Monday, May 21, 2007

Yet Another Sign of Decline




BYE, BYE DOLLAR


The following story by Wanfeng Zhou illustrates the erosion of the importance of the United States dollar in the world economy discussed in my previous post – a symptom and harbinger of U.S. decline generally. To me events of this kind are the advance rumblings of the real avalanche – the refusal of nations to lend America more and more money through purchase of U.S. Treasury bonds, etc., which are nothing more than IOUs repayable in dollars. In view of Bush’s inflationary policies, buying Treasury IOUs from the U.S. is like accepting an IOU from someone promising to repay $1000 in five years when you know that $1000 will be worth $500 in buying power by the time it’s repaid. I’m not an economist by any means, but I understand that when a debtor nation like the U.S. loses its sources for borrowing, it tends simply to print more and more money in order to preserve its previous status and avoid a depression, with the result that inflation impoverishes its citizens. . . in particular those who have retired.


‘NEW YORK (MarketWatch) -- The Central Bank of Kuwait's decision over the weekend to untie its currency from the U.S. dollar might signal a growing trend among global central banks, especially those with large foreign-exchange reserves, to more actively manage their currencies.
‘And such a shift is likely to put the U.S. dollar under increasing pressure, analysts said.
‘The significant drop in the exchange rate of the American dollar against most other major currencies had a negative impact on the Kuwaiti economy over the past two years," Sheikh Salem Abdel Aziz Al Sabah, governor of the central bank, told the official Kuwait news agency.
‘"In the Middle East, it's a story of dollar-concentration risk," said Stephen Roach, chief economist of Morgan Stanley. Kuwait's just-announced decision "may well be the first step in a regional diversification strategy that attempts to temper such risks," he said.
‘Global central banks' ongoing reserve diversification has been a main factor weighing on the U.S. currency and Treasury market in recent years. Many people argue because foreign central banks have played a vital role in financing U.S. borrowing by buying U.S. debt, a diminished appetite for dollar-denominated reserves could have a significantly negative impact on the dollar and the U.S. economy.’

9 comments:

Shelley said...

Awesome! I needed some cheerful news today and you came through for me!

You rock.

Wombat said...

The decline is not a good thing.

On the other hand, when the US$ drops to RM 2.50 per US$1, I can go on a shopping spree on Amazon.com again. So waiting very patiently.

David Wozney said...

A “Federal Reserve Note” is not a U.S.A. dollar. In 1973, Public Law 93-110 defined the U.S.A. dollar as consisting of 1/42.2222 fine troy ounces of gold.

Fleming said...

Shelley, I got a million of 'em. If you want to get really mad, keep coming here.

You rock too. As Americans on the way down the mountainside, we are going to get familiar with a lot of rocks.

Fleming said...

Wombat, I just looked at the exchange rate $US v. Malaysian Ringgit (RM) and I see what you mean. Right now you spend over RM 3 for a dollar. If things go on as they are, you'll be able to fly over here and buy all the books you want for the price of a good curry dinner in Malaysia. (I hope you have curry dinners there. I love curry. Of course as an American, I may not be able to afford the US $100,000 price of a rijstafel. But that's Indonesia, isn't it? Anyway, I won't be able to afford to travel anywhere over there because of the $300,000,000 price of a ticket. This is sounding worse and worse. Shelley is really going to be cheered up now.)

Fleming said...

David, thanks for your visit and comment.

Naj said...

Famous for 15 megapixels: You've got to laugh...

Wombat said...

Fleming: Yes, it used to be RM3.80 to the dollar when He-Who-Despise-Caucasians was our PM. Ilove the days before 1997 though. The ringgit was RM2.50 to the dollar and Amazon.com was still a pipe dream in Jeff Bezos head. Those were the good ole days.

Of course we have curry in Malaysia. (The curry the Brits are having is not curry!) Our curry is so good it gave a whole new perspective to the song Great Balls Of Fire!

Fleming said...

Wombat, it's always fun to hear from you. How about a Malaysian curry recipe? I'm mostly familiar with Indian curry.