U.S. Dollar

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Talk has been going on for sometime about a run on the U.S. Dollar.
I personally believe that if this happens, the whole system will fall apart, gold will be worthless as civil unrest will rip through every country in the world, difference being that in the 1920s, things were good for the first time, the sense of entitlement was low, people had few material possessions, etc, but now everyone has everything, entitlement of the middle class is at all time highs and if you were no longer able to eat a piece of bread, i think western societies in particular would lose control completely.
To Gold Bugs: If U.S. currency went away and we couldn’t find another paper currency to use, gold should only hold value should totalitarian governments assume control worldwide as people don’t own physical gold and if you don’t own any currency, how do you pay for anything, causing looting, unrest, etc. Any rebuttals?
Posting this to discuss the currency issue more than gold although gold usually dominates the discussion overall.
My opinion, looking for your opinions.
Would there be a way to shift to another currency without causing enormous damage?
If so, what currency and describe how you think the transistion could be made?
Supposing China/Japan would be the culprits in making the run on the dollar happen, would they stop buying debt knowing that they are playing with complete financial meltdown?
 
MattLikesAnalysis Wrote:
——————————————————-
> Talk has been going on for sometime about a run on
> the U.S. Dollar.
>
Really? I haven’t heard anything. Who are you talking to?
 
I don’t think there will be a run on the dollar. The dollar isn’t tied to anything like gold or a foreign currency, which is what tends to cause runs.
I think there is going to be (and to some extent has already started) a shifting away from using the dollar as the unquestionable reserve currency. The problem is, what to replace it with? Yuan has a growing economy, but also an authoritarian government who is happy to manipulate the currency to suit its export and development needs, and there’s no guarantee that in difficult times they won’t try to seize foreign assets to appease local nationalism. Europe has many of the challenges that face the US, along with anaemic growth. Japan is slightly stronger these days, but mostly because the carry trade unwound in deleveraging. So I’m still betting that gold will go up, though I’ve held off buying GLD until the technical indicators look more promising.
I have been holding TIPS though, mostly through TIP. At some point in the next 12-18 months, there may be a massive selloff in US Treasuries. That is likely to do bad things to the dollar, but it’s not the same as a run.
 
bchadwick Wrote:
——————————————————-
> I have been holding TIPS though, mostly through
> TIP. At some point in the next 12-18 months,
> there may be a massive selloff in US Treasuries.
> That is likely to do bad things to the dollar, but
> it’s not the same as a run.
Maybe run wasn’t the right word? A walk on the U.S. dollar more appropriate? ;)
What would be the effects of shifting away, if not fully from the USD as the ‘unquestionable’ reserve currency? What effect would the USD being much cheaper be in the market, to the US as a country and other currencies? Which currencies would rise, which would not rise as much, would any fall?
 
MattLikesAnalysis Wrote:
——————————————————-
> To Gold Bugs: If U.S. currency went away and we
> couldn’t find another paper currency to use, gold
> should only hold value should totalitarian
> governments assume control worldwide as people
> don’t own physical gold and if you don’t own any
> currency, how do you pay for anything, causing
> looting, unrest, etc. Any rebuttals?
My 2 cents…
In a SHTF scenario where the fiat system failed there’s no doubt that there would be mass chaos for the foreseeable future. The governments of the world would try their best to get some sort of currency going, probably one backed by precious metals to give the public confidence in the currency. If that succeeded your gold would have value. If they failed in this attempt we would eventually get back to a precious metals based system anyway, though it could take many years.
Say no currency catches on, “civil unrest rips through every country in the world”, and everyone has to leave cushy jobs and start building, growing, and making things again and we temporarily go to a system of barter. A few problems would arise immediately. What if someone, or a few people, produced tractors. You can’t chop up a tractor into parts, so finding someone to give you a lot of something for a tractor would be challenging in it’s own right, but even if you find someone that will trade you a lot of wheat or eggs or whatever for your tractor, now you run the risk of your mass quantity spoiling. I could go on, but it’s obviously not a good situation.
In this barter economy lets assume I grow wheat, you raise chickens, and fxguy grows corn. Say I want eggs, but you’re allergic to bread so you don’t want any of my wheat. I find out that you like corn, so I go to fxguy and trade him 5 bushels of wheat for 10 ears of corn or something. Then I can come to you and trade you my corn for your chickens. If enough people liked corn, corn could become a medium of exchange (currency) for our local economy. But corn has problems as a medium it spoils, it’s tough to carry, etc.
The bottom line is that as the problems with barter become exposed the people will look for a medium of exchange. In economies where precious metals are available they always become mediums of exchange because they are fully of “moneyish” properties. They’re scarce, they’re easy to carry around, they don’t rust, they can be chopped into smaller pieces, they don’t oxidize (under normal conditions), again I could go on. So eventually the free market will gravitate to a precious metals based money system and shortly thereafter the new government’s deficit spending will lead them to try to get rid of it. Albeit, this process could take years to occur.
On a related note, years ago I read an article by a POW prisoner during WW II that talked about how cigarettes became a medium of exchange in their POW camp. As you can imagine, cigarettes were a crummy medium, if you make the wrong move your currency would go down the tubes, as cigarettes grew stale they started to be sold at a discount, etc. Then as more cigarettes flowed into the camp there was inflation then they tried to impose price controls and there were shortages. It was a fascinating read that I just found with a quick google search. I’ll probably read it again this weekend, here’s a link if anyone is interested:
http://facstaff.uww.edu/kashianr/POWCampRadford.pdf
 
Great analysis bankin’
Can you imagine would what happen to the USD if Oil traded in euro or yen?
I think the US gov’t and our Military might will ensure that doesn’t happen
Read confession of an economic hit man to get a picture of what lengths the Us gov’t will go to
 
fxguy1234 Wrote:
——————————————————-
> Great analysis bankin’
>
> Can you imagine would what happen to the USD if
> Oil traded in euro or yen?
>
>
> I think the US gov’t and our Military might will
> ensure that doesn’t happen
>
>
> Read confession of an economic hit man to get a
> picture of what lengths the Us gov’t will go to
For sure, they invade countries that sell their oil in Euros.
 
fxguy1234 Wrote:
——————————————————-
> Great analysis bankin’
>
> Can you imagine would what happen to the USD if
> Oil traded in euro or yen?
>
>
> I think the US gov’t and our Military might will
> ensure that doesn’t happen
>
>
> Read confession of an economic hit man to get a
> picture of what lengths the Us gov’t will go to
Thanks, I’ll add that book to my (already very long) ‘read after I finish Level III’ list.
 
I’m sort of in the I can’t see many foreign investors backing up the truck for US Treasuries at low/no yields camp meself. But I very much like the cigarette analogy.
Willy
 
Chadwick: have you looked at the pros and cons of owning a TIPS ETF vs. actual TIPS bonds from the US treasury? I’m interested in getting some exposure especially if there’s another sell-off.
 
Could lack of confidence in O’Bama spark a run on the dollar?
Willy
 
Sorry that was a bit of a pointless post. What I mean is the percieved inadequacy of Mr. O’Bama’s recovery plan.
Willy
 
Confession of an Economic Hit Man is such a load of crap, I can’t believe it’s not in the fiction section next to the 007 books.
 
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