the Fed pool
Who's game to make a guess
at the date of the demise of the US dollar?
I mean, there'll be several more warning tremors,
like the ones we're seeing now,
but what day will people look back on and say, "that was the day
when the world finally had to admit the bloody obvious"?
Of course, some would say (myself included)
that the dollar's been dead on its feet for at least 15 years now.
So what's keeping it up there then?
Well, foreign exchange reserves, primarily.
Three quarters of US dollars are owned by foreigners.
Expanding global markets, mostly powered by the growing Asian economies,
require dollars to trade, especially for oil.
This rising demand has kept US currency afloat,
despite a lack of production to back this value up.
China is key in this situation.
They've been pegging the yuan back to encourage exports,
a strategy which seems to have paid off mightily,
but is not without its costs.
In order to keep their currency down and foreign importers' up,
despite a huge trade imbalance,
they've had to buy a lot of that foreign currency. A lot.
In 2000, China's FX reserves totalled $165 billion.
In 2005 they passed the $800 billion dollar mark.
By the end of this last financial year the figure had climbed to $1.8 trillion.
60-70% of this is US-dollar-denominated.
They plan on adding another $400 billion a year for the next four years.
This game can't go on forever, can it?
Eventually a tipping point will be reached:
when the value of domestic Asian consumption has grown
to exceed that of the American market
(minus the exponentially growing cost of pegging),
then China will have little choice
but to let loose the yuan and sell their dollars.
They won't want to do it.
Over a trillion dollars of their foreign investment will be wiped out,
and that's just for starters.
No-one will want to do it.
The human race is hooked on a drug which is providing ever diminishing results.
We know the longer we take to get off it,
the harder the crash will be when it comes.
But for today, just one last taste.
Which brings me to the reason for this post -
to try and make a looming depression/world war feel more concrete.
So, what's my guess then?
14 August 2011, in the USA, which is a Sunday.
In China, it'll be Monday morning, the 15th.
The worst stock market crash in history.
What do you think?
.
at the date of the demise of the US dollar?
I mean, there'll be several more warning tremors,
like the ones we're seeing now,
but what day will people look back on and say, "that was the day
when the world finally had to admit the bloody obvious"?
Of course, some would say (myself included)
that the dollar's been dead on its feet for at least 15 years now.
So what's keeping it up there then?
Well, foreign exchange reserves, primarily.
Three quarters of US dollars are owned by foreigners.
Expanding global markets, mostly powered by the growing Asian economies,
require dollars to trade, especially for oil.
This rising demand has kept US currency afloat,
despite a lack of production to back this value up.
China is key in this situation.
They've been pegging the yuan back to encourage exports,
a strategy which seems to have paid off mightily,
but is not without its costs.
In order to keep their currency down and foreign importers' up,
despite a huge trade imbalance,
they've had to buy a lot of that foreign currency. A lot.
In 2000, China's FX reserves totalled $165 billion.
In 2005 they passed the $800 billion dollar mark.
By the end of this last financial year the figure had climbed to $1.8 trillion.
60-70% of this is US-dollar-denominated.
They plan on adding another $400 billion a year for the next four years.
This game can't go on forever, can it?
Eventually a tipping point will be reached:
when the value of domestic Asian consumption has grown
to exceed that of the American market
(minus the exponentially growing cost of pegging),
then China will have little choice
but to let loose the yuan and sell their dollars.
They won't want to do it.
Over a trillion dollars of their foreign investment will be wiped out,
and that's just for starters.
No-one will want to do it.
The human race is hooked on a drug which is providing ever diminishing results.
We know the longer we take to get off it,
the harder the crash will be when it comes.
But for today, just one last taste.
Which brings me to the reason for this post -
to try and make a looming depression/world war feel more concrete.
So, what's my guess then?
14 August 2011, in the USA, which is a Sunday.
In China, it'll be Monday morning, the 15th.
The worst stock market crash in history.
What do you think?
.