Why is a US Failed Auction So Feared?

It is feared, because it would signal a default, a scenario thought only to happen in the case of nuclear war.

The US can "print" money b/c our rate of money supply growth is <u>nowhere near</u> other countries' (rate of money supply growth), and Greece is the best example of why despite our printing presses running our dollar has strengthened in recent months.

I do recall one of my posts stating to buy dollars with the dollar index around 76. What'd you know? Sitting here at 88.
 
Quote from Misthos:

There's a reason the US runs trade deficits, it has to:

http://en.wikipedia.org/wiki/Triffin_dilemma

The question is, now that the world has grown and diversified post communism, how much longer will the rest of the world want a US $ int'l paper standard? How much longer can the US $ int'l paper standard last?
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triffin wrote that stuff in the 60s.

Now dollars are electronic and conversion can be accomplished with the push of buttons.

If you think about it... physical dollars are insignificant. So I think triffin ideas no longer apply.
 
Quote from jem:

triffin wrote that stuff in the 60s.

Now dollars are electronic and conversion can be accomplished with the push of buttons.

If you think about it... physical dollars are insignificant. So I think triffin ideas no longer apply.
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Oh really?

You and I can push buttons - the market doesn't care, doesn't notice. China sitting on over $1 trillion? Just a wee bit different, no? Don't compare how you do things with how people that handle REAL money do things. They have different headaches than you and I do.
 
You missed the point. Perhaps I should have been more clear.

The view the the U.S. needs to print and export dollars in order to facilitate worldwide trade... is getting to be a quaint idea.

In fact the idea that being a reserve currency is important to america is almost foolish. Being a reserve currency helps the Fed hide what they are actually doing to destroy the value of the dollar but it no longer benefits american tax payers. Please note all the internet reserve currency website kooks never really explain why being the reserve currency matters.

They just say it does and then tell people to buy gold and guns. (which may turn out to be good advice anyway.)



Greenbacks may provide liquidity for black markets but we no longer need to export real greenbacks for trade since we have digital greenbacks. And those digital dollars can be exchanged for euros or gold with the push of a button.

Given that so much of finance is now done digitally... explain why the U.S. would have to export dollars?

Why would being a reserve currency be of benefit? You can just change your dollars for euros with a push of the button... or you could by a option and hedge. Or call a bank and set the contract up in dollars and let them do the work. Its not like you are carry a wheelbarrow full of dollars to Saudi.
 
From wikipedia -- "The Triffin dilemma (less commonly the Triffin paradox) is the observation that when a national currency also serves as an international reserve currency (as the US dollar does today), there are fundamental conflicts of interest between domestic and international economic objectives. This dilemma was first identified by Belgian-American economist Robert Triffin in the 1960s, who pointed out that the country issuing the global reserve currency must be willing to run large trade deficits in order to supply the world with enough of its currency, to fulfill world demand for foreign exchange reserves"...


Now- lets take a look at that statement. The last sentence. Foreign exchange reserves... does it matter whether the country stores, dollars or euros or yen or pounds?

its all electronic.

How do foreign currency reserves effect international trade? Do countries really need to stock pile dollars over some other solid currency?

In an electronic age Triffins thoughts are not really relevant.
 
Quote from jem:

From wikipedia -- "The Triffin dilemma (less commonly the Triffin paradox) is the observation that when a national currency also serves as an international reserve currency (as the US dollar does today), there are fundamental conflicts of interest between domestic and international economic objectives. This dilemma was first identified by Belgian-American economist Robert Triffin in the 1960s, who pointed out that the country issuing the global reserve currency must be willing to run large trade deficits in order to supply the world with enough of its currency, to fulfill world demand for foreign exchange reserves"...


Now- lets take a look at that statement. The last sentence. Foreign exchange reserves... does it matter whether the country stores, dollars or euros or yen or pounds?

its all electronic.

How do foreign currency reserves effect international trade? Do countries really need to stock pile dollars over some other solid currency?

In an electronic age Triffins thoughts are not really relevant.
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The sums are so large, that instability would ensue. Most Central Bankers know eachother very well. They generally don't try to "rock the boat."

A commonly accepted medium of exchange is needed to facilitate world trade. The dollar has served this role because of the US Gov'ts stability, the size of the economy, and the fact that we have military bases all over the world. Thus, many resources are paid for in dollars. But there's a hitch for everyone else. The US can depreciate it's currency and the bagholders suffer. It's known as exporting inflation, or as the French in the 60s called it - the "exorbitant privilege."

And what of the excess dollars? Countries bought US debt with them, thus financing the US military. This was an implied arrangement during the cold war. The reason Japan and Germany did not have sizable armies is that the US would protect them in exchange for their purchasing of US debt, i.e., they financed their "protection."

Read over that wiki article, especially the part where Dr. Zhou criticizes the system.

Right now, the central bankers of the world are debating what the next reserve currency will be. There is no timeframe, but deep down, I think they are worried of a dollar meltdown - and in such a situation, global trade will be severely impacted.

Back in May of this year, the Swiss National Bank and the IMF co-hosted a meeting on the Int'l Monetary System. Here is the opening statement, both exorbitant privilege and Triffin Dilemma are discussed:

http://www.snb.ch/en/mmr/speeches/id/ref_20100511_pmh_1/source/ref_20100511_pmh_1.en.pdf
 
that is a good pdf - and makes my point.

1. Triffin - concepts were applied to fixed exchange rates.

2. A country (China) can distort the system by accumulating lots of reserves instead of exchanging them. Thats what China did. Now they will have to pay the piper if we choose to export inflation... which we should instead of paying they back with a relatively strong dollar which they caused by accumulating our debt and excess reserves. China could have avoided that risk by exchanging real time. the dollar would have gone down and their goods would have looked more expensive. As they should of.

there is something wrong when bar bell weights say made in china on them.
 
For instance....The US buys saudi oil with dollars. Lets say one day they give the saudis 1 billion US dollars for oil. The saudis say "Hey, we dont want dollars, we want Saudi riyals" So they go to the exchange and say "I want to exchange all these dollars for saudi riyals" The woman at the exchange booth says "Sorry, we only have 10 million saudi riyals right now. You are not buying enough american goods with your riyals so we dont have enough to give you in exchange for your US dollars. But we can give you some nice treasury bonds that pay interest!"
...and the cycle keeps going every day. Now you know why they are pissed at US.
http://www.elitetrader.com/vb/showt...e us buys saudi oil with dollars&pagenumber=7
 
if you're not real deep into math, a book, "Currency Wars" by Rickards explalns it in a way even I can begin to understand.

You can read the first chapter for free on amazon

the one scenario in the game is a gold backed currency used by China and Russia to trade with each other

the other solution is probably the enevitabe use of SDR's

he also makes a case for backing up 40% of M1 with gold
 
It's really not as complicated as many will make it out to be.

-Until we are no longer the reserve currency, our Fed can buy as many bonds as needed to finance our deficit spending.

-For the time being, many countries have built their entire economies on selling goods to the west and in particular the US.

-When they sell stuff to the US, we hand them $USD in return.

-Ultimately those dollars must return to the US. Foreign countries holding dollars can buy our bonds, invest in our companies/real estate, commodities or purchase hard assets denominated in dollars. There really aren't many other options for their excess dollars.


When will the game of musical chairs end? Your guess is as good as mine, but probably not China, India, et al become developed to the point where they become net importers, or at least don't rely on the US to buy so much of their stuff.

As that happens, the US will become more and more incentivized to make more of the goods we consume.
 
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