Why now sduuuude asks. Perhaps I’m overresponding to the headlines. Read the Bloomberg headlines. Here’s another one about yesterday’s dollar selloff.
Each day, I read the dollar fell again against the euro and the yen, gold is up. Then China’s high officials (cleverly never the government itself) and economists drop hints they will diversify out of the US $ and buy other currencies and gold. A Chinese economist, just this week, recommended that China buys 1900 tons of gold, which is as much as is mined in 9 months globally. Why were they saying this? It will surely drive up the price of gold. They want to notify the US they are diversifying.
Look, China is holding something like $600 bil (?) of Treasury debt. They don’t get interest on it. You only get interest when the term expires. So they are holding worthless IOUs. The problem is that we NEED them to buy this. We need $2 bil daily of cash infusion from foreigners. If we really ARE the richest country in the world, why do we need foreigners to give us $2 bil per day just to keep our economy going?
I see that we are no longer the richest and most productive country. We are dependent on foreigners to fund our daily operation. The rise in our debt is unprecedented, as is our dependency. Our exports are down and have no hope of recovery.
Also consider that every fiat currency has a useful life of 50-70 years. Once, the British pound was a fiat currency. Why do we think the USD must be forever the fiat currency, just because we are in USA, and don’t want it to stop being the world reserve currency? Someone should study what made the other fiat currencies falter. I think it was what we’re doing now: too much debt.
Of course, this could go on another 1-5 years before it collapses. Just like the housing bubble. But collapse it will unless we pay of the national debt and balance the trade deficit. I see no resolve in Congress or in the White House for either measure. That’s why I see the decline of the US $. Time to diversify, but where?
What stunned me what when the Chinese President came to the US. He went first to visit Bill Gates, and to the White House last. He spent only 30 min. with our President. Wasn’t that a sign of utter disrespect from one statesman to another?
Another problem is what I see corporations doing with the huge amount of cash on hand. (Everyone is awash in liquidity these days, except wage earners.) Instead of investing it in research, development, expansion, it is utterly wasted in stock buybacks and mergers. Both acts use large amounts of cash, but don’t add any economic value. The only people who make money during M&A is the financial advisors and lawyers putting the deal together. It’s wasteful activity. (Isn’t it true that whenever M&A rises, the stock market has peaked – is there a correlation like that?)
