What's Wrong With This Picture?

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Lemonyellowschwin's picture
Lemonyellowschwin
Status: Platinum Member (Offline)
Joined: Apr 22 2008
Posts: 561
What's Wrong With This Picture?

Will someone please explain the rationale?

1.  The US economy is in the sh--ter now and for the foreseeable future.

2.  The US national debt is off the charts and growing.

3.  Yet, foreign investors are piling into US dollars because they are "safe."

Why?  Why are they considered safe?  Why are they not considered unsafe?

rkopf's picture
rkopf
Status: Martenson Brigade Member (Offline)
Joined: Sep 4 2008
Posts: 29
Re: What's Wrong With This Picture?
I think mainly, because the situation for example in Europe is as bad, if not worse. I dont know about other currencies than the euro, but since the EU is not a monolithic bloc, it cannot be foreseen how it will deal with the crisis, and what happens to the euro. The US is still the worlds strongest superpower, and maybe for that reason "too big to fail"
barrt's picture
barrt
Status: Silver Member (Offline)
Joined: Aug 25 2008
Posts: 171
Re: What's Wrong With This Picture?
some say this is to do with the fed selling gold they havent got in order to push up the dollar - default on the comex coming soon?
reistr's picture
reistr
Status: Bronze Member (Offline)
Joined: Jul 15 2008
Posts: 50
Re: What's Wrong With This Picture?

I believe rkopf is right.

One thing I really notice in this site is a tendency by a lot of users to jump at the conspiracy theories... But as Elon Musk, PayPal founder and chairman of Tesla Motors once said regarding the shutdown of the EV1 "Don't explain...by conspiracy what you can explain by incompetence,".

Here are a few things to consider:

1 - Most large World economies are hurting just a bad as the US. You can read the BBC instead of (or as well as) CNN to get a better World view - It's amazing the difference in focus...

2 - All large Countries own substantial amounts of US dollars.

3 - The US is the World's largest economy (producer AND consumer).

4 - The US is the international currency.

So it absolutely makes sense that the dollar is still the prefered currency. Think about the implications of the above:

One thing that Dr. Martenson was very worried about was that some country might give up on the dollar and start a bank-run on the US. That's a very good point and it might happen still, but things in the World have evolved into a much more complex situation.

In the beginning of this crisis everyone, in the US and the rest of the World, viewed the problems as an internal US issue - So the worry about a bank run on the dollar was a clear and present danger. That basic idea turned out to be wrong, the british housing market had an even bigger bubble than the US (let's not even mention Spain...), Iceland was playing with interest rate differentials and leveraged to an extreme, etc.

In any case, now we have a situation where other countries are in as much or more finantial distress than the US. So they are much less likely to dump dollars, since they would have to take a huge finantial loss to do that - It would also be political suicide for any leader to take that loss while in the middle of an economic crisis. So, in my opinion, that danger has lessened a great deal.

The US was very lucky that no one of the central banks broke rank in the beginning of this crisis and dumped their dollars - So the US dollar as the reserver currency lives to see another day. Now I think it will be quite a while before that danger crops up again, probably only once the World economy is stable once again (years?) - Then we will the central banks pressing the US to "re-nogitiate" the reserve currency status...

In summary, yes, the US economy has serious issues. Yes, the status of the US dollar certainly will change sooner or later. Yes, other countries aren't too happy with the current arrangement. And yet, given the current global situation, where the US is in a mess, but so is everyone else, so the US dollar doesn't look so bad after all.

My take on it...

T

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