Day of reckoning looms for the U.S. dollar

[partypup]

[quote=patientrenter]4plex, my point was that the US govt can ALWAYS repay its dollar-denominated debt, so the chance that it won’t seems vanishingly small to me.
[/quote]

P Renter, I understand what you’re saying in principle, but here’s my question: what happens when the dollar becomes so devalued that our creditors refuse to accept it? In such a scenario, the US gov’t would NOT be able to repay its dollar-denominated debt. Imagine that a debtor with insanely high debts has consistently been paying a creditor with a currency of real value. Now, imagine the debtor discovers that he no longer has access to a currency holding real value and instead begins to offer his creditors sea shells as payment. Yes, the debtor is technically attempting repayment. But if the payments aren’t accepted, a default ensues. The facts in this analogy aren’t entirely similar (since we aren’t converting our dollars into another form of payment like sea shells), but the concept is the same. A debtor cannot repay a debt if her payments are rejected. I think you are assuming that as long as a debtor presents something that she considers to be of “value”, his creditor is obligated to accept such payment. I think this is a false assumption.

When (not if) the dollar loses its status as the sole reserve currency, I think we may be looking at the possibility that severely devalued US dollars will eventually not be accepted as payment for imports or any forms of foreign debt because the dollars that a creditor accepts today may be worth even less tomorrow! Instead, the US will be required to come up with stronger currency (or gold) to repay its debts. This would be a common sense move for any US creditor under the circumstances. And that’s when things will start to get very interesting.

By next summer, I think there are going to be a whole lot of people who wished they had gotten busy adding gold to their portfolio. It could be going parabolic within months. Of course, precious metals will eventually turn into another bubble in a few years, but the prudent investor will use their dollar profits to do what the Chinese have been doing for the past year: buy hard assets like land, food, guns, ammo, medicine, equipment, seeds, etc.

[patientrenter]

partypup, a default occurs when the person who is supposed to pay does not pay, not when the person who is owed refuses to accept the payments.

If receiving future dollars becomes less interesting as a reward for exporting real goods and services to the US, then either the value of the dollar will fall, or interest rates on dollar debt will rise. If the US govt is committed to manipulating interest rates down (as they clearly are) then the outcome will be a drop in the value of the dollar. If a 20% reduction is not enough to entice foreigners to sell us stuff on credit, then it will go to 30%, and if that is not enough…

Eventually, the dollar will reach a value that satisfies our foreign trade parties. It’s not going to be zero. I just don’t see why a large devaluation has to go all the way to zero. This is not how these things work historically. The US has problems, but it does have good infrastructure, food and water supply, open space, and other basics of a good modern life. At some point that puts a floor under the value of US assets and even the dollar.

[patientrenter]

partypup, a default occurs when the person who is supposed to pay does not pay, not when the person who is owed refuses to accept the payments.

If receiving future dollars becomes less interesting as a reward for exporting real goods and services to the US, then either the value of the dollar will fall, or interest rates on dollar debt will rise. If the US govt is committed to manipulating interest rates down (as they clearly are) then the outcome will be a drop in the value of the dollar. If a 20% reduction is not enough to entice foreigners to sell us stuff on credit, then it will go to 30%, and if that is not enough…

Eventually, the dollar will reach a value that satisfies our foreign trade parties. It’s not going to be zero. I just don’t see why a large devaluation has to go all the way to zero. This is not how these things work historically. The US has problems, but it does have good infrastructure, food and water supply, open space, and other basics of a good modern life. At some point that puts a floor under the value of US assets and even the dollar.

[patientrenter]

partypup, a default occurs when the person who is supposed to pay does not pay, not when the person who is owed refuses to accept the payments.

If receiving future dollars becomes less interesting as a reward for exporting real goods and services to the US, then either the value of the dollar will fall, or interest rates on dollar debt will rise. If the US govt is committed to manipulating interest rates down (as they clearly are) then the outcome will be a drop in the value of the dollar. If a 20% reduction is not enough to entice foreigners to sell us stuff on credit, then it will go to 30%, and if that is not enough…

Eventually, the dollar will reach a value that satisfies our foreign trade parties. It’s not going to be zero. I just don’t see why a large devaluation has to go all the way to zero. This is not how these things work historically. The US has problems, but it does have good infrastructure, food and water supply, open space, and other basics of a good modern life. At some point that puts a floor under the value of US assets and even the dollar.

[patientrenter]

partypup, a default occurs when the person who is supposed to pay does not pay, not when the person who is owed refuses to accept the payments.

If receiving future dollars becomes less interesting as a reward for exporting real goods and services to the US, then either the value of the dollar will fall, or interest rates on dollar debt will rise. If the US govt is committed to manipulating interest rates down (as they clearly are) then the outcome will be a drop in the value of the dollar. If a 20% reduction is not enough to entice foreigners to sell us stuff on credit, then it will go to 30%, and if that is not enough…

Eventually, the dollar will reach a value that satisfies our foreign trade parties. It’s not going to be zero. I just don’t see why a large devaluation has to go all the way to zero. This is not how these things work historically. The US has problems, but it does have good infrastructure, food and water supply, open space, and other basics of a good modern life. At some point that puts a floor under the value of US assets and even the dollar.

[patientrenter]

partypup, a default occurs when the person who is supposed to pay does not pay, not when the person who is owed refuses to accept the payments.

If receiving future dollars becomes less interesting as a reward for exporting real goods and services to the US, then either the value of the dollar will fall, or interest rates on dollar debt will rise. If the US govt is committed to manipulating interest rates down (as they clearly are) then the outcome will be a drop in the value of the dollar. If a 20% reduction is not enough to entice foreigners to sell us stuff on credit, then it will go to 30%, and if that is not enough…

Eventually, the dollar will reach a value that satisfies our foreign trade parties. It’s not going to be zero. I just don’t see why a large devaluation has to go all the way to zero. This is not how these things work historically. The US has problems, but it does have good infrastructure, food and water supply, open space, and other basics of a good modern life. At some point that puts a floor under the value of US assets and even the dollar.

[barnaby33]

patientrenter, you should know by now not to stop partypup when he gets wound up. Is entertaining.

We’re fucked, everyone else is fucked worse. The yuan/renmimbi is not about to become a global currency, though gold may increase in value. I have my doubts about that. If bond yields ramp/prices fall, the actual dollar (as in green paper) will strengthen. Inflation is more than likely our future, but we are still strongly in deflationary territory.

Josh

[barnaby33]

patientrenter, you should know by now not to stop partypup when he gets wound up. Is entertaining.

We’re fucked, everyone else is fucked worse. The yuan/renmimbi is not about to become a global currency, though gold may increase in value. I have my doubts about that. If bond yields ramp/prices fall, the actual dollar (as in green paper) will strengthen. Inflation is more than likely our future, but we are still strongly in deflationary territory.

Josh

[barnaby33]

patientrenter, you should know by now not to stop partypup when he gets wound up. Is entertaining.

We’re fucked, everyone else is fucked worse. The yuan/renmimbi is not about to become a global currency, though gold may increase in value. I have my doubts about that. If bond yields ramp/prices fall, the actual dollar (as in green paper) will strengthen. Inflation is more than likely our future, but we are still strongly in deflationary territory.

Josh

[barnaby33]

patientrenter, you should know by now not to stop partypup when he gets wound up. Is entertaining.

We’re fucked, everyone else is fucked worse. The yuan/renmimbi is not about to become a global currency, though gold may increase in value. I have my doubts about that. If bond yields ramp/prices fall, the actual dollar (as in green paper) will strengthen. Inflation is more than likely our future, but we are still strongly in deflationary territory.

Josh

[barnaby33]

patientrenter, you should know by now not to stop partypup when he gets wound up. Is entertaining.

We’re fucked, everyone else is fucked worse. The yuan/renmimbi is not about to become a global currency, though gold may increase in value. I have my doubts about that. If bond yields ramp/prices fall, the actual dollar (as in green paper) will strengthen. Inflation is more than likely our future, but we are still strongly in deflationary territory.

Josh

[Arraya]

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5325805/Chinas-yuan-set-to-usurp-US-dollar-as-worlds-reserve-currency.html
The Chinese yuan is preparing to overtake the US dollar as the world’s reserve currency, economist Nouriel Roubini has warned.

Professor Roubini, of New York University’s Stern business school, believes that while such a major change is some way off, the Chinese government is laying the ground for the yuan’s ascendance.

http://www.ft.com/cms/s/0/996b1af8-43ce-11de-a9be-00144feabdc0.html
Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.

The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.

[Arraya]

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5325805/Chinas-yuan-set-to-usurp-US-dollar-as-worlds-reserve-currency.html
The Chinese yuan is preparing to overtake the US dollar as the world’s reserve currency, economist Nouriel Roubini has warned.

Professor Roubini, of New York University’s Stern business school, believes that while such a major change is some way off, the Chinese government is laying the ground for the yuan’s ascendance.

http://www.ft.com/cms/s/0/996b1af8-43ce-11de-a9be-00144feabdc0.html
Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.

The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.

[Arraya]

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5325805/Chinas-yuan-set-to-usurp-US-dollar-as-worlds-reserve-currency.html
The Chinese yuan is preparing to overtake the US dollar as the world’s reserve currency, economist Nouriel Roubini has warned.

Professor Roubini, of New York University’s Stern business school, believes that while such a major change is some way off, the Chinese government is laying the ground for the yuan’s ascendance.

http://www.ft.com/cms/s/0/996b1af8-43ce-11de-a9be-00144feabdc0.html
Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.

The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.

[Arraya]

http://www.telegraph.co.uk/finance/financetopics/financialcrisis/5325805/Chinas-yuan-set-to-usurp-US-dollar-as-worlds-reserve-currency.html
The Chinese yuan is preparing to overtake the US dollar as the world’s reserve currency, economist Nouriel Roubini has warned.

Professor Roubini, of New York University’s Stern business school, believes that while such a major change is some way off, the Chinese government is laying the ground for the yuan’s ascendance.

http://www.ft.com/cms/s/0/996b1af8-43ce-11de-a9be-00144feabdc0.html
Brazil and China will work towards using their own currencies in trade transactions rather than the US dollar, according to Brazil’s central bank and aides to Luiz Inácio Lula da Silva, Brazil’s president.

The move follows recent Chinese challenges to the status of the dollar as the world’s leading international currency.

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