Cinjin,
Just too many points to raise for me to do this justice in any way but here are a few things to consider:
1. Everybody is reliant on the US economy staying up. That's the global economy for you. If the US goes down we all do.
2. No-one can get rid of the $. Whether your country is a net importer or a net exporter of oil you can only buy it in dollars - that is the brilliance of Kissinger - but it goes beyond that too. Everyone pays for oil in dollars. Oil rich countries, like those in the middle east are stuck with dollars. They can't risk exchanging them for something else as the sheer value of them would collapse the exchange market. Instead they do the only thing they can do - they buy treasury bonds and make a return. Its a constant source of borrowing for the government, and its cheap.
3. A devaluation of the dollar isn't necessarily a bad thing - even if your economy is a net importer as the US is. Arguably it is the best thing for a country in your position. Foreign goods become more expensive, Local goods cheaper.
Suddenly that BMW isn't just $10,000 more expensive that the equivalent Lincoln its $25,000 more. Less people buy BMW's - more people buy Lincoln. Sales go up, employment goes up. BMW dealers close. Lincoln dealers open. More jobs, more money. The devalued dollar goes just as far on local goods as it ever did - its just other currency denominated goods that get more expensive. At the same time manufacturing starts to look more appealing back home. Wage costs are reducing (by devaluation). The government seizes on the opportunity to support returning manufacturing enterprise by giving them tax breaks and the like. Meanwhile foreigners suddenly discover that its cheaper to go to the US than it has ever been. This has happened before. In about 1979-80 the dollar dropped to $2,40 to the pound sterling. That year it was cheaper for my parents for us to go on a, "2 weeks in Miami and one week in the Bahamas" holiday than to go to Spain for 2 weeks. Within 2 years the dollar had bounced back up again.
Now its not a panacea. It can go badly wrong and needs management. A collapsed dollar isn't the perfect result either as some imports have to be made, but, that (the collapsed dollar) is in no-one's interest. To stop the dollar collapsing central banks will start buying them up around the world. At the same time, hopefully, the cretins will stop printing the stuff. That, in and of itself, pushes the price of the dollar back up. Central banks then slowly re-release dollars back into the system and probably make a profit on the enterprise.
Note that whilst at the moment the market's panic at the slightest sign of the fed stopping printing money they won't with a weaker dollar as export volumes climb and employment climbs.
Now one final thing. Too big to fail. Needs explaining.
Take Greece. Greece owed about 300 billion Euros but if it defaulted the cost to the global economy would have been far higher. Actually the estimated cost to Europe at the time was 3 trillion - a 10 fold multiplier. This is due to the nature of financial instruments and insurance/assurance businesses.
Now the US owes 17 trillion. Factor in the multiplier and that is greater than the global net worth. THAT is too big to fail!
Just too many points to raise for me to do this justice in any way but here are a few things to consider:
1. Everybody is reliant on the US economy staying up. That's the global economy for you. If the US goes down we all do.
2. No-one can get rid of the $. Whether your country is a net importer or a net exporter of oil you can only buy it in dollars - that is the brilliance of Kissinger - but it goes beyond that too. Everyone pays for oil in dollars. Oil rich countries, like those in the middle east are stuck with dollars. They can't risk exchanging them for something else as the sheer value of them would collapse the exchange market. Instead they do the only thing they can do - they buy treasury bonds and make a return. Its a constant source of borrowing for the government, and its cheap.
3. A devaluation of the dollar isn't necessarily a bad thing - even if your economy is a net importer as the US is. Arguably it is the best thing for a country in your position. Foreign goods become more expensive, Local goods cheaper.
Suddenly that BMW isn't just $10,000 more expensive that the equivalent Lincoln its $25,000 more. Less people buy BMW's - more people buy Lincoln. Sales go up, employment goes up. BMW dealers close. Lincoln dealers open. More jobs, more money. The devalued dollar goes just as far on local goods as it ever did - its just other currency denominated goods that get more expensive. At the same time manufacturing starts to look more appealing back home. Wage costs are reducing (by devaluation). The government seizes on the opportunity to support returning manufacturing enterprise by giving them tax breaks and the like. Meanwhile foreigners suddenly discover that its cheaper to go to the US than it has ever been. This has happened before. In about 1979-80 the dollar dropped to $2,40 to the pound sterling. That year it was cheaper for my parents for us to go on a, "2 weeks in Miami and one week in the Bahamas" holiday than to go to Spain for 2 weeks. Within 2 years the dollar had bounced back up again.
Now its not a panacea. It can go badly wrong and needs management. A collapsed dollar isn't the perfect result either as some imports have to be made, but, that (the collapsed dollar) is in no-one's interest. To stop the dollar collapsing central banks will start buying them up around the world. At the same time, hopefully, the cretins will stop printing the stuff. That, in and of itself, pushes the price of the dollar back up. Central banks then slowly re-release dollars back into the system and probably make a profit on the enterprise.
Note that whilst at the moment the market's panic at the slightest sign of the fed stopping printing money they won't with a weaker dollar as export volumes climb and employment climbs.
Now one final thing. Too big to fail. Needs explaining.
Take Greece. Greece owed about 300 billion Euros but if it defaulted the cost to the global economy would have been far higher. Actually the estimated cost to Europe at the time was 3 trillion - a 10 fold multiplier. This is due to the nature of financial instruments and insurance/assurance businesses.
Now the US owes 17 trillion. Factor in the multiplier and that is greater than the global net worth. THAT is too big to fail!
Kuusi palaa, ja on viimeinen kerta kun annan vaimoni laittaa jouluvalot!
