Global economy has no substitute for falling dollar | Hacker News Reader

Global economy has no substitute for falling dollar

business.timesonline.co.uk

15 pointscwan12 comments

Currency is like stock in a nation. We always talk about the falling dollar, but what we are really talking about is the decline of the American empire; decline of trust, decline of confidence, decline of a prosperous future, decline of value for the world created from within America and exported to other nations.

Our economy for the past decade or so has been directed internally. We are only thinking of ourselves. We are building guns for our wars and no butter for our neighbors. We are spending millions and billions of dollars on entertainment in the form of sports stadiums and franchises that only americans care about. We are not spending money on education for our creative future generations who will find and solve problems for the world.

We are not talking about a decline in the dollar, we are talking about a decline in the faith that those who control the value of the dollar are acting in the best interest of the nation over the best interest of a relative few who provide no value to anyone but themselves and their close friends.

> We are spending millions and billions of dollars on entertainment in the form of sports stadiums and franchises that only americans care about.

http://www.newsweek.com/id/177422

> Regarding business, the answer is yes. The Bureau of Economic Analysis reports that between 1986 and 2005, foreign sales of U.S. motion-picture and video products rose from $1.91 billion to $10.4 billion (in 2005 dollars)—an increase of 444 percent. As Dan Glickman, president of the Motion Picture Association says, "Among all the sectors of the U.S. economy, our industry is the only one that generates a positive balance of trade in every country in which it does business." The same is true for the TV and music industries, and the reach is far greater when piracy is figured in.

I rather wonder how much the figures increase when all entertainment is included (sports, video games, etc.).

I slightly disagree, the current situation has little to do with what the US is producing/economy and more to do with the fact that we have been inflating the US monetary supply at ever faster and faster rates. The money others hold is losing value, that is why they want to get rid of it.

   Meanwhile, the Chinese are unlikely 
   to allow their currency to appreciate in value

Why? Seems like a completely baseless assumption. When US consumption is on the rocks, the only engine of growth for China is its own huge domestic market. Strengthening domestic currency will stimulate consumer boom and turn China from pure exporter into a most attractive market in the world, similar to what US has been for most of 20th century. This turnaround will not happen overnight, but it will eventually happen.

    Why?

If they let the dollar go, it won't just slide, it'll collapse. It'll be game over for the dollar. The leadership will lose staggering amounts face over all these savings they've accrued in this rotten dollar. This will undermine their attempts to push further towards a market economy but - something they can be more fearful of - it will threaten the stability of the state.

In the west we can have an economic collapse, and the government is thrown out, and things shake but we swap in a new political class and get back to work. China doesn't have pressure valves, and they're an already unwieldy nation - lots of ethnic groups, many of which don't want to be part of China, a culture of corruption, a huge wealth gap. They have a further problem in that there are examples of small nations of Chinese doing very well without being part of a juggernaut state - Taiwan, but Singapore and the legacy of Hong Kong/Macau in their own way also.

As in the west, the Chinese leaders are using stimulus to procrastinate. But the stakes are much higher. The USD situation is like cancer for the Chinese. The only play I can see out of their situation will be to force an arrangement where they could get their holdings of USD reinterpreted into a more trustworthy store of value.

I would not overestimate importance of the dollar for the Chinese. Those dollar holdings are a simple by-product of past currency interventions, a way to park those dollars bought from exporters of electronic goods etc, not a conscious choice to invest some 'savings' in the US. Also, China's trade with US is less than its combined trade with countries of Pacific Region.

Also, I would not agree with your characterisation of China and its regime. Its current government has been doing wonders lifting hundreds of millions of people out of poverty, and cases of corruption unfortunately happen everywhere -- from Chicago to Shanghai. They do have a bit different social organization, but its current modification seems to work for them for the past thirty years.

There is a substitute for the falling dollar: hydrocarbons.

Here is an interesting thought experiment to try:

1) The Dow Jones Industry Average (aka "the Dow") is a weighted average of the aggregate value of 30 of the largest and most widely held public companies in the United States. In other words, think of the Dow as answering this question: "How many dollars does it take for me to buy a piece of the most valuable corporations in the United States?"

2) Now, try this: draw a graph of the Dow denominated not in dollars, but in barrels of oil.

3) In other words, answer this question: "how many barrels of oil does it take to buy a piece of the most valuable publicly-traded corporations in the United States?" (Also, try this for Gold -- "how many ounces of Gold does it take to buy a unit of the Dow?")

4) Answer this question for: (1) the present day, (2) 1999 -- the peak of the dot-com bubble, (3) 1980 -- the depths of the pre-Reagan recession, (4) 1933 -- the depths of the "Great Depression", (5) 1972 -- the aftermath of Johnson's "great society" and the Vietnam war.

5) Notice anything interesting?

6) This explains why may cash-rich entities, such as the sovereign wealth fund of China, are trading their dollars for stakes in petroleum producing properties. This asset allocation provides two benefits: (1) protection of their principal, (2) a steady cash-flow of fiat currency with which to acquire more properties, and/or finance liabilities.

7) Every time the Obama administration runs a deficit of US dollars and calls on the treasury and/or fed to increase the supply of dollars (and to consequently decrease the value of dollars in _your_ pocket), think of it as a wealth transfer to people in the Oil and Gas business; As well as to those who have the resources, connections, and know-how to allocate capital to the hydrocarbons industry.

There is a substitute for dollars, it's just not available to the average person -- whose net work will be steadily eroded, in real terms, as the U.S. continues to run deficits to finance: (1) two wars, (2) "universal health care", (3) "clean energy" subsidies

Every time you read a dollar-denominated figure, convert that to barrels of oil. It's a fascinating exercise -- especially when you have some historical perspective on this metric.

The thing with oil is that you can only consume what you have. Unfortunately, that is not true with dollars -- trillions of them have been created out of thin air over the past year.

Here's a radical idea: What if there were a country who pegged it's currency not to the dollar, or to gold, but rather to oil?

Petroleum backed currencies could be a viable alternative, but the countries best placed to float (npi) such a currency are mostly in the cross hairs of the global powers (precisely for that reason?).

Here's a radical idea: What if there were a country who pegged it's currency not to the dollar, or to gold, but rather to oil?

An interesting idea, but would probably get awkward in the mid-to-long term. Oil is a consumable resource with a finite (and dwindling) supply. At some point in the relatively near future, the price of oil is likely to gradually become completely unhinged from its historical value (in the sense of value as wealth, not cost).

You'd get some of the same effect in a more stable manner if you instead pegged a currency by energy production capacity of an arbitrary consumable resource. For instance, something like "one zorkmid shall equal the average cost in consumed resources to produce twenty kWh of power from a power plant generating at least one gigawatt" or "one zorkmid shall equal the cost in consumed resources to drive at 50mph for one hour in a standard four-passenger vehicle".

I agree with many of your points, however, there are many reasons not to use oil as a store of value.

Oil can burn, evaporate, leak out of a tanker and be dispersed and not be able to be retrieved.

Gold is far safer, being a noble metal that reacts with very little.

Also you are not accounting for the fact that essentially, the USD is backed by oil - until recently all international oil transactions were denominated in USD.

Competitive devaluations seems similar to competitive tariffs in that both favor export over import through a zero-sum action (someone loses for you to 'win') that harms other nations.

The only way out may be to grow the economy.

Time to fund lots and lots of startups in hopes some find a value-producing and demand-inducing advance.

That article is full of baseless opinion masquerading as fact. 'Eurocrats are secretly pleased with the Euro strength'? Which 'Eurocrat'? What did they say?

The fact is nobody knows what is going to happen but people shouldn't blindly assume the USD is going to stay the global reserve currency.

No currency has ever lasted the test of time, and paper-based currencies are lucky if they make a couple of hundred years.

All this started nearly 40 years ago when Nixon dropped the gold standard. People predicted it back then, but they couldn't be sure of the timeline. The same stays true today ; it's going to happen (failure of USD as a global currency) but nobody knows when.

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