Fiat currencies cannot last forever. They survive only because of the residual value from previous commodity standard. But that residual value is eroded as well until fiat monetary system collapses and forces a return to sound money, however temporary. What will happen to currencies like Renminbi, Euro, Baht, Phil. Peso when the reserve currency is no longer viable?
They survive only because of the residual value from previous commodity standard. But that residual value is eroded as well until fiat monetary system collapses and forces a return to sound money,..................
what is residual value from a previous commodity standard??? was it a true commodity standar to begin with???
how do you know a fiat money system will collapse???
was gold and silver fiat money or a fiat tender?? did the govt require taxrd to be paid in gold an silver??? is that different than a fiat money???
or was the constitution just giving market money, which often was gold and silver at the time an official tax payment status???
As you say, they survive because people are sued to using their former commodity substance as money. They need no reserves whatsoever. The rembibi will go on as much as it can, that is, as long as inflation doesn’t kill it either, after the dollar is history. There is no connection whatsoever among fiat currencies these days. “reserves’ are only used to manipulate exchange values, not to back up or anything.
"What will happen to currencies like Renminbi, Euro, Baht, Phil. Peso when the reserve currency is no longer viable?"
I guess you are asking, "If the dollar collapses, what will happen to all the other monies in the world?"
Nowadays, when people think about a currency, I assume they ask themselves, "What can I do with a Peso [say]? How productive is Mexico? If I stock up on their currency, will there be something to buy from them that I want?"
So that the productive countries will take a hit when all the dollars they have stocked up on become useless, but they will bounce back. Unproductive countries will be hit hard and not bounce back. Their money too, will go down the tubes.
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Just a side note: the dollar is measured against a basket of currencies such as the Euro, Yen, Franc, etc. Therefore, when someone says the dollar is tanking, it may not literally be depreciating - it's only going down in value compared to other currencies. Simply put, you can't measure inflation or deflation by the index.
The way I see it, I think the dollar index will rise for the next several years while every other's plummet. I believe deflation is in the cards. We just have too much outstanding debt for inflation to be of any concern.
"I believe deflation is in the cards. We just have too much outstanding debt for inflation to be of any concern."
Could you kindly explain how too much outstanding debt protects us from inflation?
Smiling Dave: "I believe deflation is in the cards. We just have too much outstanding debt for inflation to be of any concern." Could you kindly explain how too much outstanding debt protects us from inflation?
If individuals held the debt it would cause deflation because they tighten their belts in order to pay off the debt, and since the currency is printed at interest it would be a sort of great depression. However you are correct that it won't cause deflation because the biggest debtor is the government, they will print money to amortize it.
I think other countries central banks will continue to follow us until they realize our currency policy is a massive failure.
I think the United States' poor monetary policy will not be seen as a serious problem until it gets really bad because many of the other central banks are doing the same thing so relative to them we are doing okay. Even though really we're in trouble.
I think once we get around 6-8% inflation the banks will invest their stockpile of dollars because they will no longer put up with hemorrhaging wealth. Causing a massive spike in inflation, this burst could will hit our economy very hard and do to psychological factors our currency might spiral out of control.
What will cause this 6-8% inflation I don't know, it could be foreigners not rolling over their bonds and the gov't printing money. So they have an incentive lie about the shape of our economy, as long as people are confident they wont cash in their bonds. I don't know how long they can keep up the charade.
http://research.stlouisfed.org/fred2/series/BASE
twistedbydsign99: Smiling Dave: "I believe deflation is in the cards. We just have too much outstanding debt for inflation to be of any concern." Could you kindly explain how too much outstanding debt protects us from inflation? If individuals held the debt it would cause deflation because they tighten their belts in order to pay off the debt, and since the currency is printed at interest it would be a sort of great depression. However you are correct that it won't cause deflation because the biggest debtor is the government, they will print money to amortize it.
A lot of debt is in the form of derivatives ($600 trillion) held by financial institutions. Other large sources of debt are in the form of mortgages. There are three ways to ways to deal with debt: a) pay it back b) default c) print money. A lot of folks are thinking C. But I don't think this will work. Historically, geopolitical concerns have trumped US economic policy when it comes to Fed decision making. Countries such as China and Japan, who own large amounts of Treasuries, hold the upper hand. What do you think those countries will do if they sense inflation?
Inflation is largely consumer driven. You can give individuals all the money in the world, but if the money isn't spent, there is no inflation. I suspect that money will be used to pay down debt than go on a new spending spree. Finally the fed's monetization has simply swapped Treasuries for money. Instead of investors owning debt, they own cash. I'm not sure if that makes them more likely to spend. I suspect much of this new money will be reinvested back into treasuries or other cash equivalents.
The very first to go will be the euro. It won't see the end of the decade.
TY for the answer. I'm not so sure about the whole second paragraph, though. Reading "inflation is largely consumer driven" really shocked me. Can you post a link to some elightenment on this?
What I'm saying is, the government is providing the ammo but it may not necessary be used. It takes spending and demand outstripping supply to create inflation. Seventy percent of economic activity is driven by consumers.