Monetary collapse and the dollar crisis

[128shot]

From: http://www.business-in-asia.com/dollar_crisis.html

Since 1986 I have worked in Asia as a securities analyst for international brokerage firms. From 1990 to 1996, I was based in Bangkok, heading up a large team of research analysts. We analyzed and wrote research reports on most of the listed Thai companies, as well as most of the major industries and the overall economy. In the early 1990s, the Thai economy really was experiencing something of an economic miracle. The fundamentals and growth prospects of the companies were very solid. By mid-1993, however, that was no longer the case. The companies had borrowed too much and investors too much. It was difficult to see how they would be able to generate enough revenue to repay their debt. I turned bearish on Thailand by the end of that year, but the bubble economy continued to expand…for four more years! I wanted to understand what was happening and why. I began reading the economic classics: Keynes, Schumpeter, Friedman and Rostow. By the time the bubble finally popped in mid-1997, I thought I had pieced it together. I had the fortunate opportunity to work as a consultant for the IMF in Thailand for three weeks in May of 1998 and then went to work for the World Bank in Washington later that year. While I was there, I believe I was able to put the rest of the pieces of the puzzle together. So, in short, it was the economic bubble in Thailand that taught me about the flaws in the international monetary systems.

Read the rest, it looks like our monetary system is always doomed to burst.

 

[danarhea]

From: http://www.business-in-asia.com/dollar_crisis.html






Read the rest, it looks like our monetary system is always doomed to burst.

With a dollar backed by nothing but debt, and with our fractional banking system, it is only a matter of time until the whole house of cards collapses.

 

[danarhea]

True, but if you think about it we actually lucked out quite a bit.
What are the two major world currencies? The US Dollar and the Euro. And until a new currency is introduced the dollar probably won't collapse, since regardless of how dumb our president is, that's always just a temporary problem, while the Euro's problems are institutionalized, and thus will always exist. Essentially, they're the equivalent of two dudes who are passing out, but fall back on each other, and so thus they prop each other up.

China is attempting to make the Yuan a standard too. In fact, a lot of Asian nations are no longer using the dollar in international trade, but are now instead using a "basket" of currencies, which include the dollar, the Euro, and the Yuan. That is bad news for us.

 

[oldreliable67]

Repeating my post from another thread:

There are a couple of very basic reasons why oil has been historically traded in dollar terms:

> Even before the rise of OPEC, way back when ARAMCO (Arabian American Oil Company) and a few other large oil companies still owned the majority of the oil fields in the Middle East, the $ was the preferred reserve currency in the world. This was due in large part to the ability for buyers and sellers of goods to transact business almost anywhere in the industrialized world using $s as the medium of exchange. This dominance of the $ as an internationally accepted medium of exchange occured for a number of reasons, perhaps the most important of which was the strength of the US economy - it was the engine that drove the world's economies in the years following WWII.

> After the nationalization of Middle Eastern oilfields and the subsequent Arab oil embargos of the '70s, the doubling then tripling in the price of oil made the $ just that much more important as a reserve currency simply (but not solely) because of the greatly increased $ flow from the ME back to the west. Remember the 'recycling of petrodollars' debates of the late 70s, early 80s? ME owners of dollars had to do something with those dollars; they could not let them just sit idle. SAMA (the Saudi Arabian Monetary Fund) along with the Sultan of Brunei became a couple of the world's largest owners of U.S. Treasury securities. Private Saudi investors owned (and still own) huge interests in U.S. real estate.

> Underlying the acceptance of the $ as the world's primary reserve currency has been the willingness of investors all around the globe to embrace the dollar as a safe haven for their investments. That is, when trouble has erupted in various regions of the world, and when world tensions ran high at times during the Cold War, investors fled other local or regional currencies and moved their funds into dollars for the presumed safety. When and where possible, they also moved funds into gold and to a lesser extent silver, but metals are so difficult to store and were not the most easily entered into and exited investments. Dollars and dollar denominated investments are highly portable (just balances in a computer) and highly liquid (can be bought and sold virtually 24 hours a day from anywhere in the world).

Will the euro replace the dollar as the world's preferred reserve currency? Highly unlikely in mine or your lifetimes. But beyond that, who knows? Added demand for euros for oil trading will be met not only by selling dollars/buying euros but by sell every other currency/buying euros as well. Plus, even though they have increased tremendously in recent years, investments denominated in euros are still not nearly as liquid or numerous as those denominated in dollars (you can't just let those euros sit, you have to invest them somewhere - unless you are a true Muslim and don't believe in earning or paying interest for the use of someone else's money, er, euros).

Lots more could be said about the topic - this little blurb certainly doesn't do it justice. But the bottom line has always been and will continue to be the safety and liquidity of the government. So far, the euro hasn't come close to matching the dollar on those criteria.

 

[Iriemon]

Repeating my post from another thread:

There are a couple of very basic reasons why oil has been historically traded in dollar terms:

> Even before the rise of OPEC, way back when ARAMCO (Arabian American Oil Company) and a few other large oil companies still owned the majority of the oil fields in the Middle East, the $ was the preferred reserve currency in the world. This was due in large part to the ability for buyers and sellers of goods to transact business almost anywhere in the industrialized world using $s as the medium of exchange. This dominance of the $ as an internationally accepted medium of exchange occured for a number of reasons, perhaps the most important of which was the strength of the US economy - it was the engine that drove the world's economies in the years following WWII.

> After the nationalization of Middle Eastern oilfields and the subsequent Arab oil embargos of the '70s, the doubling then tripling in the price of oil made the $ just that much more important as a reserve currency simply (but not solely) because of the greatly increased $ flow from the ME back to the west. Remember the 'recycling of petrodollars' debates of the late 70s, early 80s? ME owners of dollars had to do something with those dollars; they could not let them just sit idle. SAMA (the Saudi Arabian Monetary Fund) along with the Sultan of Brunei became a couple of the world's largest owners of U.S. Treasury securities. Private Saudi investors owned (and still own) huge interests in U.S. real estate.

> Underlying the acceptance of the $ as the world's primary reserve currency has been the willingness of investors all around the globe to embrace the dollar as a safe haven for their investments. That is, when trouble has erupted in various regions of the world, and when world tensions ran high at times during the Cold War, investors fled other local or regional currencies and moved their funds into dollars for the presumed safety. When and where possible, they also moved funds into gold and to a lesser extent silver, but metals are so difficult to store and were not the most easily entered into and exited investments. Dollars and dollar denominated investments are highly portable (just balances in a computer) and highly liquid (can be bought and sold virtually 24 hours a day from anywhere in the world).

Will the euro replace the dollar as the world's preferred reserve currency? Highly unlikely in mine or your lifetimes. But beyond that, who knows? Added demand for euros for oil trading will be met not only by selling dollars/buying euros but by sell every other currency/buying euros as well. Plus, even though they have increased tremendously in recent years, investments denominated in euros are still not nearly as liquid or numerous as those denominated in dollars (you can't just let those euros sit, you have to invest them somewhere - unless you are a true Muslim and don't believe in earning or paying interest for the use of someone else's money, er, euros).

Lots more could be said about the topic - this little blurb certainly doesn't do it justice. But the bottom line has always been and will continue to be the safety and liquidity of the government. So far, the euro hasn't come close to matching the dollar on those criteria.

Nice overview.