Warren Buffett is now betting against the US dollar

The USA, however, isn't exactly "declining". As the article I linked to above noted, the USA is continuing to grow across a broad spectrum of measures. Yes, China and the EU may be growing at a faster rate in some of those categories, but the USA has such a great initial advantage that it will be a long, long time until another country catches or surpases the USA in even one of those categories.

So, let us take your simplified example and expand it a little to see a broader macroeconomic picture that illustrates why Brazil and China would want to do that trade in dollars. Let's say that Brazil wants to use the cash from that commodity sale to improve the living conditions of their citizens and purchase some Catepillar brand forest-clearing bulldozers and some crude oil to refine into gasoline for those bulldozers because their local sugar-cane ethanol would wear-out the engines too quickly. Well, Catepillar is a American company so it makes sense for them to bill Brazil in USD instead RMB. The middle east oil exporter also charges Brazil in USD because the US Navy protects their shipping lanes and the CIA and State Dept maintains (or doesn't) the internal stability of that country. Last, China has USD coming out of its ears and is more than happy to trade pieces of paper for real assets like Brazillian ore.

Now, why would the Chinese want Brazil to pay them in USD for some Chinese goods? The Chinese are smart and recognize that if the USD sank too far in value that the manufacturing jobs in China would return to the USA. This is a problem for the Communists because they do not have a sufficient internal economy to continue employing hundreds of millions of peasants. And, that would be a dangerous political problem for the Communist leadership in China.

Now, I will agree that this assumes linear development, but it would take a situation like WWII to knock the USA out of reserve currency status, and I don't think that is very likely.

In conclusion, welcome to Pax Americana; you should learn to love it.

Yes, it is a, broke relative to what. If human costs are not taken into account, it is a much easier equation.

"Races to the bottom can be described in game theory by the prisoner's dilemma game. This is an exercise where the optimal outcome for the entire group of participants results from cooperation of the participants, but is put in danger by the fact that the optimal outcome for each individual is to not cooperate while the others do cooperate. An economic example of racing to the bottom is tax competition between governments. Each government may benefit from higher tax revenues by having a high tax on corporate profits.

However, governments can benefit individually with a lower corporate tax rate relative to the other governments in order to attract businesses away from the jurisdictions of other governments. This action would hurt all governments except the one that undercut the others. In order to maintain the equilibrium, each of the other governments would have to lower their corporate tax rates to match the "defector" (the government that first lowered the tax rate). The end result is that each government adopts a lower corporate tax rate and thus collects less revenue overall. The optimal option for all governments would be an agreement to maintain tax harmonization" (http://en.wikipedia.org/wiki/Race_to_the_bottom).

As an aside, Robert Axelrod's famous and fascinating book "The Evolution of Cooperation" (http://en.wikipedia.org/wiki/The_Evolution_of_Cooperation) on game theory and the "prisoner's dilemma" presents an algorithm called "Tit for Tat" (http://en.wikipedia.org/wiki/Tit_for_tat) that describes an approach to interaction that promotes generosity and forgiveness while not to being exploitable, and it so simple that it can be understood by everyone (which is to say, it's easy for others to understand your actions and adapt theirs to yours so that you both get the most benefits).

Too much state looting (and printing money is a way to loot) discourages production and investment besides causing political trouble. So there's a limit to how much any state can devalue.

To illustrate, your employer could make itself more competitive by cutting wages. But if it cuts wages too much you would stop working for it and find other employment. So there's a limit to how competitive you employer can be by cutting wages. The better, easier way to competitiveness is to increase productivity by enticing more productive workers with higher compensation.

By devaluing money, a government effectively cuts wages for the entire population, thus making the country as a whole more "competitive," i.e., foreigners can afford to buy more of the country's goods and services. But, just like cutting wages in a single firm is not generally effective, so inflation is not the best way to become nationally competitive.

These effects work for all industries, not just widget factories. Microsoft's highly paid engineers profit too.

And twice the number of widgets at half the profit - how is that a good deal for factory owners?

Finally, Portugal is a country with a very expensive currency. Because of that, unemployment is huge and they're in big trouble.

A key point, as discussed in the Charlie Rose/Gordon Brown interview (above), is in the next 10-20 years when China's emerging middle class becomes consumers.

If the US is still in a position where its technology is superior and China's ~600 million new consumers demand and buy US technology, then it will result it massive US exports, windfall profits, and the perceived debt problem goes away. Part of the US strategy is to make sure it's in a position where China's new middle class demand and buy US technology.

it does because many of them are holding fixed rate notes at very low interest rates. For those with resetting interest rates it is no big deal, but grandma holding CD's or bonds bought in the last few years is going to get killed.

Read the linked-to page.

As I understand it, the US dollar's status as the human race's reserve currency is based on the fact that the US is perceived as always paying it's debts. If they default, countries and banks around the world will suddenly change their reserves into euros, plunging the value of the dollar.

Take all that with a handful of salt though.