How can any of these Asian central banks or Russia, which still holds a percentage
of its $112 billion in total reserves in dollar-denominated assets, execute an exit from the dollar without simultaneously
wiping out the immense value of their own dollar reserves?
Hence as Russia moves to decrease the percentage of its own holdings of dollars, so are
the big Asian economies, as well as many other economies around the globe.
The larger problem is the economic tsunami that'll hit when foreign investors start cashing
in their dollars in reaction to the profligate behavior of the Congress. "Under the worst-case scenarios, the dollar would
plummet, stock prices would plunge and US interest rates would soar, hurting US and global growth." (L.A. Times) No one doubts
that a run on the dollar will send the world reeling towards recessionor worse.
The bad news: the world is drifting into a major currency crisis like the collapse of
the Bretton Woods agreement and the subsequent inflationary upheavals of the 1970s. The good news: it can be handled -- if
the market is allowed to work.
Capitalism is defined as, 1: An economic system characterized by private or corporate
ownership of capital goods, by investments that are determined by private decisions, and by prices, production, and the distribution
of goods that are determined mainly by competition in the free market.
Typically, the value of a currency is determined primarily by a nation's
monetary policy. However, only on rare occasions -- and none of them recently -- has the Federal Reserve given significant
weight to the dollar's value in making its interest- rate decisions. Certainly it isn't doing so today, and neither Snow nor
any of his recent predecessors have pressed the Fed to act to support the currency.
Allowing the yuan to float upward would raise the price of Chinese goods in this country
and reduce the U.S. trade deficit with the new Asian powerhouse, estimated to be $150 billion this year.
But if the Chinese resist, the euro will rise even further. It could move up from last
week's $1.30 to $2, Bergsten said. Three years ago, it was worth 84 cents.
French economist Frederic Bastiat (1801-1850) wrote a pamphlet "What Is Seen and What
Is Not Seen," in which he says, "There is only one difference between a bad economist and a good one: The bad economist confines
himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that
must be foreseen."
It's not to bribe the US administration into controlling the neocons. The world already
understands that since it owns a large amount of dollar denominated assets, all it needs to do is sell some of those assets
and collectively it would be enough to collapse the US economy, since US is a debtor nation and really doesn't have liquidity
to payoff all those sold assets. That fact alone, together with the knowledge that China and the rest of the world hold huge
amounts of dollar denominated assets, is enough of a financial deterrent for this administration to keep the neocons in check.
Below is a list of the ideas that I support. They aren't my ideas. I just support them
because they make sense. This new currency should be:
1) Non-state sponsored, i.e., private.
2) Non-state produced and circulated.
3) Not money-unit-denominated, but denominated in weight only (i.e., one ounce, ten grams,
or whatever, in gold or silver, maybe even copper.)
4) No paper-claims should be made out against it and traded in its stead. Transactional
convenience is established by already existing online currencies which can interface with it without any friction whatsoever.
(That means you don't have to carry a huge sack of coins to go shopping.)
5) The currency must be produced by private, non-state-operated or controlled mints at
minimal cost, but with a sufficient cost to make its production economical. Private mints can freely compete against each
other for the enormous amount of business that will be generated by eventual world-wide demand. The more the merrier.
The reality is that Bush will be forced to make hard choices, and the American people
will have to face pain for their profligacy. For the rest of the world, U.S. difficulties will bring hardships.
Are the low interest rates because of low inflation? No, while inflation is far below
the levels of the 1970s it is not really that low. If you look at real interest rates you'll find that they are at historically
very low levels. Is it because massive money supply increases have pushed real interest rates below their natural level? No,
the money supply is increasing at a far slower rate than it has been for many years. So what is the cause of the low interest
rates responsible for the current unsustainable situation?
The answer is the massive purchases of U.S. government bonds by Asian central banks, particularly
the Bank of China and the Bank of Japan.
The dollar plumbed new depths against the euro this week. The greenback’s fall has unnerved
European policymakers. But it is their Asian counterparts who have most reason to worry
What we have witnessed in China is not about efficient markets,
rational investors, or bell curves of the fairy tale land of financial theory. It's about rank speculation on the part of
the crowd, with the People's Bank of China and the US Federal Reserve acting in key supporting roles as accomplices.
Russian President Vladimir Putin said Tuesday that he would like to ensure that the next EU-Russia summit,
originally scheduled for this week but now pushed back to an uncertain future date, be "substantive" in nature.
India's global significance received a major boost from the European Union this week with the signing of a
broad "strategic partnership" agreement, a deal that will substantially tighten economic and political ties between the two
sides, including the promotion of stability on the Asian subcontinent, United Nations reforms, proliferation and, of course,
the fight against terrorism.
If an exchange between two parties
is voluntary, it will not take place unless
both believe they will benefit from it. Most
economic fallacies derive from the neglect of this simple insight, from the tendency to assume that there is a fixed pie, that one party can gain only at the expense of another.
If you ask me to name the proudest distinction
of Americans, I would choose- because it contains all the others . . . the fact that they were the people who created
the phrase "to make money." No other language or nation had ever used these words before; men had always thought of
wealth as a static quantity . . . to be seized, begged, inherited, shared, looted or obtained as a favor. Americans were
the first to understand that wealth has to be created.
