death of the american empire

[jem]

with exchange rates the way the are - why the heck does it matter if the world decides to use the euro instead of the dollar.

I have heard this for a decade and it conflicts with the who idea of floating currencies.

Other than saving the transactions cost of converting the money - who gives a shit if the world stops hoarding dollars.

Most of the dollars are electronic. Hit a few keys - boom - no difference.

If every one did it at once - the dollar would tank and quickly rebound to where it should be. Possibly a little lower - giving a hard time to asia and helping our exporters.

So once again why should we care if the world wants to conduct business in euros?

Is it just the transaction fee?

 

[jem]

Quote from Mom0/pH0x:

wow, seriously???

yes - very.

please explain.

note - I have read this statement close to one thousand times, but I have never seen anyone explain why I should care if gisele, iran, russia, china or anyone else would rather do business in euros.

Why should an american give a shit. What they can't exchange dollars for euros right now?

 

[Misthos]

Quote from jem:

yes - very.

please explain.

note - I have read this statement close to one thousand times, but I have never seen anyone explain why I should care if gisele, iran, russia, china or anyone else would rather do business in euros.

Why should an american give a shit. What they can't exchange dollars for euros right now?

Google Petrodollar recylcing.

Having the world's reserve (fiat) currency also allows one to print money for oil and other goods manufactured abroad. Furthermore, when other countries have excess dollars, they buy your debt, so you have a captive market for debt and rates are much lower than other countries' rates.

Take the reserve status away from the dollar, and you could see mortgage rates in the 8-9s, if not higher, oil in the 120s, and our economy goes thru a massive correction if not collapse.

Having the world's reserve currency is like giving your economy a continuous shot of steroids. You can survive without it, but the transition would be a bitch.

Saddam Hussein preferred Euros - see what happened to him?

 

[jem]

The petro recycling argument makes a little sense.


If saudia arabia really buys U.S. government debt with their oil sales - the fact that they buy the debt is important. The fact that they sell oil in dollars is virtually unimportant. It does not matter that those sales are in dollars - they could always sell oil in euros and then buy u.s. debt in dollars.

What - Goldman or Morgan or BofA could not figure out how to handle the transaction?

It is probably all just an electronic notation anyway.

This whole reserve currency argument seems to be a hangover from before the massive expansion of money via electronic accounts.

Whats the difference if an electronic transfer has a euro symbol or or a dollar symbol in front of it.

If you have excess dollars you can buy debt if you think the debt is a good risk or you can buy euros if you do not.

 

[jem]

I note - there is a chance I am incorrect. But, I would really like to see a link to someone who explains my error with a cogent argument.

Perhaps I am missing some political argument. I just do not see the economic argument.

My questions on this argument arise from something we learn the first day of econ 101. "Marginal this equals marginal that."

In the end you have to ask just what is the benefit. My hypothesis is that the system of currency exchange is supposed to operate efficiently enough to wipe the kind of benefit people theorize about being a "reserve currency?.

If people were actually paying with hard currency then I could see these arguments making sense. You have to use a limited supply of dollars to conduct business. Thus creating excess demand for that currency. Which should make that currency more valuable.

But when you have electronic dollars the concept of reserve currency probably becomes meaningless.

I believe the answer to my question could come from someone who deeply understands the schools of thought relating to money supply. Particularly M3 and similar concepts.

I suspect for every argument which states that being the reserve currency allows the fed to dampen inflation could easily be matched by an argument which states that by being the reserve currency we have allowed the FED to debase our currency.

In the end I question the need for our currency being the "reserve currency". Marginal this equals marginal that.

With greenspan recently testifying that his assumptions were wrong.... I question why we should want the fed to even have power over a reserve currency. Greenspan confessed to being a msiguided fool and not understanding what the bankers were doing. (which I seriously doubt -I suspect he knew damn well what the bankers and wall street were up to. That was his job as their figurehead) Why would we want the FED to be in charge of a reserve currency?