A couple of questions about the dollar

[practicaldreamer]

Just a couple of questions for the economists among you.

We have all been reading about Russia's veilled threat at dumping US debt - and it got me to thinking. What would be the effect on the US (over the medium term) of (say) Russia and China slowly getting rid of their US treasuries ? What would be the practical effect ? Presumably the cost of the bonds (to the purchaser) would go down whilst the cost to the US treasury would go up in interest payments. Is this how it works ?

And secondly, and kind of related to the above - the BRICS countries (or so it has been rumoured) are considering dumping the dollar as their reserve currency. China it seems are stocking up on gold. What is going on here ? And what would be the effect on the dollar/US economy if they did use a new reserve currency ? Dollar devaluation and (hyper) inflation ?

And last but not least - what would be the effect of all this on BTC (assuming of course BRICS were not to adopt BTC as the new reserve currency - and it seems pretty unlikely that they would, even if it would be perfect for the job) ??  Could a dollar collapse send US citizens straight into the arms of bitcoin perhaps ?

[Erdogan]

Big questions.

There is no competition for the reserve currency, it is the dollar. There is no formalism, it is just accepted anywhere and distributed everywhere. The dollar is expanding in user base.

[ThirdRenaissance]

Russia and China are strongly pushing against the Dollar, especially with an increasing amount of oil trading going on in Yuan, without USD roundtrips. If anything, the Dollar's user base is sliding.

[aminorex]

As Chinas exports decline, the appeal of trading oil for RMB also declines.  The dollar and the yen remain the risk-off trade.  The yen will fail before the dollar fails.  Compared to the eventual failure of the dollar, the failure of the euro before it will be small potatos. When the dollar finally does go to zero, fiat will no longer be viable.

[Erdogan]

Russia and China are strongly pushing against the Dollar, especially with an increasing amount of oil trading going on in Yuan, without USD roundtrips. If anything, the Dollar's user base is sliding.

To disperse some currency around the world, it is necessary to run trade deficits for years.

[odolvlobo]

Just a couple of questions for the economists among you.

We have all been reading about Russia's veilled threat at dumping US debt - and it got me to thinking. What would be the effect on the US (over the medium term) of (say) Russia and China slowly getting rid of their US treasuries ? What would be the practical effect ? Presumably the cost of the bonds (to the purchaser) would go down whilst the cost to the US treasury would go up in interest payments. Is this how it works ?

And secondly, and kind of related to the above - the BRICS countries (or so it has been rumoured) are considering dumping the dollar as their reserve currency. China it seems are stocking up on gold. What is going on here ? And what would be the effect on the dollar/US economy if they did use a new reserve currency ? Dollar devaluation and (hyper) inflation ?

And last but not least - what would be the effect of all this on BTC (assuming of course BRICS were not to adopt BTC as the new reserve currency - and it seems pretty unlikely that they would, even if it would be perfect for the job) ??  Could a dollar collapse send US citizens straight into the arms of bitcoin perhaps ?

1. Dumping U.S. debt would either cause interest rates to go up or the value of the dollar to go down, depending on what the Fed does. If the Fed buys the dumped debt, then it will have to increase the money supply causing the value of the dollar to drop, otherwise interest rates will increase until the demand can match the new supply.

2. Dumping dollars will lower the dollar's value because of increased supply with lower demand.

3. A drop in the value of the dollar will increase the demand for other currencies, including Bitcoin. Their values will rise.

[Dr Bloggood]

Yup, OP, you pretty much nailed it. All of your fears coming out in your questions - this seems to be about to become reality!

The US has overdone the abuse of the printing presses, China has started to dump treasuries and talks and actions about circumventing the dollar as a reserve currency are going on in many parts of the world.

The dollar as a reserve currency will be done soon, and this will not go over nicely...

[Dr Bloggood]

Russia and China are strongly pushing against the Dollar, especially with an increasing amount of oil trading going on in Yuan, without USD roundtrips. If anything, the Dollar's user base is sliding.

To disperse some currency around the world, it is necessary to run trade deficits for years.

How did you get that idea?

The dollar is reserve currency mainly because if you want to buy oil, you have to pay in dollars, and everybody needs oil, so everybody is forced to buy dollars. Also, many countries are holding reserves in dollars. It has nothing to do with a trade deficit.

[Dr Bloggood]

Just a couple of questions for the economists among you.

We have all been reading about Russia's veilled threat at dumping US debt - and it got me to thinking. What would be the effect on the US (over the medium term) of (say) Russia and China slowly getting rid of their US treasuries ? What would be the practical effect ? Presumably the cost of the bonds (to the purchaser) would go down whilst the cost to the US treasury would go up in interest payments. Is this how it works ?

And secondly, and kind of related to the above - the BRICS countries (or so it has been rumoured) are considering dumping the dollar as their reserve currency. China it seems are stocking up on gold. What is going on here ? And what would be the effect on the dollar/US economy if they did use a new reserve currency ? Dollar devaluation and (hyper) inflation ?

And last but not least - what would be the effect of all this on BTC (assuming of course BRICS were not to adopt BTC as the new reserve currency - and it seems pretty unlikely that they would, even if it would be perfect for the job) ??  Could a dollar collapse send US citizens straight into the arms of bitcoin perhaps ?

1. Dumping U.S. debt would either cause interest rates to go up or the value of the dollar to go down, depending on what the Fed does. If the Fed buys the dumped debt, then it will have to increase the money supply causing the value of the dollar to drop, otherwise interest rates will increase until the demand can match the new supply.

2. Dumping dollars will lower the dollar's value because of increased supply with lower demand.

3. A drop in the value of the dollar will increase the demand for other currencies, including Bitcoin. Their values will rise.

+1, well explained!

Plus, don't forget the mother of all money, which is gold...!

[Buziss]

Just a couple of questions for the economists among you.

We have all been reading about Russia's veilled threat at dumping US debt - and it got me to thinking. What would be the effect on the US (over the medium term) of (say) Russia and China slowly getting rid of their US treasuries ? What would be the practical effect ? Presumably the cost of the bonds (to the purchaser) would go down whilst the cost to the US treasury would go up in interest payments. Is this how it works ?

And secondly, and kind of related to the above - the BRICS countries (or so it has been rumoured) are considering dumping the dollar as their reserve currency. China it seems are stocking up on gold. What is going on here ? And what would be the effect on the dollar/US economy if they did use a new reserve currency ? Dollar devaluation and (hyper) inflation ?

And last but not least - what would be the effect of all this on BTC (assuming of course BRICS were not to adopt BTC as the new reserve currency - and it seems pretty unlikely that they would, even if it would be perfect for the job) ??  Could a dollar collapse send US citizens straight into the arms of bitcoin perhaps ?

1. Dumping U.S. debt would either cause interest rates to go up or the value of the dollar to go down, depending on what the Fed does. If the Fed buys the dumped debt, then it will have to increase the money supply causing the value of the dollar to drop, otherwise interest rates will increase until the demand can match the new supply.

2. Dumping dollars will lower the dollar's value because of increased supply with lower demand.

3. A drop in the value of the dollar will increase the demand for other currencies, including Bitcoin. Their values will rise.

Well said.

[practicaldreamer]

Thanks for replies - its interesting times we are living in  

So now it looks like the Russians could be asking for gold and not USD in payment for its gas/oil.

The dollar isn't backed by gold - its backed by the military. But the public appetite for that military intervention is eroding, both in the US itself and in the populations of its "allies" (especially the UK) - as Syria has shown.

Indeed - Putins popularity rating seems to have increased since the Ukraine problems started - whereas Obamas has diminished.

I reckon the renminbi might well (medium term) become the worlds reserve currency. The economic power shift to the east has already occurred - and so the currency war has already been won in many ways. Its all over bar the shouting.


So - the USD drops in value. It impacts massively upon the citizens of the US and the nations that are dependant upon it economically (and there are many  ) - largely because they have been living beyond their means and the chickens are coming home to roost. It doesn't have to be all doom and gloom though - it just means that we will have to cut our cloth accordingly, and there is a dignity in that.

Wouldn't NOW be a good time for the average US citizen to put some usd into either gold, yuan or, preferably, BTC ?

[Dr Bloggood]

Thanks for replies - its interesting times we are living in 

So now it looks like the Russians could be asking for gold and not USD in payment for its gas/oil.

The dollar isn't backed by gold - its backed by the military. But the public appetite for that military intervention is eroding, both in the US itself and in the populations of its "allies" (especially the UK) - as Syria has shown.

Indeed - Putins popularity rating seems to have increased since the Ukraine problems started - whereas Obamas has diminished.

I reckon the renminmbi might well (medium term) become the worlds reserve currency. The economic power shift to the east has already occurred - and so the currency war has already been won in many ways. Its all over bar the shouting.


So - the USD drops in value. It impacts massively upon the citizens of the US and the nations that are dependant upon it economically (and there are many  ) - largely because they have been living beyond their means and the chickens are coming home to roost. It doesn't have to be all doom and gloom though - it just means that we will have to cut our cloth accordingly, and there is a dignity in that.

Wouldn't NOW be a good time for the average US citizen to put some usd into either gold, yuan or, preferably, BTC ?

You are really answering all of your own questions perfectly - I don't know why you even started this thread...

[practicaldreamer]

You are really answering all of your own questions perfectly - I don't know why you even started this thread...

I'm just thinking aloud really - I get access to some information from somewhere and I try to make sense of it the best I can - I don't really know WTF is going on  - so I come here to ask others what they make of it all.

The US has good fundamentals - but its way overpriced. Its been in the driving seat of the world economy for the last, what, 50 years ? But could it be that it now has to take a back seat ?

Just thinking aloud here chaps 

[Dr Bloggood]

You are really answering all of your own questions perfectly - I don't know why you even started this thread...

I'm just thinking aloud really - I get access to some information from somewhere and I try to make sense of it the best I can - I don't really know WTF is going on  - so I come here to ask others what they make of it all.

The US has good fundamentals - but its way overpriced. Its been in the driving seat of the world economy for the last, what, 50 years ? But could it be that it now has to take a back seat ?

Just thinking aloud here chaps 

Yeah, everybody gotta try to put the puzzle together as well as they can. Nobody in the world knows for sure what the future holds in store.

And yes, times change, power relations shift, empires fall. And because the world, during our lifetimes, has been a very stable one so far (compared to history), we intuitively think that it can never change a lot... but change has always come, sooner or later...always...

[verdun2003]

China has already started dumping. Anyways biggest holder is the FED, and the FED is currently buying 70++% of T-bills. Fed will step up again and buy what the chinese, russian and japanese have to sell

[skilo]

The biggest problem i see with fiat is inflation, It can be printed forever and it's not backed by anything except what the FED says it's worth, It's been declining in value since the day it was created and will continue to do so until it takes $100 to buy a loaf of bread at the store, At that point people might start using bread as money.

This is why the minimum wage will soon be raised, They have to continue raising the minimum wage to compensate for the devaluation of the currency, The money becomes weaker and weaker as time goes on until it's inevitable collapse.

[verdun2003]

USD = toilet paper - look at the inflation since inception. The only thing it has for itself is the petrodollar, dollar backed by oil that is only sellable vs USD. Irak began selling for euros, we know what happened. Lybia wanted to sell for gold, we know what happened. Iran is selling its oil outside of the USD system, we know what's going to happen, unless russia and china stand up.

[practicaldreamer]

If the Chinese and Russians et el were at some time in the future to abandon the USD as their reserve currency/oil and gas trade currency, and this abandonment by them would have severe consequences upon the US economy - could we say then that, in some sense at least, the US economy is currently being propped up and subsidised by the Chinese/Russians ?
    Why would they not abandon the USD (particularly the Russians -what with their current relations with the US re.Ukraine) ?

[Bit_Happy]

Russia and China are strongly pushing against the Dollar, especially with an increasing amount of oil trading going on in Yuan, without USD roundtrips. If anything, the Dollar's user base is sliding.

When the slide picks up speed we are in big trouble.
The SHTF time has been delayed for decades; how much longer can we avoid the pain?

[pungopete468]

Russia and China are strongly pushing against the Dollar, especially with an increasing amount of oil trading going on in Yuan, without USD roundtrips. If anything, the Dollar's user base is sliding.

When the slide picks up speed we are in big trouble.
The SHTF time has been delayed for decades; how much longer can we avoid the pain?

^This

It starts like a snowflake falling on a snowy mountainside, the snow slowly starts to shift, everybody can feel the snow begin to shift but nobody can be sure just how imminent the collapse will be. Suddenly something will snap under pressure; the resistance breaks and the economy collapses in an avalanche...

That's how it will feel; or so I've been told.