
Why the Dollar's Reign Is Near an End - gatsby
http://online.wsj.com/article/SB10001424052748703313304576132170181013248.html?mod=WSJ_hp_mostpop_read
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loganfrederick
(I swear I'm going to get back to work after this comment....)

In relation to lionhearted's comment and the article, the author of the OP
loses me at the paragraph where they discuss alternatives.

The Euro is barely stitched together and various conflicts between the
participating countries are really going to prevent it from being recognized
as a stable, worldwide _reserve_ currency.

There have been some decent articles the past few years about the potential
for the yuan to be devalued if the Chinese government were to allow it to
float against the dollar. In this case, the yuan may not be quite ready
either, although it's probably a better

And a last note which always gets lost in these discussions is that the U.S.
dollar is supported by the U.S. government and military. If necessary, the
government has quite a few options (all mostly worst-case scenarios) where it
can exert force (economic or military) to ensure no other currency reaches the
international reserve status the dollar still holds.

If I get comments from people asking me to elaborate on any of these points, I
can in six hours after I get off work :)

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btilly
We just approved a short term spending bill to push off the government shut
down. Yay, us.

However it should be noted that if the government shuts down for long enough,
we won't pay our bond obligations. This would be serious. Very serious. In
fact the last time there was a shut down there were two, with a small gap in
the middle as everyone agreed to a temporary emergency measure that avoided
missing bond obligations.

This time around as shutdown looms, we'll see whether Congress keeps this in
mind. They are playing a game of chicken. But if the game of chicken results
in the USA failing to pay our bond obligations on time, even once, we
instantly lose the perception that US treasuries are absolutely risk free
investments. If that happens, our desirability as a currency goes down, our
interest rates go up, and our dollar is likely to drop relatively quickly. The
real nightmare is that this becomes an accelerating spiral.

The odds of this scenario is unlikely. Washington is full of grandstanding
politicians, but those politicians do have intelligent advisers. The
consequences of this one are rather dramatic and well understood. But
occasionally I worry about it.

~~~
jerf
To the extent that people are talking about a shutdown, it has been with the
idea that a resolution will be passed to pay our bond and entitlement
obligations while everything else is shut down.

It should be pointed out that we have enough _income_ to cover those things in
the absence of other discretionary spending, so that does not require more
debt.

A government shutdown will not be accompanied by the financial fireworks that
people are anticipating. Personally I'm all for this style of shutdown. The
savings are immense and quick and I daresay a lot of people will be quite
shocked to learn just how little we need all those government services. I'm
not saying we don't need them at all, just that we need them far _less_ that
people think. We managed to live without them for quite a while, after all.

~~~
btilly
In the mid-90s the Republicans believed that people would be surprised at how
little they missed government services. Then the news was full of things like
people whose vacation plans were ruined by the fact that national parks were
closed. Or people whose travel plans were disrupted because they couldn't get
visas. Or people who were being laid off because their employer was running
out of money due to the shutdown. People blamed the Republicans for it and it
was a disaster.

Sure, most people weren't impacted. But news organizations are in the business
of finding human interest stories. And all of the human interest stories that
you can find around a government shutdown are pretty bad. There will be a
backlash. The only question is who the public decides should be blamed. Given
that people hate Congress more than anyone else in the government, I would bet
they'll blame Congress. (Again.)

As for the savings that you are hoping for, that is not so clear either.

First there is a direct cost to shutting down the government. People have to
put their paperwork in order. You need to hire more security guards. And so
on. An estimate I heard on NPR is that the last time the cost of shutting down
the government was estimated at half a billion.

But then you don't even save that much money. Much of the work that government
does is work they are mandated to do. If nobody does it, the paperwork piles
up. When they start up again it is piled high, and you need to have people
work overtime or hire more until you've worked through the backlogs. In the
end you've done similar work, paid similar money for it (actually you may have
paid more for overtime), and haven't really saved a lot of what you thought
you did.

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pocoloco
The dollar demise seems to be in vogue nowadays thanks in no small part to QE
I and II. I guess it makes for good headlines, especially when gold is over
$1430.

To those of you that may be interested in financial commentaries outside of
mainstream I suggest the following:

\- Mish [1] \- The automatic earth [2] \- Max Keiser [3] \- Jesse's Café
Américain [4]

These can be classified more or less so in three different camps:
inflationist, deflationist, and stagflation. But inflation/deflation here does
not mean price increase, but credit expansion/contraction. Also, these blogs
are all against the status quo, hence their non-mainstream designation. For
that there is WSJ.

For starters, at the automatic earth [2], Illargi and Stonleigh give very
detailed analysis of the current situation taking into account credit
availability and peak oil for example. They argue that we will hit a deflation
period (i.e., credit contraction) before any hyperinflation destroys the
dollar.

Mish [1] is also in the deflationist camp and provides excellent commentary on
current financial news. US centric but with good international coverage.

Max Keiser [3] is an inflationist. I believe that he has called correctly gold
and silver trends (up and up) for the past decade. He’s a very vocal anti-to-
big-to-fail commentator. I think that he’s currently spearheading a movement
to get people to buy silver bullion in order to put JP Morgan out of business
given their alleged silver shorts. Mish, while a good friend of Max, disagrees
and thinks that JP Morgan is most likely well hedge against silver.

Jesse [4] provides a thoughtful market analysis, especially with gold and
silver. He thinks that the US is going into stagflation for quite a while.

[1] Mish's Global Economic Trend Analysis

<http://globaleconomicanalysis.blogspot.com/>

[2] The Automatic Earth

<http://theautomaticearth.blogspot.com/>

[3] Max Keiser — Markets Finance Scandal

<http://www.maxkeiser.com/>

[4] Jesse's Café Américain

<http://jessescrossroadscafe.blogspot.com/>

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lionhearted
This argument's been made since Bretton Woods was ended by Nixon in 1971.

A few years ago, I was convinced that the euro would take over reserve
currency status from the dollar eventually, but cracks are showing in the euro
now - there's competing interests in the European governments for what to do
with the currency. The euro will look strong during booms, but look shakier
during busts.

As for China - maybe in 15-20 years. They're liberalizing and trending upwards
at a fantastic rate, but nobody trusts the Chinese government to do right by
the currency instead of their own interests.

This doesn't mean it's a good idea to hold a bunch of liquid dollars right
now. But barring something really crazy, I think USD holds reserve currency
standard for _at least_ the next decade or two.

~~~
jerf
The decline of the dollar is a choice that we are making by spending with wild
abandon with no heed to the consequences (and indeed, somehow managing to
convince quite a lot of us that we have some sort of moral imperative to
bankrupt ourselves because not spending like drunken sailors is somehow
morally wrong... to be honest I have a hard time following this argument, it's
long since become unmoored from even Keynesian economic theory which at least
had _some_ basis in reality and is now just some vaguely moral imperative to
spend spend spend). If we, you know, stop that, there isn't really a credible
competitor on the horizon that could dethrone the dollar for quite a while.
We're not talking about competition because the other currencies are really
all that strong, we're talking about the end of the dollar as a reserve
currency because we are behaving like idiots.

~~~
lukifer
This makes sense, except that we've been spending with wild abandon since (at
least) Reagan. If we've managed to keep it afloat that long, why is it so
improbable that we might continue to do so for another decade or two (or
longer)?

(I'm not sure myself either way, just playing devil's advocate.)

~~~
jerf
There's been a sea change in the "wild abandon" in the past few years:
[http://www.businessinsider.com/us-federal-government-
outlays...](http://www.businessinsider.com/us-federal-government-outlays-vs-
median-household-income-2010-9) (Look carefully at the X and Y axes; that's
not a traditional chart and time is _not_ X _or_ Y. But it's one of the more
interesting ones I came up with.) Bush started it, Obama made pretty sounding
noises about fixing it but has doubled down on it, and shows no signs of
stopping even though the "recession" excuse is fading away.

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streptomycin
not really: [http://globaleconomicanalysis.blogspot.com/2011/02/us-
dollar...](http://globaleconomicanalysis.blogspot.com/2011/02/us-dollar-about-
to-lose-reserve.html)

