

Global economy has no substitute for falling dollar - cwan
http://business.timesonline.co.uk/tol/business/economics/article6888848.ece

======
fnid
Currency is like stock in a nation. We always talk about the falling dollar,
but what we are _really_ talking about is the decline of the American empire;
decline of trust, decline of confidence, decline of a prosperous future,
decline of value _for the world_ created from within America and exported to
other nations.

Our economy for the past decade or so has been directed internally. We are
only thinking of ourselves. We are building guns for our wars and no butter
for our neighbors. We are spending millions and billions of dollars on
entertainment in the form of sports stadiums and franchises that only
americans care about. We are not spending money on education for our creative
future generations who will find and solve problems for the world.

We are not talking about a decline in the dollar, we are talking about a
decline in the faith that those who control the value of the dollar are acting
in the best interest of the nation over the best interest of a relative few
who provide no value to anyone but themselves and their close friends.

~~~
gwern
> We are spending millions and billions of dollars on entertainment in the
> form of sports stadiums and franchises that only americans care about.

<http://www.newsweek.com/id/177422>

> Regarding business, the answer is yes. The Bureau of Economic Analysis
> reports that between 1986 and 2005, foreign sales of U.S. motion-picture and
> video products rose from $1.91 billion to $10.4 billion (in 2005 dollars)—an
> increase of 444 percent. As Dan Glickman, president of the Motion Picture
> Association says, "Among all the sectors of the U.S. economy, our industry
> is the only one that generates a positive balance of trade in every country
> in which it does business." The same is true for the TV and music
> industries, and the reach is far greater when piracy is figured in.

I rather wonder how much the figures increase when all entertainment is
included (sports, video games, etc.).

------
eserorg
There is a substitute for the falling dollar: hydrocarbons.

Here is an interesting thought experiment to try:

1) The Dow Jones Industry Average (aka "the Dow") is a weighted average of the
aggregate value of 30 of the largest and most widely held public companies in
the United States. In other words, think of the Dow as answering this
question: "How many dollars does it take for me to buy a piece of the most
valuable corporations in the United States?"

2) Now, try this: draw a graph of the Dow denominated not in dollars, but in
barrels of oil.

3) In other words, answer this question: "how many barrels of oil does it take
to buy a piece of the most valuable publicly-traded corporations in the United
States?" (Also, try this for Gold -- "how many ounces of Gold does it take to
buy a unit of the Dow?")

4) Answer this question for: (1) the present day, (2) 1999 -- the peak of the
dot-com bubble, (3) 1980 -- the depths of the pre-Reagan recession, (4) 1933
-- the depths of the "Great Depression", (5) 1972 -- the aftermath of
Johnson's "great society" and the Vietnam war.

5) Notice anything interesting?

6) This explains why may cash-rich entities, such as the sovereign wealth fund
of China, are trading their dollars for stakes in petroleum producing
properties. This asset allocation provides two benefits: (1) protection of
their principal, (2) a steady cash-flow of fiat currency with which to acquire
more properties, and/or finance liabilities.

7) Every time the Obama administration runs a deficit of US dollars and calls
on the treasury and/or fed to increase the supply of dollars (and to
consequently decrease the value of dollars in _your_ pocket), think of it as a
wealth transfer to people in the Oil and Gas business; As well as to those who
have the resources, connections, and know-how to allocate capital to the
hydrocarbons industry.

There is a substitute for dollars, it's just not available to the average
person -- whose net work will be steadily eroded, in real terms, as the U.S.
continues to run deficits to finance: (1) two wars, (2) "universal health
care", (3) "clean energy" subsidies

Every time you read a dollar-denominated figure, convert that to barrels of
oil. It's a fascinating exercise -- especially when you have some historical
perspective on this metric.

The thing with oil is that you can only consume what you have. Unfortunately,
that is not true with dollars -- trillions of them have been created out of
thin air over the past year.

Here's a radical idea: What if there were a country who pegged it's currency
not to the dollar, or to gold, but rather to oil?

~~~
camccann
_Here's a radical idea: What if there were a country who pegged it's currency
not to the dollar, or to gold, but rather to oil?_

An interesting idea, but would probably get awkward in the mid-to-long term.
Oil is a consumable resource with a finite (and dwindling) supply. At some
point in the relatively near future, the price of oil is likely to gradually
become completely unhinged from its historical value (in the sense of value as
wealth, not cost).

You'd get some of the same effect in a more stable manner if you instead
pegged a currency by energy production capacity of an arbitrary consumable
resource. For instance, something like "one zorkmid shall equal the average
cost in consumed resources to produce twenty kWh of power from a power plant
generating at least one gigawatt" or "one zorkmid shall equal the cost in
consumed resources to drive at 50mph for one hour in a standard four-passenger
vehicle".

------
1gor

       Meanwhile, the Chinese are unlikely 
       to allow their currency to appreciate in value
    

Why? Seems like a completely baseless assumption. When US consumption is on
the rocks, the only engine of growth for China is its own huge domestic
market. Strengthening domestic currency will stimulate consumer boom and turn
China from pure exporter into a most attractive market in the world, similar
to what US has been for most of 20th century. This turnaround will not happen
overnight, but it will eventually happen.

~~~
cturner

        Why?
    

If they let the dollar go, it won't just slide, it'll collapse. It'll be game
over for the dollar. The leadership will lose staggering amounts face over all
these savings they've accrued in this rotten dollar. This will undermine their
attempts to push further towards a market economy but - something they can be
more fearful of - it will threaten the stability of the state.

In the west we can have an economic collapse, and the government is thrown
out, and things shake but we swap in a new political class and get back to
work. China doesn't have pressure valves, and they're an already unwieldy
nation - lots of ethnic groups, many of which don't want to be part of China,
a culture of corruption, a huge wealth gap. They have a further problem in
that there are examples of small nations of Chinese doing very well without
being part of a juggernaut state - Taiwan, but Singapore and the legacy of
Hong Kong/Macau in their own way also.

As in the west, the Chinese leaders are using stimulus to procrastinate. But
the stakes are much higher. The USD situation is like cancer for the Chinese.
The only play I can see out of their situation will be to force an arrangement
where they could get their holdings of USD reinterpreted into a more
trustworthy store of value.

~~~
1gor
I would not overestimate importance of the dollar for the Chinese. Those
dollar holdings are a simple by-product of past currency interventions, a way
to park those dollars bought from exporters of electronic goods etc, not a
conscious choice to invest some 'savings' in the US. Also, China's trade with
US is less than its combined trade with countries of Pacific Region.

Also, I would not agree with your characterisation of China and its regime.
Its current government has been doing wonders lifting hundreds of millions of
people out of poverty, and cases of corruption unfortunately happen everywhere
-- from Chicago to Shanghai. They do have a bit different social organization,
but its current modification seems to work for them for the past thirty years.

------
rfreytag
Competitive devaluations seems similar to competitive tariffs in that both
favor export over import through a zero-sum action (someone loses for you to
'win') that harms other nations.

The only way out may be to grow the economy.

Time to fund lots and lots of startups in hopes some find a value-producing
and demand-inducing advance.

------
brc
That article is full of baseless opinion masquerading as fact. 'Eurocrats are
secretly pleased with the Euro strength'? Which 'Eurocrat'? What did they say?

The fact is nobody knows what is going to happen but people shouldn't blindly
assume the USD is going to stay the global reserve currency.

No currency has ever lasted the test of time, and paper-based currencies are
lucky if they make a couple of hundred years.

All this started nearly 40 years ago when Nixon dropped the gold standard.
People predicted it back then, but they couldn't be sure of the timeline. The
same stays true today ; it's going to happen (failure of USD as a global
currency) but nobody knows when.

