About time. Wake up & smell of coffee.

[jaguar]

The Economist 4/12/04, leading opinion piece.

The dollar has been the leading international currency for as long as most people can remember. But its dominant role can no longer be taken for granted. If America keeps on spending and borrowing at its present pace, the dollar will eventually lose its mighty status in international finance. And that would hurt: the privilege of being able to print the world's reserve currency, a privilege which is now at risk, allows America to borrow cheaply and thus to spend much more than it earns, on far better terms than are available to others. Imagine you could write cheques that were accepted as payment but never cashed. That is what it amounts to. If you had been granted that ability, you might take care to hang on to it. America is taking no such care and may come to regret it.

The dollar is not what it used to be. Over the past three years it has fallen by 35% against the euro and by 24% against the yen. But it's latest slide is merely a symptom of a worse malaise: the global financial system is under great strain. America has habits that are inappropriate, to say the least, for the guardian of the world's main reserve currency: rampant government borrowing, furious consumer spending and a current-account deficit big enough to have bankrupted any other country some time ago. This makes the dollar devaluation inevitable, not least because it becomes a seemly attractive option for the leaders of a heavily indebted America. Policymakers now seem to be talking the dollar down. Yet this is a dangerous game. Why would anybody invest in a currency that will almost certainly depreciate?

-couple of paragraphs skipped because my hands are getting tired-

many American policymakers talk as though it is better to rely entirely on a falling dollar to solve, somehow, all their problems. Conceivably, it could happen - but such a one-sided remedy would most likely be far more painful than they imagine. America's challenge is not just to reduce its current-account deficit to a level which foreigners are happy to finance by buying more dollar assets, but also to persuade existing foreign creditors to hang on to their vast stock of dollar assets, estimated at almost 11 trillion. A fall in the dollar sufficient to close the current-account deficit might destroy its safe-haven status. If the dollar falls by another 30% as some predict, it would amount to the biggest default in history: not a conventional default on debt service but default by stealth, wiping trillions off the value of foreigner's dollar assets.

The dollar's loss of reserve-currency status would lead to America's creditors to start cashing those cheques - and what an awful lot of cheques there are to cash. as that process gathered pace, the dollar could tumble further and further. American bond yields would soar, quite likely causing a deep recession. Americans who favour a weak dollar should be careful what they wish for. Cutting the budget deficit looks cheap at the price.

I've been saying it for a long time, finally the economist echoes my view. You're on the brink. Let me put this as bluntly as possible, you idiots and by idiot, i mean every republican voter in the US have just re-elected a man who has brought your economy to the edge of disaster and shows no sign of backing off. I almost hope you reap the whirlwind just so the lesson sinks in.

the public has long since cast off its cares; the people that once bestowed commands, consulships, legions, and all else, now meddles no more, and longs eagerly for just two things -- Bread and Circuses.

[Griff]

For a while I was thought maybe the Iraq war was simply the expression of a strong dollar policy by a bunch of super-patriots. Then they decided to pay for the war by weakening the dollar, idiots, not even patriotic idiots.

[glatt]

Yeah, but at least all those queers aren't going to be able to get married now. That's the important thing.

[Kitsune]

furious consumer spending

This aspect of the matter is not limited to people who voted for anyone with an "(R)" after their title.

It is my belief that our economy has been a sham not just for the previous three years, but for the past decade and a half. The strength of the dollar was simply imagined, much like a stock price inflated by nothing but hype.

[Troubleshooter]

Another growing problem in America is the drastic increase in fiat spending by consumers.

Finance agencies and credit card companies are giving credit to just about anyone.

Nobody here cares about the actual price anymore. It's not a question of how much is the price, they just want to know how much the note will be.

[TheSnake]

Originally Posted by Troubleshooter

Another growing problem in America is the drastic increase in fiat spending by consumers.

Finance agencies and credit card companies are giving credit to just about anyone.

Nobody here cares about the actual price anymore. It's not a question of how much is the price, they just want to know how much the note will be.

That pretty much sums up a lot of the problem. It's also pretty well documented that savings by american citizens is remarkably lower than it used to be.

[Elspode]

Glatt is entirely correct! The only way to solve this pressing financial crisis is to stop teaching evolution in the schools, and bring back prayer. Also, eliminating abortion will help reduce the deficit. Preventing homosexuals from marrying will ensure the stability of our families, and the production of the next generation of indentured servants, er, uh...citizens.

We should also increase hostilities throughout the world, because that will fuel the military-industrial complex and provide employment, possibly somewhere besides India. God wants us to do that, and He's on our side.

[jaguar]

Another growing problem in America is the drastic increase in fiat spending by consumers.

Which is itself fueled by asset price bubbles...
Of course that spending has also been encouraged by this administration which means when the crunch comes there's nothing to fall back on and debt suddenly dawrfs assets...

[Radar]

I recommend buying an ounce of gold per month if you can afford it, and when the shit hits the fan and people around the world realize the dollar is worthless because it has nothing to back itself up, you'll still have something of value to start a new life.

[Undertoad]

Just as soon as you can find someone to buy it off you in a world where the shit has hit the fan.

[atropos]

I have added some gold stocks to my investment portfolio and, so far, I am quite pleased by the returns. Who cares about the reality behind the perception? In the case of gold, anyhow, perceptions are fueling the market, and I've made a tidy sum off of them.

[Radar]

If the dollar crashes, it doesn't mean the world will crash, and it doesn't mean that gold will become worthless. There will always be people willing to buy gold. That's not a problem.

[jaguar]

The shit won't really hit the fan that badly. Well, it's all kind of relative I guess. I mean part of this is practically certain to happen, unless the dollar stops dropping it's a matter of time before one of the Asian central banks propping it up decides it's time to start diversifying its reserves as the losses from US bonds mount. Of course whether that causes a panic is the real question. Either way I'm confident that Bush will go down in history as the worst president.

Gold is a wise investment in such a scenaroi - when the shit does hit the fan, every time, gold goes up.

[Kitsune]

I was dissapointed to find out that when you invest in gold, you don't actually get a piece of the gold. A piece of paper is no fun, I want a bar! Even if it is really, really, really tiny.

[Radar]

Actually you can buy gold coins or small bars of gold directly without having certificates. This is what I want to do. Buy Canadian gold coins, Chinese Pandas, South African Krugerands, etc. and you will sometimes add to the value because they are collectable. If you setup gold in your 401k or something, you'll get certificates, not actual gold.