many cases inflation will be a good thing. First off, it means you can pay off your debts more quickly (assuming fixed interest rates). It also means that it will go a long way towards restoring the value of a dollar in the long term.

Deflation can also be a good thing.

It all depends on your perspective and how prepared you are.

[HDR]

No doubt, but at the end of the day, they still have to find someone to buy those dollars, even at their depreciated value. Once again, they also have to find another currency to replace it with, and for the foreseeable future there isn't anything.

As "they" are currently holding trillions of dollars which could end up being a trillion; they are just as screwed as we are.

[O.S.O.K.]

Inflation is only good if interest rates go up (so you can earn more on your investments) and your income rises... otherwise, it sucks.

I understand what you are saying. Your mortgage is say $1200/mo. - this stays the same even though inflation has pushed everything else up and if your income moves up, you now have to use less of it to pay that mortgage.

[raxar]

I understand what you are saying. Your mortgage is say $1200/mo. - this stays the same even though inflation has pushed everything else up and if your income moves up, you now have to use less of it to pay that mortgage.


yeah, you're paying a smaller percentage of your income, but if everything else costs more are you really getting ahead?

[HDR]

Inflation is only good if interest rates go up (so you can earn more on your investments) and your income rises... otherwise, it sucks.

I understand what you are saying. Your mortgage is say $1200/mo. - this stays the same even though inflation has pushed everything else up and if your income moves up, you now have to use less of it to pay that mortgage.

I think we are talking about two different things; if the dollar's value tanks it is different than inflation.

If a barrel of oil increases in price due to inflation; everybody pays more. If the price of the barrel doesn't change and the dollar tanks we pay more.

[Lysander]

Brazilians begin to implement changes to stop the appreciation of the Real (http://www.ft.com/cms/s/0/6316eb4a-1c34-11e0-9b56-00144feab49a.html#ixzz1AbFOWPKN)



Guido Mantega, finance minister, told the Financial Times that Brazil was preparing new measures to prevent further appreciation of its currency, the real, and would raise the issue of exchange-rate manipulation at the World Trade Organisation and other global bodies. He said the US and China were among the worst offenders.

None of the likely contenders want to replace the US dollar.

[O.S.O.K.]

I think we are talking about two different things; if the dollar's value tanks it is different than inflation.

If a barrel of oil increases in price due to inflation; everybody pays more. If the price of the barrel doesn't change and the dollar tanks we pay more.

So, on the one hand, you pay more dollars for a barrel of oil and on the other hand... you pay more dollars for oil - Americans that is.

While it is a point, I'm not worried about what people in Chili pay for oil. I don't live in Chili. :)

[mrkalashnikov]

While it is a point, I'm not worried about what people in Chili pay for oil. I don't live in Chili. :)

And that's probably a good thing. I wouldn't want to live in a bowl of spiced meat & beans, either. On the other hand, I've heard the country of Chile is quite beautiful.