Apparently Iran and Venezuela are pushing to depreciate the American dollar, as reported here: OPEC and the Dollar
Fortunately, Saudi Arabia decided that it was not in their best interest to damage the U.S. economy any more than the U.S. government is apparently doing that is resulting in the dollar's depreciation. So Saudi Arabia is the only country seeming to stand in the way of Iran and Venezuela declaring economic war on the U.S. How frightening is that? More, how frightening is it that countries like Venezuela and Iran are in a position -- created and perpetuated by our federal government -- to actually damage the U.S. economy by causing the dollar's depreciation?
China is also doing some rather stupid things in relation to the dollar -- they and too many other countries apparently do not understand that the economy is not a pie to be divided up, but is growing, meaning you don't have to tear down one economy to build yours up. What is worse, they don't realize if they do take down the U.S. economy, they will all be hurt far worse by the world depression that would ensue than we will.
1 comment:
The reason why these countries are getting cold feet is because they hold massive reserves of Federal Reserve Notes. The Federal Reserve System is probably inflating the supply at a greater rate than they are letting on, which not only constitutes an invisable tax on us, the American people, but also on anyone else who holds FRNs. All those countries out there.
Every decline in the dollar value hurts us citizens AND these countries. The difference is that these countries can move away from holding these notes, which they are preparing to do. We citizens can't do that. I don't blame these countries for diversifying their basket or reducing their holdings of FRNs.
The problem is that we have done this to ourselves. The raging market prosperity of the '90s stock market and the housing market was financed by low rates - at a time when higher rates were needed for a healthier long term economy.
Monetary policy has become too politicized and abuses of monetary policy is now used to try to abort natural cycles in the market and to monetize and pass on the costs of the Iraq war. We keep passing the buck, but eventually the piper must be paid.
The Federal Reserve system needs to raise rates, or we may see a situation similar to Argentina's collapse of their currency a few years ago.
Other countries are not dumb and they can see this. Therefore, they are trying to be ready to be the first to dump their FRN reserves before the market is flooded with them and turns their reserves into so much toilet paper. I can't blame them for it.
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