The Coming Demise of the Dollar Reflects the Rise of the Rest
One of the more momentous power shifts in the last 500 years is taking place as we sift through the debris of America's busted credit bubble. The dominance of the West built up across those centuries is now yielding to the East. The latest sign of this shift is that those nations with surplus savings earned through our over-consumption of imports -- in particular China -- are proposing a new global reserve currency to replace the waning dollar. In order to protect their accumulated assets and diversify their risk they want to store their wealth in a basket of currencies instead.
I spoke with former World Bank chief economist and Nobel Laureate Joseph Stiglitz to ferret out the key issues:
Gardels: Among Obama's many challenges, isn't the overarching one correcting the imbalance in savings and consumption between the U.S. and China?
Stiglitz: In a globally integrated economy, the biggest challenge is to make sure there is adequate global aggregate demand, achieved through spending, when countries like China feel they must save high levels of dollar reserves to protect against international currency volatility.
After all, China's accumulation of reserves is a result of the IMF's mismanagement of the Asian financial crisis a decade or so ago. If countries know they can't rely on the IMF to help them, their best defense is their own reserve cushion. In a time of spreading global recession, too much emphasis on savings in surplus countries like China can impede prospects for global growth.
Gardels: Getting worried over the value of their billion-plus holdings in dollars as U.S. deficits mount and inflation threatens down the road, the Chinese have proposed a new global reserve currency based on a basket of currencies instead of just the dollar.
Is such a new currency a good mechanism for undoing the imbalance with a soft landing instead of the crash of the dollar, which would hurt the Chinese as well as the U.S.?
Stiglitz: The proposal for a new global reserve currency -- or Special Drawing Rights (SDR) -- is a good idea for many reasons. Yes, for the Chinese it would cushion any fall in the value of the dollar per se because it would only be part of a basket of other currencies, including the yen and the euro. But, above all, a new basket reserve currency would stimulate global aggregate demand by vastly reducing the fear of currency volatility, which, as I said, is what has led countries like China to put away so much money in reserves instead of spend it.
There are other benefits. As a matter of sound economics, the well being of the world should not depend on the management of a single currency. Currency risk would be diversified through a basket reserve unit, creating stability and confidence all around. Finally, there is an equity issue. Because the dollar is the reserve currency of the world, especially in a downturn where investors flee to safety, the U.S. can suck up the savings of the rest of the world even though the interest rates it pays are near zero. That would not happen if there were a global basket reserve currency.
Gardels: What would it mean for the U.S. if the dollar were replaced by a new global currency?
Stiglitz: Actually, it would be very much in the long-term interest of the U.S. because it would help de-financialize the American economy. Of course, the U.S. gets a bit of a break by being able to borrow at low costs from the rest of the world. But that comes at a macroeconomic cost at home. One way of looking at it is that the U.S. has turned to exporting T-bills instead of automobiles or other commodities. Global demand for dollars has supplanted demand for manufactured goods and services, resulting in multilateral trade deficits and loss of jobs at home.
Gardels: At their summit in London recently, the G-20 leaders decided to create $250 billion in new SDR. Is that an important step on the way to creating a new global reserve currency?
Stiglitz: I think it is. The question is how quickly it happens. In my view, though, the IMF is not the best place from which to launch this currency unless it becomes a more fair and balanced institution that represents the real world economy instead of the post-World War II powers, dominated by the United States. The East Asian countries, Brazil and others need a much greater say.
For example, of the $250 billion in SDR committed, only $19 billion was allocated for developing countries. So, the idea of greater SDR is a good one. The institution is flawed.
Gardels: Even so, the fact that the Chinese have proposed a new global SDR currency and the G-20 has taken a step toward its creation surely marks a powershift in the world?
Stiglitz: Without question, it is a recognition of the reality of a genuinely multipolar world that requires moving to a genuinely multilateral system of governance. The powershift began already several years ago, under the Bush administration, when the dollar became very volatile and started declining. That is when China shifted from having almost 100 percent of its reserves in dollars to 75 percent. Some countries went completely out of the dollar. The dollar, for all intents and purposes, lost its special reserve status and people starting talking about a portfolio, or basket, approach as a store of wealth instead of the dollar.
The momentum today behind the idea of a new global reserve currency reflects, in effect, the rise of the rest in world politics and economics, led by China.
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Horrible idea!
In an ideal world this concept sounds great, but on this Earth, in the 21st century, it would be a disaster. A one world monetary unit controlled by a world bank(single entity) would only lead to disaster. It would eventually lead to a world wide Orwellian control mechanism that would be final. It would be worse than the worst THX1138 nightmarish Hollywood world so far conceived. It would start innocently, enough like most things in history, but once the money moving men would become more and more intoxicated with their power, well... under such rule how could the people ever overthrow a world controlling entity of that scale.
the reason we are having this economic collapse is as a result of too much power in the hands of a few, the last thing I want to see is all the worlds power in the sands of the SAME few. Having independent nations, with independent economies, and independent monetary systems, although complicated, creates an inherent checks and balances in the system, and we need this since we can't trust ourselves to keep things honest.
This is why communism failed, because the people who ran it were failures when it came to being honest decent human beings. History has proven a billion times over that power corrupts and absolute power corrupts absolutely. Putting that kind of power in the hands of the few is insanity to the absolute.
Every nation in the history of mankind has been through ups and downs, being in and out of power. I am glad to be an American and will always be, but whether or not our dollar was #1 or #10, I would not change my mind about this country.
If China becomes more financially powerful than us I won't lose any sleep over it. It's not the end of the world. America has still has much goodwill and ideals to offer to the world. I'm more concerned with the so-called "patriots" who are obstructing progress. To everything there is a time and chance...
And we're Americans, we know how to survive...
Not to change the subject here... but christian conservatives are going to freak out if any big wigs start discussing global currency seriously. They believe that the "anti-christ" will institute a global currency. This will be a hot-button issue politcally. It'll be interesting to watch.
Barack is being set up as the false messiah so that when the true false messiah, Javier Solana comes to power, Barack takes the fall and Javier will be elevated by the Pope.
Whatever..
One of these years, the Chinese and other low wage countries will come to realize that it is in their interest to spend more on their own citizens and subsidize US consumers less. The result will be a decline in the standard of living for most Americans. Everything from TV sets to electric shavers will go up in price relative to our incomes. If we are lucky, we will start electing leaders who decide that the US can no longer play the role of policeman of the world. Instead of maintaining military bases in the Middle East, Germany, South Korea, Japan and hundreds of other places, we will spend more of our tax revenue at home. Britain was brought to its economic knees by two world wars and soon after pulled out of most of its former colonies. George VI went from being King by the Grace of God and Emperor of India to just being King by the Grace of God. When will the US turn over the responsibilities of defending Germany to the Germans? Is the US destined to go the way of the old Soviet Union? Only time will tell.
I have read about the demise of the dollar for years now and it just has not happened. I think the main reason for that is while we are inflating our currency, so is everyone else. I have yet to see a chart showing the money supplies of all countries and thier rates of increase. Probably because the chart would be flat. Everyone is on a fiat currency, so when the dollar goes so will everyone else. I think the likely outcome is that foreigners stop buying our debt which will force Americans to buy it. They won;t unless interest rates paid go higher. So money will get more expensive and inflation will rise. This is a good thing. Americans have been borrowing money to buy things they can't afford for years now. That could not go on forever. So instead of buying a $150,000 boat for just $479 a month, that boat will cost $1200 a month. No longer so attractive. Good. Maybe common sense will return, along with the American work ethic and the utter desturction of the Las Vegas get something for nothing mentality that has aflicted us for so long. Win the lottery. It's the opiate of the masses.
Good point and one most people miss. It's all relative, no?
The U.N. Task Force on Financial reform, led by Joseph Stiglitz, and China and other countries are correctly leading the way to a Single Global Currency, which necessariy will be managed by a Global Central Bank within a Global Monetary Union.
The success of the euro shows that monetary union is the best way to ensure monetary stability. If 16 European countries can use the same currency, why not the 192 U.N. member countries?
In addition to eliminating currency fluctuations, the use of a Single Global Currency would eliminate the current foreign exchange trading expense of $400 billion annually, eliminate currency risk, eliminate current account imbalances, eliminate the need for foreign exchange reserves (now
totaling more than $4 trillion); and bring other benefits worth trillions, such as reducing the impact of global financial turmoil such as we are now experiencing.
The Single Global Currency Assn. www.single
The world is moving toward a Single Global Currency through the creation, expansion and merger of regional monetary unions. Another route is through international monetary conferences proposals and agreements, such as were seen at Bretton Woods.
The challenge now is to reach that goal deliberately, as soon as possible, with as little cost and as few crises as possible.
See the book, "The Single Global Currency - Common Cents for the World."
Morrison Bonpasse
Single Global Currency Assn.
Newcastle, Maine, United States
A real true blue AMERICAN would not freely kill the sovereignty of the United States of America. The only path to financial security is to Nationalize the Federal Reserve and place the lifeblood of our commerce system into the hands of its constituents. A one world currency will kill individual rights and Democracy.
Plans for the Issuing of a Global Currency
http://www
When you're done tinkering with your pointy tinfoil hat, please do take the time to define just what a "real tru blue AMERICAN" happens to be--if you can.
Horrible idea!
In an ideal world this concept sounds great, but on this Earth, in the 21st century, it would be a disaster. A one world monetary unit controlled by a world bank(single entity) would only lead to disaster. It would eventually lead to a world wide Orwellian control mechanism that would be final. It would be worse than the worst THX1138 nightmarish Hollywood world so far conceived. It would start innocently, enough like most things in history, but once the money moving men would become more and more intoxicated with their power, well... under such rule how could the people ever overthrow a world controlling entity of that scale.
the reason we are having this economic collapse is as a result of too much power in the hands of a few, the last thing I want to see is all the worlds power in the sands of the SAME few. Having independent nations, with independent economies, and independent monetary systems, although complicated, creates an inherent checks and balances in the system, and we need this since we can't trust ourselves to keep things honest.
This is why communism failed, because the people who ran it were failures when it came to being honest decent human beings. History has proven a billion times over that power corrupts and absolute power corrupts absolutely. Putting that kind of power in the hands of the few is insanity to the absolute.
You mean well be stating a centralized currency, but imagine if some crook gets in position to control the money supply. Bank CEOs and the Fed in America alone can't keep their operations clean for two minutes - and with no regard of the consequences from their actions.
It would be ideal, but humanity needs an ultimate lesson in ethics and responsibility before we get to that point.
The dollar died when we left the gold standard.
That was but the final nail in the coffin. The true date of the dollar's death was December 23, 1913.
In the future, schoolchildren will read it openly as history, even though today's generations think it's the stuff of the dreaded tinfoil hats.
For some strange reason we still need "Mummy and Daddy" to tell us it's okay to believe facts.
Facts need to be approved by authoritarian figures and it's no wonder since we are bombarded day and night by media outlets that teach us to trust authority.
But the truth is the truth, and sadly the great grandfathers who had to turn in their lawful currency for "greenbacks" and their gold for "Federal Reserve Notes" are all dead, and so are the last leaders and lawmakers who tried to warn us.
Now all that's left is the media, who delights in tossing about terms like "conspiracy theory" when all along it was never a conspiracy. It was a business deal done out in the open, in full view of an ignorant American people, who were too lazy to try and ferret out the complicated answers.
They needed the simple sound bite, and they got one.
Here it is:
We have ruined our country.
Here Here to Globalization and the DESTRUCTION of the soveriegnty of independent nations. We shall all come under the thumb of the International Banksters through control of the means of exchange.
Plans for the Issuing of a Global Currency
http://www
In Tragedy and Hope: A History of the World in Our Time (1966), Dr. Carroll Quigley revealed the key role played in global finance by the Bank for International Settlements (BIS) behind the scenes. Dr. Quigley was Professor of History at Georgetown University, where he was President Bill Clinton"s mentor. Quigley wrote of this international banking network: "[T]he powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world"s central banks which were themselves private corporatio
I doubt the dollar will seriously devalue in the short or mid term. There are serveral reasons for this.
One, right now, and for the foreseeable future, there is economic panic and confusion, so various suggestions and proposals for new currencies or a new basket of currency will sound good - but no further. This leads to the next point: two, no one entity is strong enough to maintain a global reserve currency except the US, and that by default. Of the EU, China, or any international financial organization, none has the means or will to be the world's monetary backstop. Three, the US, at least for four (4) years, has a serious, intelligent, and competent leader who is and will address its dangerously unbalanced financial and banking systems while building an infrastructure for continued American dominance.
The smart reader will see that the dollar is in no danger of collapse or devaluation for the reasons mentioned above: the current economic crisis that results in all sorts of ideas being bandied about, no one to assume the US mantle due to a lack of ability or desire, and a determined US leadership that is strengthening the economy and its infrastructure.
The enemies of the USA just hope that there are more dreamers like you in the States. Dream on. The world has shifted. Like Great Briton, in 25 years, if not sooner, the USA will be ghost of itself. To speed that decline up all Americans have to do is keep believing that they somehow or other are immune from reality. That they are God's chosen nation and therefore are immune to world events. The rude awakening is already upon most Americans, the other people like you, are still living in dreamland.
Or, perhaps the smart reader will take your opinion with a grain of salt, and prefer to take the word of Joseph Stiglitz instead.
It is insanity to try and keep the growth mentality in a finite world.
I'm all for growth of knowledge and wise use of that knowledge for the betterment of humanity and the planet, but trying to restore the GDP growth treadmill is utter folly.
if you don't try to go up, then you go down.
our society has no other choice but to lie to itself and say that there needs to be growth.
America will decline, but the rest probably won't rise.
Unprecedentedly high labor productivity is stalling globalization. There are billions of people who want to work, but there is no economic justification for employing them.
The stage is set for a fairly large population die-off that will likely hit the developing world much harder than it hits America. Death by insufficient demand.
Most export-oriented economies will face severe difficulties in the coming decades. Those based on domestic consumption will fare better. The more localized the consumer base, the better.
Essentially, globalization has failed because it eliminates jobs, lowers wages, and destroys effective demand. The "emerging" economies it powered must create their own demand or drown in debt service on their idle factories.
Your last paragraph couldn't be more incorrect. None of those things are true.
You should change your screen name to Thomas Robert Malthus your predictions will be as accurate as his.
Yes, and you market fundamenta
Turn Off the Faucet to Wall Street and turn On the Faucet to Main Street!
__________
Progress for 99% of Americans on Main Street has been strangled by Wall Street Rates and Policies!
Seven Months of $12.8 Trillion (per Bloomberg) to Wall Street and credit flows to Main Street Decline!
300% Increase in Pay for Top 1% from 1980-2008!
20% Decrease in Pay for Other 99% from 1980-2008!
1980 WS Executives made 20 times average Worker
2008 WS Executives made 400 times average Worker
NOW Canada Executive made 20 times average Worker
NOW Britain Executives made 22 times average Worker
NOW Japan Executives made 11 times average Worker
1980 Banking was 10% of US Profits
2007 Banking was 40% of US Profits
Shrink Banking to 1980 SUPPORT ROLE in Our Society!
Exactly. This so called credit crisis isn't a credit crisis at all. It is a cash crisis for the consumer. We are a consumer based economy and the consumer is tapped out. He has maxed out his credit cards and the interest rates are jumping. He's in the poor house and he can't buy more baubles just now. If more of the productivity gains of the last 30 years had been spread around then we would not have had this crash. But of course, the right wing press and talking heads have programmed us to think of "spreading the wealth" as socialism and class warfare when in fact it is the salvation of practical capitalism (mixed economy) and the antidote to the class warfare by the rich on the poor and middle income people that has been going on for the last 30 years.
The US could cut off China tomorrow if it was necessary.
China can probably step up domestic consumption faster than America can ramp up domestic production.
Um.... You DO realize that they have a MUCH larger population in the middle class than we have in the COUNTRY, right?? Not to mention the fact that their cost of living is such that they can have MASSIVE growth for DECADES before they get to our level, meaning that they can ramp up consumption of domestic goods MUCH faster than we can ramp up production of our own domestic goods.
Granted, a majority of what they produce we could do without if we had to, but a significant portion of things that we actually NEED for modern life in America comes from China.
This is a true symbiotic relationship which cannot be broken quickly by the one who needs it more (USA)
Do you mean China's middle class is larger in actual number or a larger percentage of their population?
We have created and fed the beast that will devour us...
Capitalists worked hard to destroy America's self reliance and thus independence for the sake of quick but short term profit...w
This is apparently because these Capitalists were more obsessed with Class Warfare than they were National Security or our nations existence as we have known it these years...
Also we can't discuss an international reserve currency, without also considering that this is also along with an international central bank and central government potentially as all part of David Rockefeller's vision more obsession and that of the rest of the Bilderberg Group...
This "switch" to another reserve currency is not a new thing for the world.
At one time the Pound Sterling reigned supreme, probably up to the end of WW11.
After the events of WW1 and WW11 had decimated the British Empire (i.e. drained the Treasury) a gradual switch to the US dollar was well under way. By the 1950's the US dollar had replaced the British Pound as the most popular reserve currency.
It didn't happen over night, but probably took the better part of 2 generations.
I suppose it could be argued that the deficit spending of the Bush administration, including the Foreign wars, tax cuts and the Banking crisis have added to the speed of the switch.
Probably too early to tell at this point?
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