US Dollars? Do you have anything of real value?

[mrt144]

The dollar is going to run into still unsolved debt problems again.

Which still makes me chuckle when the Rouble is being considered for a basket of currencies. What, because Russia has Natty Gas for centuries?

 

[GenMarshall]

The dollar is going to run into still unsolved debt problems again.

That ain't gonna happen. Especially with the laughable idea of having the Russian Rubble being in the basket.

 

[xchen08]

First things first:

1) There is no reason to believe that ending the trading of oil in dollars would do any long term harm to the U.S. Indeed, the most immediate effect is significantly greater control over the dollar by the Fed. Much like the end of Bretton Woods, this would most likely benefit the U.S. in everything but the very short term, and is unlikely to do any damage even then assuming a competent Fed response.

2) The Oil States, particularly Iran and Venezuela have been saying this for decades, and having "secret meetings" (that are somehow known by everyone) with the Russians, the French, and later the Chinese for all that time, and nothing's come of it. I won't say it won't happen, but it's definitely a case of the boy who cried wolf.

3) The RMB (and to a lesser extent, the yen) would be a terrible currency to trade oil in, being an undervalued currency pegged to the dollar in order to boost exports. China would definitely like for the RMB to be used, both for reasons of prestige and control, but the oil states would never agree unless they are either stupid or China somehow has them by the short hairs. China's been making threats of this nature every time the U.S. has made sounds about new trade regulations (like now), banking on general economic illiteracy in the U.S. for the threat to work, but has never carried through.

4) Using a basket of major currencies, no matter the composition could work, and does free the oil states from the vagaries of the U.S. government and economy without subjugating them to somehow else, but has serious drawbacks of its own. To make a long argument short, the oil states would only benefit if the dollar keeps on falling without inflating.

 

[Kerozine]

Depends whichever currency the largest oil consumming countries prefer to conduct business in. Supply & Demand.

 

[Theige]

I believe China will have to make the RMB a freely exchanged currency before it can be used in any kind of oil trading... which could lead to a significantly large appreciation in the RMB

 

[Cheezy the Wiz]

That ain't gonna happen. Especially with the laughable idea of having the Russian Rubble being in the basket.

Whine all you want, but no one complains about getting a smoked Siberian Trout dinner for the equivalent of $9.

 

[Elta]

I was always told (by high school teachers mind you) that the Dollar is/was artificially high because we are such a big country and if the U.S. was split into say 10 countries with 30 million people all with different currencies the relative value of each of these would be much lower.

As such, with the Total GDP of China growing closer to that of the U.S. and Europe in fact passing over the U.S., it is only natural that it would level off a bit.


I do not believe it to be in a permanent slide.

 

[Theige]

I was always told (by high school teachers mind you) that the Dollar is/was artificially high because we are such a big country and if the U.S. was split into say 10 countries with 30 million people all with different currencies the relative value of each of these would be much lower.

As such, with the Total GDP of China growing closer to that of the U.S. and Europe in fact passing over the U.S., it is only natural that it would level off a bit.


I do not believe it to be in a permanent slide.

It is a permanent relative slide, because the rest of the world is catching up, relatively.

The Euro has already arisen as the challenger to the USD as the world's #1 reserve currency.

China still has to let the RMB exchange freely before they challenge the USD, and they're going to take their time doing that.

 

[Elta]

It is a permanent relative slide, because the rest of the world is catching up, relatively.

The Euro has already arisen as the challenger to the USD as the world's #1 reserve currency.

China still has to let the RMB exchange freely before they challenge the USD, and they're going to take their time doing that.

There is a more accurate version of what I meant to say.

 

[innonimatu]

http://www.independent.co.uk/news/business/news/the-demise-of-the-dollar-1798175.html

Discuss the potential implications of this. Is it simply a jerk move bu some of the Gulf states to poke America in the kidneys, or are we seeing a real trend towards long-term confidence-loss in the USD?

My guess is long-term. This is risky, they wouldn't be playing with fire if they didn't meant business. And the euro is not any more solid than the dollar.

Consequences? For me, I won't ever be able to afford finishing my collection of 18th century portuguese coins. Lots of gold coins and this damn rise in gold prices won't be reversed anytime soon...

 

[SunTzu]

I believe the USD will continue to be the international currency for the foreseeable future. Although in the future there will eventually be an international currency that is comparable to the IMF SDRs. The only currency that has a chance of taking over the USD is the Euro. The Chinese Yuan is simply a joke as it is currently pegged to the USD and, currently, it is agreed that if the Yuan was unpegged from the Dollar (like it should be) then the Yuan's value would depreciate to a realistic level.

 

[Elta]

Everyone else seems to think it is being keep artificially low and would go up.

Source? Or is that just an opinion.

 

[Whomp]

Everyone else seems to think it is being keep artificially low and would go up.

Source? Or is that just an opinion.

Well, of course, it's just opinion because the only way to know would be to allow the yuan to float freely which it does not. So ask yourself...what is the most important objectives of the Chinese government?

It's pretty clear that near full employment and export markets (37% of GDP) are what the Chinese need to continue to fuel their GDP growth and maintain stability politically. Their domestic market is in its infancy so the best way to do this is peg their currency for strong exports. They can't switch from external to internal demand as a economic driver.

If they allowed their currency to float freely I'm not sure you could find anyone who believes it wouldn't trade very strong but hurt their main goal, employment.

Here's a piece that can give you a baseline on valuation.

http://www.voxeu.org/index.php?q=node/3666

What's interesting is eight of the eleven Asian countries within the top thirty economies (the exceptions are India, Indonesia, and Korea) are on the list of significantly undervalued currencies, and the list is dominated by eight Asians out of eleven countries on the list. This simply suggests the not so controversial view that Asian countries have undervalued their currencies as a strategy to generate employment growth with China leading the way at 40% overvaluation.

I think a more provocative question is China's exports currently account for about 10% of the world's exports and are almost tied with Germany for the No. 1 position in the world. If these numbers continue to grow at their historic 25% rate (and world exports at their historic 10% rate), then by 2020 exports from China would account for almost 50% of the entire world's exports. Is such a situation is economically and politically possible? I would suggest not for two reasons but no need to clutter the thread further.

 

[mrt144]

Well, of course, it's just opinion because the only way to know would be to allow the yuan to float freely which it does not. So ask yourself...what is the most important objectives of the Chinese government?

It's pretty clear that near full employment and export markets (37% of GDP) are what the Chinese need to continue to fuel their GDP growth and maintain stability politically. Their domestic market is in its infancy so the best way to do this is peg their currency and they can't simply switch from external to internal demand as a driver.

If they allowed their currency to float freely I'm not sure you could find anyone who believes it wouldn't trade very strong but hurt their main goal, employment.

Here's a piece that can give you a baseline on valuation.

http://www.voxeu.org/index.php?q=node/3666

What's interesting is eight of the eleven Asian countries within the top thirty economies (the exceptions are India, Indonesia, and Korea) are on the list of significantly undervalued currencies, and the list is dominated by eight Asians out of eleven countries on the list. This simply suggests the not so controversial view that Asian countries have undervalued their currencies as a strategy to generate employment growth with China leading the way at 40% overvaluation.

I think a more provocative question is China's exports currently account for about 10% of the world's exports and are almost tied with Germany for the No. 1 position in the world. If these numbers continue to grow at their historic 25% rate (and world exports at their historic 10% rate), then by 2020 exports from China would account for almost 50% of the entire world's exports. Is such a situation is economically and politically possible? I would suggest not for two reasons but no need to clutter the thread further.

Damnit Whomp, you need to stop holding yourself back. People here really do want to see what you have to say.

 

[Whomp]

Damnit Whomp, you need to stop holding yourself back. People here really do want to see what you have to say.

I really need to learn how to twitterspeak, don't I?

 

[Elta]

The export thing is why I think it is being held down.

The rest was all good information, don't hold back

 

[Cutlass]

I really need to learn how to twitterspeak, don't I?

Actually, no. It would be more helpful if you posted like that more frequently.

 

[civ_king]

tl;dr (I actually read the OP though)

Was expecting this sooner or later and was thinking on the sooner

 

[Cutlass]

Saw this yesterday. It's not really about the dollar. But it has a bit that relates to this discussion I feel.

By DAVE KANSAS

Gold, like other commodities, is a notoriously volatile and fickle investment. It has enjoyed periods of very high interest from investors, followed by long bouts of absolute indifference. Today, it is having one of the former, shining brightly in an otherwise tumultuous investment environment.

The question for investors: Will gold remain bright or not? More long term, what role should gold play in an investor's portfolio? The answer to both questions might disappoint the growing golden horde.

Gold has had a terrific run. Since 2005, its price has essentially doubled -- something few other assets can claim. But the surge in gold prices masks some underlying realities. Gold's long-term track record isn't great and the metal has a penchant for huge, long swings that can burn investors. That's a reason to be cautious about gold's current clarion call.
Peak in the Early 1980s

During the late 1970s, not long after the U.S. went off any semblance of a gold standard to back its currency, gold skyrocketed, eventually reaching about $850 an ounce in 1980.

The thinking at the time seemed straightforward. An unrelenting and expensive Cold War, untameable inflation and soaring oil prices would place huge pressure on the dollar, stocks and bonds, making gold one of the few investments that would hold its value.
[getting going gold investing] Dave Whammond

The argument had some merit. The Soviets had just invaded Afghanistan, oil prices were racing toward $100 a barrel and the stagflation days of the 1970s were fresh in the mind.

But what happened? Gold prices plunged.

Gold skidded from $800 an ounce over the next few years and didn't see that level again for nearly three decades -- and on inflation-adjusted terms we remain well off that mark even today. Gold investing became a fool's game, a land of dead money. Instead of the world unfolding as gold bugs expected, the Federal Reserve tamed inflation, the Cold War petered out and oil prices dropped into the $10-a-barrel range.

In other words, investing in gold may sound simple, but history tells us it's anything but.

What drives gold prices? It's an alchemist's mixture of fundamentals and fantasy. Gold certainly has industrial uses and it's a hot item for purchasers of jewelry, especially in India.

But fundamentals don't support the soaring gold picture of late. As Carl Weinberg, chief economist at High Frequency Economics, a Valhalla, N.Y., research firm, notes: "Industrial demand for gold surely is depressed -- along with demand for other industrial materials -- and jewelry demand must be hard-hit by global recession."

Adding to the fundamental doubts about gold's surge is the performance of other commodities. Wheat, corn, nickel, copper and stainless-steel prices have all declined from highs reached ahead of the global financial crisis. Gold, however, has simply marched higher with barely a pause, smashing through $1,000 an ounce early in September before a recent retreat.

That brings us to the fantasy half of the equation, which seems to be the main driver of gold today. Gold is the asset class of choice for those who fear grim tidings ahead. A collapse in the dollar. Runaway inflation. Civic upheaval. Some gold bugs talk of stockpiling seeds, bullets and canned goods. It can get a little Area 51.

As with many fantasies, there's a whiff of possibility to some of these fears. The dollar is under pressure for many reasons -- soaring deficits, the lingering effects of the financial crisis -- and some countries have called for a new reserve currency.

Inflationary fear also has some merit. Central banks have dropped short-term rates to near zero, the financial system is being flooded with money and governments are spending with abandon. Surely this all adds up to inflation? Well, probably not anytime soon. The enormous amounts of idle capacity -- from factories to workers -- make the elements of inflation tough to cobble together.


Don't Expect Civil Disorder

Civic upheaval? Despite the acoustic device battles with protestors in Pittsburgh during the G-20 meetings, the notion of collapsing civic order seems increasingly far-fetched.

The interest in gold does stem from some fundamental issues, namely inflation and concerns about the dollar.

For inflation, investors would be better served investing in Treasury inflation-protected securities, or TIPS. The risk of TIPS declining dramatically and becoming dead money for decades is exceedingly remote. Moreover, even if inflation doesn't surge, TIPS can still be a good store of wealth, while gold could do just the opposite.

As for real pressure on the dollar, a more prudent strategy would be to invest in companies based overseas through an international or emerging-markets mutual fund or exchange-traded fund.

A weaker greenback would make the stock-market performance of foreign companies stronger when those gains are translated back into the U.S. currency.

Write to Dave Kansas at dave.kansas@wsj.com

http://online.wsj.com/article/SB125460546960362069.html

 

[Tekee]

Cool in this topic I learned about undervalued currencies.
I would enjoy a world without the ((Politically Correct)) Hegemony of America...
This is just another story in a series of forecasts that the wealth of world will move east from west.

Maybe it is from all the huge social experiments that were going on in the west? Like taxing the people so much to pay for pointless credits to arts or cultural investments and bureaucrats.