World, Writing, Wealth discussion
Wealth & Economics
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Shall we count on dollar?
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The biggest threat to the dollar that I can imagine lies in the huge deposits (about 2.5 trillion, I believe, but am probably wrong) held in tax havens. While it is no doubt felt desirable to avoid tax, if the money is locked away, that is equivalent to a 100% tax rate, so eventually I suspect that money will come back into circulation. If it all comes more or less at the same time, the value of the dollar will presumably collapse.
If to believe wikipedia, China's foreign-currency reserve was worth recently over 3 trillion USD, and although the composition is a state secret, 2/3 of it were estimated to be likely in USD : https://en.wikipedia.org/wiki/Foreign...That's another tremendous amount under control of a few decision-makers in Beijing...
The Chinese money seems to be heading to buy up major western corporations. I see the Swiss company Syngenta has just been acquired by them. If they keep this up, the West will be dependent on China, unless, of course, the West cheats.
With tax cuts, trade wars and maybe an expended spending in the US all these may become a challenge for current economic architecture.As USD is still a prime world's reserve currency and tender for international settlements, do you expect to remain as such or players will increasingly diversify and hedge to avoid dollar dependence?
If the US keeps up sanctions and tariffs on those it does not like, there will be an increasing number of countries who cannot use the USD because the US won't let them. That would force some other reserve to come about, but what could it be? Originally Keynes, I think, wanted SDRs, but if the UN comes into increasing irrelevance, I can't see that either. Maybe the Yuan/Renmimbi?
Well China has been disintermediating the USD from settling international trade for some years now via country-country agreements.Australia was third cab off the rank of that one.
No reserve currency lasts forever and the USD is long in the tooth on that role. It's gonna change sooner or later.
Ian wrote: "If the US keeps up sanctions and tariffs on those it does not like, there will be an increasing number of countries who cannot use the USD because the US won't let them. That would force some other..."The whole crypto currency industry seems to be trying to establish itself as an alternative - although it currently looks like a wild west gambling saloon
Cryptocurrencies have nothing behind them, and are just a means for the issuer to get rich if he gets popular. I would forget all about them
I'm counting on the dollar. What would you suggest as an alternative?
gold...it's worked for thousands of years.
It's physical. Quantities are limited...you can mine more, but you can't "make" all the gold you want. What makes it better than ancient times is we're actually using it in our electronics, so it has real value instead of the aesthetic value ancient people had for it.
That's the problem, gold is scarce, which means any country's wealth will come down to how much of it they possess and not the actual faith in their currency. And it will become entirely outmoded in an era where economics are becoming less and less about scarcity.
In my opinion, economics will soon become more and more about scarcity, but of course that is no reason to revert to the gold standard. The problem with certain elements that become important is that for many they have uses found for them because they are byproducts of something else (e.g. most of the cobalt and gallium production comes as byproducts of copper mining) but eventually as they are starting to find uses, thy will become scarce commodities and the prices will rise.
Ian wrote: "In my opinion, economics will soon become more and more about scarcity, but of course that is no reason to revert to the gold standard. The problem with certain elements that become important is th..."Could be, and that's the challenge of this century. Renewable energy, cryptocurrencies, crowdsourcing/crowdfunding, commercialized space, the Internet of Things, and other technological explosions are leading us into an era where resources are much more easy to share, access and generate. It's the whole abundance thing.
At the same time, climate change and population growth are threatening to put us into a world where natural resources are diminishing and the costs of natural disasters keeps mounting. Two competing forces, both vying for the future of humanity. Which is going to win?
Matthew wrote: "That's the problem, gold is scarce, which means any country's wealth will come down to how much of it they possess and not the actual faith in their currency. And it will become entirely outmoded i..."That's solved through price. i.e. the price of gold could escalate to cover the available monetary supply and people would trade in grams of metal...
It's no big deal from a technical perspective.
The key issues are the huge wall of debt and ownership denominated in debt, based on a debt instrument monetary system (US Dollar (plus are the other fiats) is a debt instrument it is literally loaned into existence). underpinning a financial system based on fractional reserve banking where the debt is resting on "real collateral," of a fraction of the value of the debt.
The whole thing is a recipe for disaster that is destined to collapse under its own inescapable mathematical weight.
As all fiat currencies have done in the past.
Matthew wrote: "Ian wrote: "In my opinion, economics will soon become more and more about scarcity, but of course that is no reason to revert to the gold standard. The problem with certain elements that become imp..."Our creative and destructive tendencies are evenly balanced, but history suggests swings to extremes now and then.
If someone had asked me 5 years ago about the nature of the monetary system, I would have come back as a strong Gold advocate.However, I've moved on from that for one simple reason.
It seems to me that most people literally live their lives without any real savings to speak of. Having a monetary system that includes (Money = Store of Value) - i.e. Gold based, may have been obsoleted by events.
Perhaps all people need is a transaction system to share "Labour Value," for the exchange of goods and services, and that's it.
Perhaps we are in a monetary transition phase where our current fiats will ultimately be replaced by something else (I have no idea what - just that it will be different from what has gone before) and the transition process is a multi-decadal process.
I think we are moving towards a system of credits. Cashless society already operates this way. You get paid to a bank account you spend from that bank account. Whether the account states €, $ or £ makes no difference day to day (I'll ignore Fx traders). In return for moving a number on a screen we transact.Our asset values are based on another number which in terms of the biggest asset most people partially own is their property on which another number moves downward in proportion to other numbers that drive it upward.
All this is quite surreal in that it's all numbers on computers which can change and adjust seemingly without any reason. The value of assets in stocks and shares go up and down without any reference to reality but on rumour and clairvoyance. Occasionally a company publishes some numbers that may or may not be true and the value of the assets change dependent on whether its in line with "market expectations." You have companies losing money who's value increases because they lose slightly less. You also have values of profitable companies going down because their profit was below this forecast. Both movements are set against another variable which is overall sector and market trends.
None of this changes anything on the ground until a company actually goes bust normally a couple of years after over-inflated valuation not based on reality but so called expert forecasts.
The dollar is a perfect example. The US dumped dollars and dollar loans after World War II to regenerate the economies of war ravaged countries. It effectively became the standard then and out of control from then on. The demand for dollars world wide meant the US treasury first printed paper called dollars then made up some numbers and sold them as bonds just as World Governments have done with Quantitative Easing. The Treasuries around the world magically created numbers that then went as loans to banks that then went as loans of more numbers to businesses who paid employees who paid some of it back as taxes to the government. They also then reduce one number down to almost zero before they hope their employer or state gives them another number to start again
The more I write the less real it seems. I don't have an alternative and I don't see it changing despite the debt mountains. It would make zero difference if the denomination of the number was not a $
Hi Philip, we have real goods and services being exchanged with a system that is little more than 'fairy dust.'Which begs the question - do we need more than 'fairy dust?'
The concept of money is that it enables transactions (including getting labour). As long as there is just enough, it works. Print too much and you get inflation, except when people sit on it. The reason quantitative easing worked is, in my opinion anyway, because too many multinationals were salting it away in tax havens, which effectively took it out of circulation. The real problem will arise if it all decides to reappear.
Scout wrote: "Is that practical, though?"I think it should be a fair warning that the opinions here shouldn't be treated as an investment advice of any kind
Second that Nik,This is like people discussing 'stuff,' over a beer at a pub.
Do not assume anything said here is worthy of investing your hard earned in.
Ian wrote: "The concept of money is that it enables transactions (including getting labour). As long as there is just enough, it works. Print too much and you get inflation, except when people sit on it. The r..."Watch out for the day, the USD ceases to be the world's reserve currency, it will then flood back to the US from the rest of the world. Could get very ugly, or might be handled really well. Depends on if the transition to what replaces it is orderly or not.
Graeme, that could happen anytime the multinationals decide to stop giving the Fed an interest-free loan. And I second/third/whatever the arning - do not take these comments as investment advice.
China has for several years now bee actively disintermediating the USD for settling international trade (it's other function, apart from being the reserve currency used to set the value of the other currencies is to settle trade) by setting up bilateral agreements with countries.Australia was 3rd cab off the rank in that process.
The big one will be when Oil is sold without USD.
I think China is already buying oil from some countries with yuan.
There are too many interests vested in USD so the temptation to re-set may be high, once those who can safely switched to something else
Don't worry, guys. I wasn't thinking of cashing in all my assets and investing in gold. Nice to know you're looking out for me, though.
Their is a view that physical gold & silver in your possession is monetary insurance.China and Russia are both accumulating hoards, and have been for awhile.
The USD is long in the tooth as far as reserve currencies go, they usually last approx 80 to 100 years.
I would be surprised if we don't see a major change in the world monetary system within the next 30 years, but I have no idea what that future system will be.
I have owned bullion in the past, I don't own any at the moment. I certainly would not make any sort of recommendation about owning or not owning physical metals.
The problem with prediction regarding economics is it is remarkably exact retrospectively. We always know what happened and what we should have done. The problem is, no two slumps are exactly the same, although there are some common signs. I don't thik the present situation has occurred before, so guidance is very weak, so I agree with Graeme - I don't believe any recommendation. I have no idea how this will all fall out.
Too many players amassed it: Chinese government and super rich, Russian government and oligarchs, basically any government and wealthy people.
In case of severe economic turbulence, if such may occur, it's too tempting not to pull the rug from under its feet.
French demanding to exchange dollars for gold in the past and returning empty-handed comes to mind.
What do you think?