Bond Ratings & Reserve Currency Status: The Relationship

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RedHeadKingPin's picture
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Joined: Oct 7 2008
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Bond Ratings & Reserve Currency Status: The Relationship

*I posted this in the 'enrolled' forums, so I apologize to the site operators if this seems like spamming, but I noticed the regular forums are more populated, so, I figured this is where I should have put this.  This is the place to be!



One thing I am trying to understand is the actual relationship between our pending bond rating downgrade, to the issue of the forecasted loss of our reserve currency status. Now, I've read stories discussing the inevitability of the dollar being replaced as a reserve currency for several years by now.  It seems to be a fore drawn conclusion, desired and actively encouraged by institutions like the IMF, and openly discussed by the G20.

I just don't understand the exact relationship.  I am reading here and there that the former will almost certainly lead to the latter, but I don't know why this is. Especially considering that the latter has been in discussion, as if inevitable, for several years by now.  Is there something special about the way it is all going down right now?

And what do you guys think this will mean in terms of the stock market?  IE, what will it do to standard retirement accounts, such as IRA's and 401k's?  I'm extremely worried about my parents, who are in their mid 60's.  I think this kind of stress will literally kill my father, who has a fragile heart, and is weary from decades of fighting to keep his small business above water. 

Is the relationship between the ratings and the reserve status causal?  Does one need to happen to trigger the other, or does 'A' merely increase the likelihood of 'B'?  Will the markets care?  Could it in any way be good for us, insofar as trade imbalances are concerned?  And how exactly do these factors relate to currency devaluation, which as far as I can grasp, is mainly about the fact we're printing so much of the stuff in a sisyphean effort to cover debts and obligations?

Throw in energy costs as they relate to food costs (thank you, Crash Course!)... a dollar that is being devalued no matter WHAT happens with credit ratings and such... I just can't figure out the relationship between these basic elements.  I'm spending every possible waking moment trying to put the pieces together, but I'm getting lost, upset, and worried.  Me?  I'm 38.  I work for the public schools, as does my wife.  Our jobs are relatively secure.  I also recently finished acupuncture school, which sets me up to have a low cost business, in a field that never goes out of need (health care) that I can also barter.  I'm terrified to take out loans or leases right now and so am holding off on starting a business, electing instead to grab a job with a steady paycheck and health care, and which will also permit me to pick up evening and weekend shifts from busy practices.  I have offers.  I'm just... worried about other things.  It takes years to put that kind of business together, and as you all know, the terra isn't so firma.

Ok.  I'm rambling, selfishly.  But I'm scared.  For me, for my family, and for us all.  I have a modest PM position (thanks to ceaseless frantic nagging of my wife, whose money was actually used).  I have a 3 month food store and other basic supplies.  I live in the same town as my parents and other family members, some of whom are extremely handy and well stocked in tools.  We have a modest organic garden, a supply of canned seeds, a neighbor who's a professional gardener, three big dogs for security, a neighborhood full of good people I've known for years, in a relatively small town.  Our jobs are so close we can walk to them.  We don't even NEED bikes to get around where we are (but we have one).  

So I've got some things in order.

But to return to the original point, I'm worried sick about my parents' retirement account being wiped clean.  It happened once in the tech bubble (if they'd bowed out, they'd be set, sadly).  And now, after much nagging, I've finally got them to really consider shifting some money into PM's.  I feel a tremendous responsibility to provide good advice, which is why I've been spending literally every spare moment researching this stuff of late.  I have to close one eye right now from the burning caused by staring at this screen for days on end.

I don't know if I'm over anxious, but to me, it seems like these two events: a bond downgrade and the loss of reserve status, are going to have a synergistically damaging effect on our economy.  My lack of fluency in this area is making it hard for me to communicate our dire circumstances to people - and frankly, makes me wonder if I'm being too paranoid.  I don't think I am (in this case :-p), but...

Can anyone explain this relationship and its meaning?  It would go a long way to helping me help others.

Thank you for reading my blabber.  I have more respect for and trust in this particular community than any other I've found online - bar none.  You are informed, supportive, mature, and kind.  So I am trusting you with my feelings, and trusting in your collective wisdom.  I know this is not a mistake.  

Any insights would be much appreciated.


Thank you.

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