The dollar is dead: long live the ?

Squire wrote:

In days of old you had land, surfs worked the land and the Lord's fields and did service and depending on where you were in this hierarchy was your level of power. If you were powerful you could raise your own army and do a neighbour over and acquire more land. The system relied on land, cheap labour, alliances and a system that prevented, to some extent, constant wars with other land owners.

Some found that the land could produce crops that had value as a product that could be exported, such as wool and others found that through trade you could buy goods cheap and sell at a good profit. A class of producers and middle men developed. Land was still important but not exclusively so.

We then had industrialisation of production. King Coal and all that. The industrialists, resource producers and merchants became decidedly more important than the landed gentry. Empire was about resources, trade and markets. But power and wealth was with those who produced resources, owned manufacturing, traded or to a lesser extent owned land. Wealth still had a tangible base.

In the last century, particularly post WW II we moved into the era of La La economics. All sorts of novel concepts were postulated and became common currency.
1 You can make money not by working or producing, but by playing the markets? Up to a point that can work, but if a lot of people are at it it will either fail, or becomes an enormous burden on those that produce, or is inflationary.
2 That the markets reflect reality; well do they?
3 That you run an economy on Services, only works if the services are mainly to others and they balance imports on manufacturing and resource deficits.
4 You can live on the backs of cheap labour and production abroad.
5 That we somehow have a God given right to a certain standard of living. Do we?
6 This is all coupled with a complete disconnect with the reality that Government spending and intervention is with our money. We pay the bill.
7 That M3 money supply does not matter.

I would like to see a system where we returned to the concept that you gain wealth only by producing, trading, saving and investing long term. The concept of usury is a good starting point.

I would like a system where money supply remained fairly static relative to population, and I don't think that necessitates a Gold standard which brings all sorts of problems of its own. A system where taking real risks, doing and investing long term are rewarded and short term speculation discouraged. We need to move forward from the idea that our companies are run short term for short term gain. Investments are not short term and houses should be just houses.

That's my wish list, but I agree we could be at one of those historic pivot points. The west is rapid decline and seems unable to wake up to reality.

Your list was a good one Squire. You hit the nails on the head. I still don't understand why the dollar hasn't been hit much harder than it has, but it is only a matter of time before a massive inflation hits in. Youngdan says a deflation first. There seems to be growing talk of how to replace the dollar - the yuan or the yoyo ?

Quote :

Your list was a good one Squire. You hit the nails on the head. I still don't understand why the dollar hasn't been hit much harder than it has, but it is only a matter of time before a massive inflation hits in. Youngdan says a deflation first. There seems to be growing talk of how to replace the dollar - the yuan or the yoyo ?

I'm following you around !

I was wondering given that some Euro banks are buying American ones or parts of them - could the Euro and the Dollar be somehow tied within an exchange rate mechanism - stranger things are happening !

Auditor #9 wrote:

Quote :

Your list was a good one Squire. You hit the nails on the head. I still don't understand why the dollar hasn't been hit much harder than it has, but it is only a matter of time before a massive inflation hits in. Youngdan says a deflation first. There seems to be growing talk of how to replace the dollar - the yuan or the yoyo ?

I'm following you around !

I was wondering given that some Euro banks are buying American ones or parts of them - could the Euro and the Dollar be somehow tied within an exchange rate mechanism - stranger things are happening !

A Dollo or a Eurar ? A Globular ? I don't think youngdan would like it.

Squire wrote:

In days of old you had land, surfs worked the land and the Lord's fields and did service and depending on where you were in this hierarchy was your level of power. If you were powerful you could raise your own army and do a neighbour over and acquire more land. The system relied on land, cheap labour, alliances and a system that prevented, to some extent, constant wars with other land owners.

Some found that the land could produce crops that had value as a product that could be exported, such as wool and others found that through trade you could buy goods cheap and sell at a good profit. A class of producers and middle men developed. Land was still important but not exclusively so.

We then had industrialisation of production. King Coal and all that. The industrialists, resource producers and merchants became decidedly more important than the landed gentry. Empire was about resources, trade and markets. But power and wealth was with those who produced resources, owned manufacturing, traded or to a lesser extent owned land. Wealth still had a tangible base.

In the last century, particularly post WW II we moved into the era of La La economics. All sorts of novel concepts were postulated and became common currency.
1 You can make money not by working or producing, but by playing the markets? Up to a point that can work, but if a lot of people are at it it will either fail, or becomes an enormous burden on those that produce, or is inflationary.
2 That the markets reflect reality; well do they?
3 That you run an economy on Services, only works if the services are mainly to others and they balance imports on manufacturing and resource deficits.
4 You can live on the backs of cheap labour and production abroad.
5 That we somehow have a God given right to a certain standard of living. Do we?
6 This is all coupled with a complete disconnect with the reality that Government spending and intervention is with our money. We pay the bill.
7 That M3 money supply does not matter.

I would like to see a system where we returned to the concept that you gain wealth only by producing, trading, saving and investing long term. The concept of usury is a good starting point.

I would like a system where money supply remained fairly static relative to population, and I don't think that necessitates a Gold standard which brings all sorts of problems of its own. A system where taking real risks, doing and investing long term are rewarded and short term speculation discouraged. We need to move forward from the idea that our companies are run short term for short term gain. Investments are not short term and houses should be just houses.

That's my wish list, but I agree we could be at one of those historic pivot points. The west is rapid decline and seems unable to wake up to reality.

That is a very good and comprehensive post Squire. I would add that the distortions in the world economy which are only now coming unravelled does not discount the central validity of the free market economy. Centrally planned, command economies have failed to produce an effective and sustainable standard of living in any country over the past 100 years. If we can keep taxes to a low level where risk is rewarded, enterprise encouraged and investment fostered. If we can keep business regulation light but sufficient, we can create the environment in which real economic progress and evolution can occur. If we ensure that as many functions as possible are carried out by the private sector, costs will be lower, the government will be less distracted and a larger spread of opportunities will unfurl for our business classes.

With all the Pirates in the financial sector I think he would prefer a pocket full of dubloons.

http://store.nwtmint.com/product_details/1306/Pirate_Dubloons/

Squire wrote:

With all the Pirates in the financial sector I think he would prefer a pocket full of dubloons.

http://store.nwtmint.com/product_details/1306/Pirate_Dubloons/

The currency of the New World Order - the "Globular" or the "Dubloon" - votes please...

Ard-Taoiseach wrote:

I would add that the distortions in the world economy which are only now coming unravelled does not discount the central validity of the free market economy. Centrally planned, command economies have failed to produce an effective and sustainable standard of living in any country over the past 100 years. If we can keep taxes to a low level where risk is rewarded, enterprise encouraged and investment fostered. If we can keep business regulation light but sufficient, we can create the environment in which real economic progress and evolution can occur. If we ensure that as many functions as possible are carried out by the private sector, costs will be lower, the government will be less distracted and a larger spread of opportunities will unfurl for our business classes.

I agree but I also think there are services that the government should provide. Funding road building, etc.

For a free market to work effectively you need;
1 Confidence in the market;
2 A level playing field and less of the insider deals;
3 Simple efficient and effective regulation;
4 An expectation of high ethical standards for both those in public office and in business. This needs to be coupled with severe penalties for fraud and malpractice.
5 It must encourage wide participation and we do need to look at those who are excluded from the opportunities that many of us take for granted.

I am for a few hours sleep, been working for close on 40 hours now.


Cactus Flower.

Arrh me harty, it's dubloons and pieces of eight for me, and off to sail the seven seas in search of plunder.

Squire wrote:

Ard-Taoiseach wrote:

I would add that the distortions in the world economy which are only now coming unravelled does not discount the central validity of the free market economy. Centrally planned, command economies have failed to produce an effective and sustainable standard of living in any country over the past 100 years. If we can keep taxes to a low level where risk is rewarded, enterprise encouraged and investment fostered. If we can keep business regulation light but sufficient, we can create the environment in which real economic progress and evolution can occur. If we ensure that as many functions as possible are carried out by the private sector, costs will be lower, the government will be less distracted and a larger spread of opportunities will unfurl for our business classes.

I agree but I also think there are services that the government should provide. Funding road building, etc.

For a free market to work effectively you need;
1 Confidence in the market;
2 A level playing field and less of the insider deals;
3 Simple efficient and effective regulation;
4 An expectation of high ethical standards for both those in public office and in business. This needs to be coupled with severe penalties for fraud and malpractice.
5 It must encourage wide participation and we do need to look at those who are excluded from the opportunities that many of us take for granted.

I am for a few hours sleep, been working for close on 40 hours now.


Cactus Flower.

Arrh me harty, it's dubloons and pieces of eight for me, and off to sail the seven seas in search of plunder.

Sleep well

Why don't we go back to predecimalisation? Always sounded like great fun to me! I'll have a thruppence worth if you don't mind... perhaps I could have a farthing extra? Down the road it costs 5 shillings, 1 crown and 4d.

I would hasten to add that I think the Famous Five should be on the core cirriculum for English Literature students everywhere.

johnfás wrote:

I would hasten to add that I think the Famous Five should be on the core cirriculum for English Literature students everywhere.

That would be jolly good fun

johnfás wrote:

I would hasten to add that I think the Famous Five should be on the core cirriculum for English Literature students everywhere.

The Famous Five Investigate Sub-prime mortgages?

cookiemonster wrote:

johnfás wrote:

I would hasten to add that I think the Famous Five should be on the core cirriculum for English Literature students everywhere.

The Famous Five Investigate Sub-prime mortgages?

And find lashings and lashings of credit derivatives and toxic legacy assets ?

Link

Auditor #9 posted this interesting blog on the unexpected rise of the dollar on another thread.

The idea of placing the dollar as reserve currency with a basket of currencies
is being floated, and rockyracoon has posted on this in detail. The writer of the blog homes in on the US's very high level of indebtedness as ultimately likely to lead to an end to the currency's reserve role, but at the moment it may be a case of "any familiary port in a storm" and people are pursuing dollars for the want of anything better.

Medvedev has again called for an end to the Bretton Woods agreement.

There seems to be no possibility that the US dollar hegemony will continue, or the G7, of any other exclusive "rich man's club" as globalism has blown the door open and wealth production has spread from China, India, Korea, Brazil, and wherever next, and can't be corralled back under the control of any single state. Any state that tries, will bankrupt itself, as the US has, with the military costs.

The Euro seems to be too unstable, and uncertain and China is unready. Gold is too limited: supplies are stretched everywhere and coinage disappears into vaults faster than it can be melted.

There is a need for another and probably completely different value to back currency. Oil has been talked about, but what's the sense in a reserve that is diminishing and irreplaceable ?

Some new means of relating the value of currency to the value of resources and productivity is needed.

http://www.moneymorning.com/2008/04/08/exclusive-interview-investment-guru-jim-rogers-predicts-more-pain-for-the-greenback-and-the-failure-of-the-federal-reserve/

Another interesting interview borrowed from the Cafe Americain.

Just copying this interesting post from Auditor #9 here:

Quote :

Re: Breaking News: Obama is the 44th President Elect of the USA
by Auditor #9 Today at 10:18 am

Did Greenspan ruin the Greenback ? Next thing we've to look forward to in the middle of this month when the Heads cook up some new global deal. Here's a ten-minute discussion between Max Keiser and Christian Stoffaes on the role of Greenspan in inventing the New Finance of de-regulating money management and turning the Fed into a Wall Street investment bank by overturning legal Acts intended to protect national money.

In each case, be it the October 1987 stock crash, the 1997 Asia Crisis, the 1998 Russian state default and ensuing collapse of LTCM, to the refusal to make technical changes in Fed-controlled stock margin requirements to cool the dot.com stock bubble, to his encouragement of ARM variable rate mortgages (when he knew rates were at the bottom), Greenspan used the successive crises, most of which his widely-read commentaries and rate policies had spawned in the first place, to advance an agenda of globalization of risk and liberalization of market regulations to allow unhindered operation of the major financial institutions.

The Rolling Crises Game

This is the true significance of the crisis today unfolding in US and global capital markets. Greenspan’s 18 year tenure can be described as rolling the financial markets from successive crises into ever larger ones, to accomplish the over-riding objectives of the Money Trust guiding the Greenspan agenda. Unanswered at this juncture is whether Greenspan’s securitization revolution was a “bridge too far,” spelling the end of the dollar and of dollar financial institutions’ global dominance for decades or more to come.

Greenspan’s adamant rejection of every attempt by Congress to impose some minimal regulation on OTC derivatives trading between banks; on margin requirements on buying stock on borrowed money; his repeated support for securitization of sub-prime low quality high-risk mortgage lending; his relentless decade-long push to weaken and finally repeal Glass-Steagall restrictions on banks owning investment banks and insurance companies; his support for the Bush radical tax cuts which exploded federal deficits after 2001; his support for the privatization of the Social Security Trust Fund in order to funnel those trillions of dollars cash flow into his cronies in Wall Street finance—all this was a well-planned execution of what some today call the securitization revolution, the creation of a world of New Finance where risk would be detached from banks and spread across the globe to the point no one could identify where real risk lay.
http://www.engdahl.oilgeopolitics.net/Financial_Tsunami/The_Financial_Tsunami_Part_III/the_financial_tsunami_part_iii.HTM

I agree with the rolling crises view, and have said a few times here that the present crisis originated back in the 1970s or even before.

The current relative weakness of the euro has people saying that the dollar may not have had its day, or that it may unravel slowly rather than implode.
The way the dollar's function as reserve / trading currency is used to support US indebtedness is something that I still haven't got crystal clear in my head, in spite of the interesting videos.

I don't pretend to have it clearly in my head either so I'm going to have to find out. We have only bits and pieces and some of it speculative conspiracy theory about Iraq but other bits and pieces are nothing speculative at all but are historical and economic fact like the pricing of oil in dollars in the seventies after Nixon announced the Gold peg would end.

Do countries on opposite sides of the world and nowhere near America really have to do their trade in dollars ?

Does American national debt fall as the value of the dollar falls ?

America is like the world's bank with the world's currency flowing in and out of it in petrodollars and no one really questions the profit that bank makes and if it should make it and keep it in the first place. AIB and BOI here were making 2 billion a year in profits for a while but no one really questioned it so much. How much does it cost to run The Bank that is America ? Like a normal bank which has running costs, America has costs too but are these appropriate to the running of the bank ?

In the kids youtube video with the self-drawn diagrams of America and Europe he said much the same about the petrodollar. Peculiarly there is, he said, 749 billion dollars more in the world than needs to be i.e. the bank has some extra cash. This was in April and we saw Paulson in September and October looking for 800 billion... Coincidence ?

Peter Schiff on the second one (top right) gave the analogy of five or six people stranded on an island - an asian, american, australian, african etc. They all worked while the American consumed most of what they produced. His excuse was that they wouldn't have jobs if he didn't consume. There is probably a huge strain of the truth in this. China feeding America... activity, production, growth.

And money can be as confusing all you want but you know exactly what it means when someone comes to collect what is owed to them in loans derived directly from their labour.

BoE interest rates slashed to 3% from 4.5%. That is more than expected.


EDIT

ECB cut .5% If sterling falls against the Euro NI retail will boom this Christmas.

Someone here recently had a Bloomberg link about the world's wealth being calculable in the quadrillions. In this texted video below, your man writes that a rough brush stroke calculation of the world's wealth in terms of stock and bond markets, derivatives, insurance and God know's what else - which is denominated in dollars is in the order of a couple of quadrillion.

He writes that unravelling all of these inter-connected transactions denominated in dollars and switching to a different currency would be highly unlikely so the dollar will stay for another while anyway. Is it like a massive world-wide Y2K issue involving computer and other files, documents, processes everywhere etc. ? The Euro is perhaps the most recent example of a currency which could gain some of the business of the dollar as world reserve and if some of the countries of Asia were to come up with something similar then that might also eat into the dollar hegemony as reserve. Thus only gradually will the dollar fade away or reduce in importance unless, it is said, the Chinese perhaps decide to commit financial Hari-Kiri and dump theirs on world markets.

In my understanding, the effect of the dollar hegemony and the petrodollar is that the value of American foreign debt falls as the dollar value falls... It's hard to imagine it all but the upshot might very well be that Americans do a lot less work as a society in order to pay for imports ...