When we say dollar will decline, are we saying that it is against just the ‘real’ stuff like gold/oil/houses, or also against other (fiat) currencies.
I understand it might be a mix of the two, but lets see how it might turn out, by taking extremes conditions of the two cases.
Lets consider the first scenerio:
If it is against just the stuff, and other currencies also decline (more or less same amount), it implies a world wide inflation.
Every body in the world just adds a zero to the price of everything.
Savers are loosers, the ones who took a loan (US gov on top of the list) win.
Things go back to the old way.
Only question : Does that require that US houses also inflate ? US Wages ?
What about the other scenerio:
If it the other way, only the dollar falls.
Rest (the real stuff and ‘other’ currencies) remain equally priced in terms of each other.
Is that a stable position ?
What happens then to other stuff?
Anything produced within US remains priced same in US$, anything external/global rises in $ terms.
Lets do a simple projection.
Dollar drops to its one-fourth ‘value’ in around two years.
Possible ? Lets say, yes.
Today:
Yen: 1 cent
Oil: 100 $ = 10K Y
Gold: 1000 $ = 100K Y
US House: 200K $ = 20M Y
US domestic company stock (Not sure an example): 10 $ = 1000 Y
US global company stock (Boeing): 50 $ = 5000 Y
After two years:
Yen: 4 cents
Oil: 400 $ = 10K Y
Gold: 4000 $ = 100K Y
US House: 200K $ = 5M Y
US domestic company stock : 10 $ 250 Y
US global company stock (Boeing): 200 $ = 5000 Y
How can this situation continue? You (americans) wont be able to afford gas.
US Imports will be unviable.
US exporters will be in a great position.
Foreign buyers will buy the US stocks and US houses (now much cheaper for them)
But they need to pay for them in dollars !!
So now they need to buy the dollars again.
I think this is not a stable situation.
The very fact that dollar falls and US stuff is cheaper for others, will encourage them to buy US produce and in turn prop up dollar again.
On the side note:
WHAT will they trade their millions of dollars into? EUROS? GOLD? RMB? Swiss Francs?
IF ‘I’ had lots and lots of dollars, I wont buy gold, Euro etc.
I will buy US houses. They are cheap compared to houses in my third world town, considering the quality of life, infrastructure etc.
Oh wait, I should rather wait for our own little real estate bubble to burst.
