Yet another blog.
Published on September 30, 2008 By kwm1800 In Politics

(This may be on economic section... but I feel it is more suitable on politics section) Dollar.

 

As recent incident, it is now really hard for US government and economy to protect the dollar as basic currency.

With recent financial incidents indicate that the value of dollar would further decrease, since US just spent some

good money on saving companies.

 

Now, with dollar value decreasing, this may change the minds of oil nations and give chance to Euro and/or RMB as new basic currency.

Well, Euro has been got stronger in recent years, but the crucial point would be when OPEC begins to regard Euro as major currency for trading the oil. Currently about 70% of oil trade is done via dollar, while other 30% is made of Euro (20%) and other currencies.

Big question is what will be happen if dollar is no longer major currency for oil trading, thus losing its status as basic currency in the world?

Or in less extent, what will be happen if all major banks more inclined to favoring mix of currencies for all the transactions? (for example, now you have to trade with some dollars, some euros and RMB together, not dollar alone like you could before)

 

As I understand, this means US will lose its control over world economics (well, the overall dollar value/storage in the world will decline since it wouldn't be necessary to keep and obtain the dollar,) and there won't be enough 'returns' for US economics for 'spending'. I am pretty sure there are other effects, but these two alone will cause some very undesirable consequences for the people of US (and of course it won't be good for my nation, since our new president is just idiot and underwhelming.)

 

I hope dollar would keep its position as same as today in future as well, but the chance to save dollar is getting slim; now the question is, are there any politicans ready for this? How about two US presidental candidates?


Comments
on Sep 30, 2008

Other currencies are falling as well, including the euro. I wouldn't worry too much.

on Oct 01, 2008

Now, with dollar value decreasing, this may change the minds of oil nations and give chance to Euro and/or RMB as new basic currency.

More important factors are that we buy the most crude oil and also that the market price of certain other countries crude oil is calculated based on the price of Wet Texas Crude futures prices.

 

In any case I wouldn't worry too much about the dollar value....It has to go down or we will never be able to reduce the trade deficit. Some days I wonder if we can even do this since a lower dollar will help with the trade imbalance we have with China for example but will at the same time increase the price of oil so offset that negatively....Guess we need to get off our addiction to oil.

on Oct 01, 2008

Other currencies are falling as well, including the euro. I wouldn't worry too much.

Since what's relevant is the relative value of the dollar compared to other currencies, then you should worry, since the USD is extremely low now.

But then again, the currency is not a problem by itself. It's more like a side-effect to all the other problems America has had in the past 10 years.

on Oct 01, 2008

Since what's relevant is the relative value of the dollar compared to other currencies, then you should worry, since the USD is extremely low now.

In comparison to what?  Currencies always fluctuate.  For most of the 80s and 90s, the Dollar lorded it over other currencies to the detriment of those currencies (but not much else).  What goes up, must come down.  Unlike what many would like you to think, there is always a down side, and the fluctuations of the currency help keep nations in balance.

When the dollar gets too low, it will rebound, and not before.  What can kill it are things like the bailout where a country decides to just print money (making it worthless) (Printing is an archaic term, but the image is still a good one).

That is why the bail out is bad.  It will basically not teach the people who made the mistake a lesson, and make sure that those who did not make a mistake - have less to show for their good sense.

on Oct 01, 2008

That is why the bail out is bad. It will basically not teach the people who made the mistake a lesson, and make sure that those who did not make a mistake - have less to show for their good sense.

Unfortunately you do not understand the underlying crisis which far outweighs "printing new money". We are not "printing new money" to expand the money supply. We are "printing new money" to get one class of bad derivatives out of the market so that we have more time to deal with another class of bad derivatives.

It will basically not teach the people who made the mistake a lesson

Not doing the bailout will not teach those who caused the problem anything. It will cause a lot businesses who rely on overnight credit to close their doors. This is already starting to occur. From there the chain reaction should be fairly obvious. More job loss. More bank withdrawals, more business loan defaults, more home foreclosures, more bank failures, spiraling inflation, and so on and so forth.

on Oct 02, 2008

In comparison to what? Currencies always fluctuate. For most of the 80s and 90s, the Dollar lorded it over other currencies to the detriment of those currencies (but not much else). What goes up, must come down. Unlike what many would like you to think, there is always a down side, and the fluctuations of the currency help keep nations in balance.

When the dollar gets too low, it will rebound, and not before. What can kill it are things like the bailout where a country decides to just print money (making it worthless) (Printing is an archaic term, but the image is still a good one).

Don't try to teach me about economics, Guy That's why I said the currency's weakness isn't something to worry about in itself. It's weak, yhea. But that's because of other factors that makes USA's economy looks bad in comparison to others.

Weak dollar means more people will be able to buy into America, which is good. But with your commercial balance (or should I say, inbalance), you end up paying a lot more for your imports, which will cause inflation, and higher commodity prices (such as for the Oil).

Now, the whole point is determining to find the Dollars "real value" when you don't think about economic cycles. Personnally, what's relevant to me is the USD/CAD ratio, which is about 1.01 USD/CAD right now. Since Canada exports a lot into the USA, we would want our currency to be low compared to you, since it's going to favour OUR business. But then, while our dollar is strong, it should be an incentive to go buy equipment into the USA to modernise our industry.

But with the whole financial problem we are having right now, nobody can actually milk that economic situation of a weak USD, since credit is too tightened for beneficial re-investment, sadly. We have to solve that problem!

on Oct 02, 2008

Unfortunately you do not understand the underlying crisis which far outweighs "printing new money". We are not "printing new money" to expand the money supply. We are "printing new money" to get one class of bad derivatives out of the market so that we have more time to deal with another class of bad derivatives.

No, we are.  Pure and simple.  The bail out will be printing new money.  And that is goign to hurt everyone, not just the speculators.  The losses are not going to be losses, but paper gains, and the paper will not be worth anything.  I understand the sitaution all too well.  You dont seem to want to look behind helping "Sally and Johnny" when big bad INVESTMENT bank goes belly up.

Don't try to teach me about economics, Guy

Now, the whole point is determining to find the Dollars "real value" when you don't think about economic cycles.

It seems I either must, or allow you to just remain ignorant when you make statements like the above.  The problem is when people (governments etc.) try to set the real value!  The road to hell and good intentions.  That is the problem.  I am sure your intentions are good, but your actions will only serve to hurt the situation.

But with the whole financial problem we are having right now, nobody can actually milk that economic situation of a weak USD, since credit is too tightened for beneficial re-investment, sadly. We have to solve that problem!

And that is false. When the circumstances warrant it, the investment will come.  But right now the return is not there, so that is why the money is not flowing in. In other words, the economic situation is not ready to be milked, and trying to milk it prematurely will only result in loses.  Trying to prime the pump when the pump is still being fixed will only waste the priming water.

on Oct 02, 2008

It seems I either must, or allow you to just remain ignorant when you make statements like the above. The problem is when people (governments etc.) try to set the real value! The road to hell and good intentions. That is the problem. I am sure your intentions are good, but your actions will only serve to hurt the situation

I haven't said "set", I've said "determine". In effect, trying to find out which side of the cycle we are. sadly, that's usually more guess game than anything else But is the dollar value weak merely because of economic cycle, or is there underlying fundementals supporting that losse? If there is fundementals toward that slip down, then you might expect that there won't a climb back.

But usually, nobody should try to influence directly the exchange rate for currencies (except when you want a set value, like the AED). Federal governement is never considering the exchange rates, it is considering the economy. The exchange rate is merely a byproduct of the economical state we are in.

But then, I am a strong supporter of an healthy economic cycle of expension/recession. I really think the central governements in the past years have done too much to prevent recessions (which prevents liberation of capital on the long term). So maybe we think more alike than you might think.

And that is false. When the circumstances warrant it, the investment will come. But right now the return is not there, so that is why the money is not flowing in. In other words, the economic situation is not ready to be milked, and trying to milk it prematurely will only result in loses. Trying to prime the pump when the pump is still being fixed will only waste the priming water.

The problem is that the credit situation is in bad situation because of something different than the general state of the economy. The financial sector is in a crisis, but the rest of the economy isn't that bad off - for the moment. If the credit was bad because of over-production = high interest rates, then it would be NORMAL for everybody to stop investing. The whole point of tight credit is to limit new investment to prevent economical overheating, it's a natural process (as natural as free market can be). But right now, we aren't overheating. The causality is inverse. It's not the economy that cause tightened credit, the credit tightened because of other factors.

And a tightening (sur-tightening? very possible) of the credit will cause a slowdown of the economy, maybe a very big slowdown that has nothing to do with natural economical cycle. That is why it is economically very bad to let it run it's course!