Regarding Conversations with Bernanke "End The Fed"
Need some clarification on this dialogue (page 101)
Ron Paul says,
“Also, we can resort to borrowing overseas and we are permitted because we have the reserve currency of the world to export our inflation and that seems to be a free ride for us as well”
what does this mean in detail
Jeremiah
Perfect timing.
Banks around the world hold reserves in order to back up their currency. This is a certain percentage of the total amount of money that they have outstanding. At one time, these reserves were held in gold. More recently, they have been held in U.S. dollars or dollar-denominated assets such as U.S. treasury securities, which represent U.S. debt. Consequently, foreign banks have had to acquire dollars in order to support their money supply. For example, U.S. banks have to have about 10% reserves, meaning that they need $1.00 in reserves for every $10.00 that they lend.
Yesterday, however, several European banks replaced the dollar with the Euro and the yen as their reserve currency. More trouble ahead.
Look up "deficit without tears" on Google. Basically the danger of printing so much money is the devaluation of the currency. But, if your paper currency is the reserve currency everyone wants some, so you can print a lot more of it than you otherwise would have been able to. You export 'capital', meaning paper money, and buy a shitload of foreign goods. And the money doesn't come back your way to devalue the currency at home because it goes into the foreign banks as reserves. So we 'buy' a VW for 10K, Germany sticks that into their bank and gets 100K of value of their own currency out into circulation on top of that, which they use to buy a bunch of their own VWs. So we get to run a massive net trade deficit without any real problems, at least for a while.
It used to be the US and Britain that did this with the Gold Exchange standard, and the set up stopped the loss of gold that would normally have occurred with inflation. The policy kept going after the US became the reserve currency and even after Nixon cut the ties between the dollar and gold, at which point the system basically depended totally on faith in the dollar driven by demand for dollars to buy oil and diplomatic maneuvering, the latter meaning using our clout and military might to ensure nations kept using dollars as reserves. Of course what's happening now is countries are increasingly shrugging off our bullying because it's plainly clear the dollar is headed for a swan dive into the nearest hole in the ground, and in classic empire fashion we've over extended ourselves with one direct effect of that being we can't really adequately fund our military. So now we're less of a threat, and faith in the dollar has gone bye bye. So all those dollars and dollar denominated instruments are going to start coming back with a demand for real assets in return, except we ain't making a lot of real stuff anymore and we won't be able to sell that many Quarter Pounders, in which case we'll run out of shit to sell and prices will sky rocket as the dollar completes its dive into the nether regions of currencies and becomes irrelevant.
I think what most people miss in this analysis, even Austrians, is what Austrians say others miss in their analysis: time and subjectivity. I don't think our nation has quite learned how over extended and truly worthless we are, and so may be willing to fight for the illusion that somehow we're still number one, whatever that may mean to any of them. As such, I think our military is still a threat and the population can still be energized to fight for a while longer. Which means I think we're going to see some serious cow flops hit the fan before our final collapse. Which is why I'm not too worried now. It's when the war drums really start beating en masse that I think things will finally be on the brink. I'm thinking China or Iran will be the recipient of our national ire, and our generally stupid population will willingly go slaughter a few thousand to a few million people, themselves included, before they realize it's really not worth it and that it's the US government and our debt ridden citizens that are the problem.
On the plus side, if you manage to keep your CC balances running until then, you might get out of paying them because the companies that hold the debt will disappear, be nationalized, or nuked. Got to look for the silver lining.
DougM: Yesterday, however, several European banks replaced the dollar with the Euro and the yen as their reserve currency. More trouble ahead.
Do you have a link to any news article or webpage that states this? I'd like to read it. I would guess that they didn't report this on CNN or Wall Street Journal.
this isn't "European banks" (i'd be interested as well for a link), but there have been meetings to ditch the U.S. dollar that involve countries in the Persian Gulf, Russia, Japan, China, Brazil, and also to note - France:
"The Americans, who are aware the meetings have taken place...
The current deadline for the currency transition is 2018....
Britain’s The Independent newspaper Tuesday reported that Gulf Arab states were in secret talks with Russia, China, Japan and France to replace the U.S. dollar with a basket of currencies in the trading of oil...
Fisk said the proposal was for trade in crude oil to move over nine years to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, the United Arab Emirates, Kuwait and Qatar.
'Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars,' said the report. It added that France had also been involved in the talks."
the two articles found here quoted above had more detail.
"I used to see a mountain as a mountain.. Thereafter.. when I saw a mountain; lo! it was not a mountain.. yet now of final tranquillity: I see a mountain just as a mountain as I used to.." - Master Yuan; molon labe
bearing01: Do you have a link to any news article or webpage that states this? I'd like to read it. I would guess that they didn't report this on CNN or Wall Street Journal.
I guess that I should have been more precise and said that it was reported on Tuesday that over the last three months, banks put 63% of their cash into euros and yen.
Here is the best article that I've found on the subject .
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