Local Currencies To Replace Dollar For 5 Countries' Dealings

An anonymous reader writes "Brazil, Russia, India, China and South Africa — the BRICS group of fastest growing economies — signed an agreement to use their own currencies instead of the predominant US dollar in issuing credit or grants to each other. The world does need a new financial architecture, but the BRICS by themselves are unlikely to be able to drive that change."

Comments

Bad News for USD

[hinesbrad]

This is VERY bad news to an already weakened dollar.

Re:Bad News for USD

[phantomfive]

In practical terms it's not. As the articles mention, this only applies to loans, not to trade. Think about it, who ever wanted a loan of Brazilian Reales? Trade is where the real action happens, and it will still happen in dollars. If this has an effect on the dollar, it will be because of investor fear, not because of any real change in the fundamentals.

People trade in dollars because it is so liquid in terms of finance options. As one example, if you are Korean, you can send a shipment of parts to Peru in exchange for dollars. Then, since you don't have to pay your suppliers for a month, you can buy treasuries or something for a month, then at the end, sell them. You've thus made a few percentage in the interim. It isn't always so easy to find something to invest in other currencies, thus the dollar has a competitive advantage. This is why the BRICS are unable to move away easily from the dollar.

Re:Bad News for USD

[benjamindees]

More like you *have* to buy treasuries for a month otherwise your dollars lose 3% of their value due to inflation. India and China would love to get loans of Reals. Hamburger futures are going up in value.

Re:Bad News for USD

[Anonymous Coward]

The dollar is kept artificially high in value due to international trade. The current status quo kind of subsidizes the US way of life.

The US has had the ability to influence and bargain what are essentially one way "free trade " agreements. This is all about to come to an end.

  The dollar will drop somewhat on Monday and unless something big happens within 10- 15 years the US will eventually become like Germany in 1923.
Not to sound like chicken little but Americans should prepare for the worst, international currency and economic policy is changing with less regard taken for preserving US$ backed wealth than you would think.

Internationally, Ghadaffi was pushing for a gold backed currency (US gold reserves are actually quite small and has had counterfeiting problems) the problem with this is that to keep the same amount of paper money in circulation gold would be valued at almost $20,000 an oz. To counter this we would need to set back $$$ values and circulation to levels seen pre WWII.

Re:Bad News for USD

[rve]

This is VERY bad news to an already weakened dollar.

The dollar has been overvalued for decades, and look at the result: manufacturing jobs have moved overseas, and a vastly negative trade balance. With an over valued currency, It's simply cheaper to import something than to produce it locally.

A high exchange rate doesn't make a currency strong anyway, long term stability and low inflation are more important.

Re:Bad News for USD

[a_n_d_e_r_s]

Trade is between companies not nations.

Companies that trade between those countries will probably start to use national currencies. Because when they get their money they want to invest them in their local economy. However since these countries - for now - represent a small part of the world economy in trade, it will not be a big problem for the dollar.

I wonder if BRICS had not done this had not the US given BRICS the finger in WIPO and started the ACTA treaty outside WIPO ?

Re:Bad News for USD

[roman_mir]

With an over valued currency, It's simply cheaper to import something than to produce it locally.

Ignorance is a bliss.

If a worthless currency was such a great thing for economy, Zimbabwe would have ruled the world, Argentina would have been up there with it, USSR would have dominated, Weimar Republic of Germany would have drowned the world in its currency.

NO. It's not the 'overvalued' currency that drives manufacturing jobs overseas. It's WEAK currency coupled with government regulations that destroy incentive to save capital and invest it in local economy, it's all the shit that drives prices up - printing and borrowing and rules that create asset bubbles and minimum wage laws (yes, even that), and all the social obligations that destroy jobs.

If you are from USA, you should freaking know that the biggest growth years for it were in 19 century, beginning of 20th and just after WWII, and it was when the currency was the strongest, not the weakest, it was when the country had money that was APPRECIATING in value, not devaluing.

The Japanese have taken to heart Bernanke's ideas that inflating currency is good for economy - too bad for them, they lost the nineties and it's still not over for them.

Strong currency is preferable when you must buy natural resources to churn out consumer goods. It's preferable if you want stable prices (even prices that are falling, like USA had in 19 century). With falling prices you also have falling wages, which is what production prefers.

With falling prices you have cheaper costs of production, so you can produce more. And it is great for the internal economy and it works for the manufacturer as well, as he gets the benefit of a good exchange rate.

Race to the lowest currency value is a race to the bottom - when nobody can afford anything, because of inflation and worse yet, because in such an environment it is impossible to generate savings and thus capital in order to have any increase in new production capacity.

--
One good thing that will come out of this financial and economic disaster will be a return to a sound currency. It will be backed by gold probably, but most importantly nobody will want to accept fiat that is just being printed at a whim of a politician, who is just buying votes with 'free money'.

Re:Bad News for USD

[Hognoxious]

Call on line 1. Something about an excluded middle.

Re:Bad News for USD

[Fractal Dice]

One could argue that the dollar *is* what the US manufactures. Since it's been used as the world's reserve currency, printing dollars has behaved essentially like mining gold would have a hundred years ago.

Re:Bad News for USD

[Runaway1956]

In more practical terms, the dollar loses it's importance to the world. Remember the '70's (if you're old enough) when the oil producing countries decided that they wouldn't accept the dollar as payment for their products. They wanted something real to back up the payments. Gold.

All by itself, this erosion of faith in the dollar wouldn't mean diddly. But, this is just a streamlet which feeds a good sized river. One day, the dollar won't even be accepted in half the countries of the world. "Your green money is no good here, white man - go exchange it for real money, then we'll barter!"

Re:Bad News for USD

[roman_mir]

Yes, deflation is the best thing that happens to economy. You have never observed deflation - which is literally contraction of monetary supply.

Money must be valuable, otherwise it drives investment capital out and with that go the jobs. Yes, deflation is the best thing for economy from point of view of consumers as well - they get the benefit of saying: today I bought some bread. It was CHEAPER than a year ago.

Deflation is only the enemy of the state officials who rely on inflation to wipe out their ever increasing debts, because they can't stop consuming and they like to give free money to corporations and to voters for obvious reasons.

Welcome to the economics.

Re:Bad News for USD

[Sique]

Deflation means, that no one will be motivated to invest any money - it will be more worth next week and buy more. Deflation means that all investions will put off as long as possible. So deflation is actually bad for an economy.

Re:Bad News for USD

[roman_mir]

Deflation is generally regarded by economists as an econonic disaster (which you would know if you actually studied economics).

- Keynesians to economics is what astrologists are to Astronomy, so shut up about 'economists' who are on the government/system payroll.

If you want to see a real economist, look no further than my sig.

Why buy today, when you can buy something cheaper tomorrow? or even cheaper the day after that?

- yeah, because this is such a terrible thing that a TV or a computer that you are buying today will be worth half of the price a year from now.

But that is EXACTLY what happens, yet people buy things anyway, because you only have ONE LIFE, you do not wait to buy food, clothing, energy, rent and consumer goods for the next life, because it might be cheaper that time.

Modern day Japan is a case study in the stagnation that arises from slowly falling prices

- WTF? Japan SHOULD have deflation, instead it prints so many yen, that they counterbalance the effect of the necessarily falling prices by ever increasing monetary supply.

Japanese government, just like any other government on this planet right now is in the same Keynesian trap. Too bad for them.

no one wants to spend because everything is cheaper tomorrow

- this is nonsense. People are buying less only because they have less purchasing power.

Japanese would be buying PLENTY if they didn't collectively decide to subsidize the US consumer by printing its own currency to match the US dollar.
-

This place (/.) is filled with economic ignorance, it's discouraging.

Re:Bad News for USD

[roman_mir]

That's nonsense. Inflation means that your money will be worth less tomorrow, so you can't generate savings to start a new business - nobody WANTS your money for labor/tools/whatever.

You are completely disregarding the fact that USA had deflation throughout the 19 century and past WWII, when prices were falling naturally due to the currency that was gaining in value and people had higher and higher standards of living. However past WWII the problem was that government saw the increase in economic activity as an invitation for more inflation (money printing), while in 19 century they did not have fiat in the first place, so they couldn't devalue the currency.

In 19 century the bread people bought a year ago cost MORE than one they bought year from then, and it was good for general welfare (which is what USA Constitution promotes, not personal, but general welfare, and general welfare implies stronger currency).

Re:Bad News for USD

[roman_mir]

What the hell are you all smoking?

19 century USA had PLENTY of incentive for spending/investing, yet the money appreciated by a factor of 2.

Past 1913 the money value fell by a factor of 100.

Who is investing into US economy NOW? I certainly do not.

As to spending - it's not about spending, it's about your purchasing power. If you can buy more tomorrow with the same money, you are better off, but you do not stop spending today - you still need food and clothing and shelter and goods.

Who DOES NOT buy TV or a computer because it will cost less if they wait for 2 years? Yet things in real free market oriented industries do fall in price and people still do buy them.

This entire argument is nonsense, and it's taught to you in your useless economics classes and schools by government driven propaganda machine, because the ONLY entity that actually truly suffers from falling prices and appreciating currency is the biggest debtor - government, which can't stop taking credit but can't and doesn't want to pay it back in real money.

Re:Bad News for USD

[TheLink]

The less the rest of the world uses the US dollar, the worse it becomes for the USA. This is actually a serious issue for the USA.

Analogy: in Zimbabwe when Mugabe printed lots of Zimbabwe dollars, he was basically taxing everyone who held Zimbabwe dollars. He transferred wealth from them to him and his cronies (who I assume got some of it). The rest of the world mostly didn't care or laughed because they didn't use Zimbabwe dollars.

The rest of the world however is living in USA's "Zimbabwe" because petroleum, grain, CPUs, country-sized loans and lots of other stuff are all in US dollars. Many countries hold billions or trillions in US dollars to trade stuff with each other.

So in the past the US could create money at will and thus "tax" the rest of the world ( everyone who holds net positive amounts of US dollars including net creditors[1]). They could spend the created money on big projects and pay (or owe) the rest of the world in US dollars for oil, food, toys etc. As long as they didn't over do it, nobody seemed to notice or care.

Recently the US created trillions of US dollars (google for Federal Reserve trillions) but rather than the money going into making most of the USA richer, those trillions went to bail-out cronies who lost/siphoned/wasted trillions in the first place.

The rest of the world is probably starting to notice that created trillions whether directly or indirectly, hence they are switching from the US dollar. They cannot switch too fast because if they start a panic, their billions or more in US dollars could become worth even less.

[1] Take China as an example. The USA owes China trillions. Foolish people think that means the USA is screwed. But imagine if Hasbro owed their suppliers millions in Monopoly money. Who really is screwed here? Creating US dollars in computers is a lot cheaper than printing Monopoly money ;).

The USA is only screwed if China says, you can't owe us in US dollars any more. It has to be paid in Euro or RMB.

So this news is certainly bad for the USA.

Re:Bad News for USD

[definate]

Interesting, though this doesn't mean much. Trade will still be in USD, it's just loans will only be made in their own currencies. Even more so, it will only be made in their respective currencies WHEN dealing with each other. Though, you can see why they limited it to "only when dealing with each other", since China would be forced to drop $1 trillion of its USD assets. Which would be hilarious... chaotic, but still hilarious.

This seems less of a "lets get rid of the USD" and more of a "lets stop our banks from being exposed to external interest rate risk, but only when we're dealing with each other, lets not go crazy now". The idea behind this change, I am in favour of, the idea of it being implemented by government, I'm not.

First of all, when dealing with loans to other countries, it doesn't change anything. Since all of these countries aren't particularly awesome currencies to lend in anyway, it's not a big deal. Off the top of my head, the biggest finance markets are America, UK, and everything else is much smaller.

So effectively if they had made it such that they couldn't lend or borrow in BRICS currencies, then they'd have taken away the interest rate/exchange rate risk, or more so, they'd have shifted it to default risk.

But they haven't done that, they only made this restriction on the asset side, which does... absolutely fucking nothing. Except, it does expose them to the possibility of forcing their banks into more risky positions, given they took on foreign denominated liabilities. They would be restricted from ever issuing foreign denominated assets, in an attempt to match them, and reduce the exchange/interest rate risk.

This really seems like a "we meant to make reasonable reform, till we realized that this would totally fuck us, and the world, so we just made it nonsense reform, which we can show our constituents, and hopefully get re-elected".

It doesn't change much, and the only changes it does make, only hurts it in many situations.

Can anyone (WHO HAS STUDIED THIS TOPIC AT A UNIVERSITY) shed some light on possible reasons for doing this?

Re:Bad News for USD

[Mashiki]

Ah no. Iceland regularly used multi-currency loans for subsidizing everything from mortgages, to personal loans, to business loans and so on. Most people and businesses who lost everything, was due to the fact that the icelandic currency could no longer compete with having 5 different splits in the amount due. Nothing like making payments in yen, dollars, euro's pounds and yuan's right?

Re:Bad News for USD

[roman_mir]

See every recession before the Federal Reserve was established.

- booms caused by misplaced wealth and then fixed by busts? Yeah, must have been a real disaster, since the actual wealth of the USA people has risen so drastically over the 19 century.

Wealth - production. Machines, clothing, food, shelter, quality of life, everything that was created in 19 century despite the local booms and busts.

And the Great Depression, for that matter, where the Fed acted to try to defend the dollar instead of expanding the money supply, causing banks to fail and deflation.

- you are high.

1. The 1920 recession was caused by quick expansion of monetary base starting in 1913. The recession was severe, the unemployment was huge. This recession was fixed by Harding, who cut gov't spending and credit misplacement by 70%.

2. The 1929 recession was caused by the huge increase in monetary supply shortly before that, when the Fed decided to prop up the UK Pound.

This recession was quickly turned into the Depression by government, which decided not to use the example of the 1921, but instead decided to spend its way out of that (thank Keynesian shamanism for that.)

In any case, that depression only ended once WWII ended and government stopped its spending and credit could be restored to the private sector. Of-course it helped plenty that USA was the pretty much the only country with mostly intact infrastructure.

The Fed was printing from the very beginning and it continues now and it does not stop. The notion that it is an 'independent' bank is BS., it's just to throw sand into your eyes, to pretend it will cut the Congress off and won't buy the T-Bills at the whim of the politicians. That is obviously BS as well. Their mandate is also BS - stable prices? My ass. The dollar last value by a factor of 100 since the Fed was established.

The USD lost 75% of value just since 2003, when gold was 350/ounce, cotton was 50/pound, now it's 1400/ounce and 200/pound. The ration of 1:7 stays, but in dollars you can only buy 1/4 of the stuff. So that's a 75% drop in just 8 years. It's ridiculous to say that the Fed is keeping with its mandate, it is clearly BS.

That's why we have a Federal Reserve and that's why we haven't seen real deflation since the Depression

- well, you can't have deflation in FIAT CURRENCY in an expansionary currency environment.

However in GOLD the prices of consumer goods are falling, which tells you that there is deflation in consumer goods, and it's good, and it's the reason there are now over 8 billion people on the planet - cheaper and cheaper everything (just not in fiat).

That's why Bernanke opened up the monetary flood gates during the 2008 monetary crisis. No inflation to speak of yet--why?

- because you are blind.

The inflation is expansion of monetary supply.
You are talking about price increases, which is a later symptom of inflation (later for the consumer nations, not for producer nations, who see commodity prices rise immediately and thus have quick price hikes in their goods as well, thus China had 15-25% inflation in actual prices over the last year.)

USA is NOT a producer nation, it is a consumer nation, which by the status of US dollar being the 'reserve' (like gold actually is, US dollar is based on nothing, thus it's a flawed idea that it can be a reserve), so as a consumer nation, which keeps printing and borrowing and is subsidized by the world, where it exports its inflation, obviously the prices are not rising as quickly as they do elsewhere.

However you are saying you are not seeing price hikes? Really? You do not visit food stores, gas pumps? You don't buy clothing?

Well, just wait until this summer, you'll finally see it.

Because there were strong deflationary pressures threatening to cause economic collapse and these continue.

- y

Re:Bad News for USD

[roman_mir]

, any sane economist thinks deflation is a disaster.

- we know everything about your 'sane economists'. Those same people who thought that financial stocks were a 'great investment' just before the 2008 crash, those same people who thought that the housing bubble and the Internet bubble before that were healthy economic growth and who believe that CPI actually shows real inflation numbers.

What are your credentials, Roman

- I actually have enough on this very site, with plenty of comments left over the years that predicted this exact outcome - US dollar losing its status as a reserve currency, gold going up in value, while US economy spiraling down the hyper-inflationary drain.

What are YOUR credentials, Anonymous Coward?

Re:Bad News for USD

[gmhowell]

I have studied it, albeit years ago.

Two reasons to do this: first, they retain more control over monetary and fiscal policy by not using another commodity, be it gold or USD, particularly if the value of the commodity (USD) doesn't appear that it will be as stable in the future as it has been. If they really believed in this advantage or the weakness of the USD, they would have gone in more than what they have. Although perhaps it is testing the waters.

The second, probably bigger issue, is pride. This group of five economicallly small nations could stand up to the big bully on the global scene.

Re:Bad News for USD

[Eunuchswear]

US gold reserves are actually quite small and has had counterfeiting problems

Counterfeit gold? Tell us more.

Re:Bad News for USD

[jonbryce]

However it is a very good reason why you would want a loan in Reals. You convert them into a hard currency on receipt and hopefully by the time you come to repay, the amount due will be very small.

Re:Bad News for USD

[TheLink]

His main problem is this:

"Von NotHaus designed the Liberty Dollar currency in 1998 and the Liberty coins were marked with the dollar sign ($); the words dollar, USA, Liberty, Trust in God (instead of In God We Trust); and other features associated with legitimate U.S. coinage.

That's pretty stupid. Heck I suspect Hasbro would sue him too if he tried a similar thing with their money.

He can create his own currency if he wants, but he should use his own slogans, marks and brands.

So as far as I'm concerned he's clearly at fault there.

Re:Bad News for USD

[jonbryce]

You take tungsten, slightly less dense than gold, and a lot cheaper, mix it with a small amount of a more dense but more expensive metal to get up to the right density, then mix and plate it with about 50% gold. Very difficult to detect if you do it right, and costs a little over half the price of real gold.

Re:Bad News for USD

[roman_mir]

Ha ha, you may want to revisit that.

1927 money growth and inflation was created by joined efforts of Benjamin Strong and Montagu Norman, two heads of the reserve banks, one from USA, another from UK, they started collaborating at least a year before that though. But in 27 UK lowered interest rates from 5 to 4%, caused more weakened pound and US Fed stepped in to save UK from France selling off the UK debt, to get back the gold in exchange for UK pound.

The US Fed started buying tens of millions of British pounds, something like 60Million in 1927 alone.

The US Treasury refunded the 4% bonds for 3%, increasing inflation beyond the Fed printing.

In late 1927 the stock market in US rose by 20%, this SCARED the Fed, who did what YOU SAID: decreased the total reserves by 261million. That is certainly correct. However the demand deposits at banks fell by near half a billion in the summer, the banks overcompensated, raised the time deposits by over a billion and total money supply GREW by 1.5 Billion in the beginning of 1928, so you are WRONG on the total outcome as well as being right on very partial detail. Devil, you know, it's in small details like that.

Second part of 1928, the market realized that FRS was buying all offered acceptances and the market increased the output. This boom increased the reserves by over 120million and the money supply by 1.9billion, and by December the peak of monetary supply was reached, it was in total 73billion, the highest ever until that time.

Stock prices again went up by 20% in first half of 1928, again, thanks inflation.

For various political reasons from 28 to 29 the money supply staid the same but US Fed still bought more UK bonds.

In any case, saying that monetary supply was reduced before the GD struck is disingenuous at best, but I wonder who is hiding behind this particular AC handle right now.

As to your last sentence:

I'm really glad for my family that Austrian school economists weren't in charge in 2008.

- enjoy your dog food, once China stops buying your debt, subsidizing your consumers and giving you cheap goods.

Cheers.

Re:Bad News for USD

[thetoadwarrior]

Likewise relying on another country's currency for your loans is a dumb idea. Especially when that country can't keep its own finances in order and likes to piss away copious amounts of money on fighting brown people.

Re:Bad News for USD

[esaulgd]

One day, the dollar won't even be accepted in half the countries of the world. "Your green money is no good here, white man - go exchange it for real money, then we'll barter!"

To the surprise of many tourists, this has always been the case in Japan. Yes, you can use your dollars to buy yen at banks and exchange centers, but try to use USD at any regular store and you'll get that reaction pretty much verbatim.

Re:Bad News for USD

[roman_mir]

Must add to the previous comment: however in a healthy economy deflation is an indicator of strength and of health of economy.

You see, deflation means that money is appreciating in value compared to the produced goods, cost of labor and prices on things.

So deflation means that prices are falling, and in a working economy it only indicates that the market is becoming more and more efficient at distributing wealth (goods and services) among the population, which in turn is becoming more and more wealthy and affluent, because as value of money is rising and prices are falling, the purchasing power is increasing and there is more competition for the investment credit.

Deflation has been turned into a boogeyman by the government, which is scared of appreciating currency, because government wants to live beyond its means always, and always causes monetary inflation, which allows it to pay its debt in fake money.

Re:Bad News for USD

[Dunbal]

Yeah because the US dollar is not undergoing any inflation at all. Oh wait no, the US simply measures inflation differently by first taking out the prices that are going up (like say energy and transport), then massaging the numbers with subjective bullshit algorithms like hedonics, and then printing a number that has absolutely no contact with reality anymore and calling it inflation.

Tell me why I should buy a 10 year note at 3.4% per year in a currency that is shedding value like never before on foreign exchange markets and whose government is denying inflation while at the same time conducting policy that is leading to a very real risk of hyperinflation? No thanks. I can get 8% interest on the Costa Rican colon and surprisingly thanks to the devaluing US dollar, the exchange rate is also working in my favor giving me a net of about 10% per year in US dollars. Now when a currency from a 2 bit 3rd world banana republic is more solid than the US dollar, you know that you guys are in trouble.

Re:Bad News for USD

[Anonymous Coward]

The US is always giving someone the finger. It's called "US foreign policy". Recently the US tacked on a clause to a treaty with my country that guaranteed immunity from prosecution for war crimes for US citizens while in this country. My country rejected the treaty.

Then you wonder why people hate you, and why things like 9/11 happen. How about learning to live with the rest of the planet, instead of trying to tell it what to do all the time? The US is certainly not an example to follow - its economy stinks, they're not world leaders in anything (except perhaps waste produced per capita), its empty promises of freedom and democracy have been raped and usurped by its own self serving politicians, its human rights record is appalling, its warmongering is not tolerable. What's to like about the US? You can keep it.

Re:Bad News for USD

[TheLink]

Me miss the point?

If you haven't noticed the US currency has indeed devalued over the years and decades.

How much clearer can I be? When the Federal Reserve creates money, they become richer and everyone else with positive amounts of USD becomes poorer.

If the Federal Reserve hands that wealth to the US people directly or indirectly, the US people become richer than those in the rest of the world. If the created money is used wisely, the USA benefits.

If you haven't realized they've created more than 9 trillion USD recently. Just because they don't use the word "print" or "create" doesn't mean it isn't happening. Of course they can't use those words.

Do you really think those 9 trillion USD existed before they "loaned" them out ? Go do the math and think about it. And what were the interest rates and terms on those loans?

So have they used those trillions wisely or not?

Re:Bad News for USD

[Dunbal]

As a Canadian all I can say is that it is very sweet, with the Americans needing $1.04 to get one of our Canadian dollars, to remember all the jibes about Canadian currency being worthless as little as 5 years ago. What is even sweeter is that many Americans can no longer afford to travel abroad. Yeah it sucks for the tourism industry, but we welcome Europeans and Asians who have real money, don't speak so loudly in restaurants, and wear something other than dirty T-shirts, shorts and flip flops...

Re:Bad News for USD

[dkleinsc]

USD is currently experiencing a 10% inflation. Since the bulk of inflationary pressures caused by the US Gov spending was expected to kick in throughout 2011, it's only expected to get worse.

I have no idea where you're getting that number, or that suggested cause, but neither of them are even remotely correct. My guess is the rantings of some TV personality, but you and other readers need to know that it's pure nonsense.

The 12-month price change index (one of the more common measures of inflation) is close to 2.7%, slightly higher than normal but not really out of whack given the huge sums of money destroyed when the real estate market crashed. As far as government spending, in the last year the federal government went from spending about $3.6 trillion in 2010 to spending about $3.7 trillion in 2011 (both of those figures include Social Security and Medicare, which are not part of the general fund). That's an increase that's actually slightly less than inflation.

The first chart also has a clear answer on what is inflating, although it doesn't add up close to the suspiciously round 10% you cited: Gas prices are much higher in the US than they were a year ago. The most likely reason for this appears to be oil speculators buying up futures in anticipation of the Libya War causing supplies to drop. An increase in the price of crude would also cause a price increase in industrially-produced food, which we're also seeing. But that's different from having $1 today worth only $0.91 next year.

Re:Bad News for USD

[TheRaven64]

Inflation means that your money will be worth less tomorrow, so you can't generate savings to start a new business - nobody WANTS your money for labor/tools/whatever.

Yes, that's entirely the point. People viewing money as a way of storing value is very bad for the economy. This is one of the reasons why the gold standard was abandoned. If you have inflation, money is a hot potato - you don't want to hang onto it because it will eventually become worthless. You want to invest it in things that actually generate wealth. For a simple example, it's better to use it to buy seeds and plant them. At the end of the year, you have crops which are worth more than the money that you spent on seeds. People who produce things get rich, people who hoard money become poor.

People want money, but only as a medium of exchange, something that they can trade on later as a form of deferred barter. The person who does some work for you doesn't want money, he wants some other goods or services, but since you can't provide those directly he accepts money, secure in the knowledge that someone else will make the same trade shortly afterwards. If you want to store value, then you need to invest in a variety of companies, not in money.

You post a lot in stories about economics, but you seem to have completely missed the point of money.

Re:Bad News for USD

[Cyberax]

That's why you don't SAVE money. You get a LOAN in a bank and start your business RIGHT NOW instead of waiting for years to save enough money.

Re:Bad News for USD

[DarkOx]

China would have no legal basis for doing that. What they own primarily are bonds in the form of treasuries, those specify payment in dollars, and say nothing about the buying power of a dollar. So we in fact can pay them back with a currency inflated to the point of uselessness but at the expense of destroying our own economy of course.

The real questions are will be the ones choosing to race to the bottom with currency valuation or will our hands be forced. Right now it can't be argued that the FED as a strong dollar policy, its plainly a weak dollar policy.

Re:Bad News for USD

[Cyberax]

"Japan should have deflation."

Dude. Wake up. Japan HAS deflation, their prices ARE dropping. Their currency is appreciating, even compared to other currencies.

Stop being such a moron. By now you're just inventing a fantasy world which has nothing to do with reality.

Re:Bad News for USD

[gordo3000]

you realize this has only changed because stores cant' cash a guaranteed gain by exploiting stupid tourists right? When CAD trades 0.9 and you accept dollars 1:1 with CAD, you basically get an 11% revenue boost on stupidity.

it wasn't because the dollar was "strong", it was because you could take advantage of people who would happily pay 10% or 15% more for a good without thinking things through. It is a hindrance now to accept cash on a 1:1 basis because the exchange rate is on the other side. nothing deep or introspective going on.

Re:Bad News for USD

[countertrolling]

What's to like about the US? You can keep it.

What's up? Can't get Hulu in your country either?

Re:Bad News for USD

[Cyberax]

Nope. Economy is NOT a zero-sum game, so it's possible to have the amount of loans GREATER than the amount of total money. If you don't grasp it, you know NOTHING about the economy.

Re:Bad News for USD

[Goboxer]

Yeah, the USA isn't leaders in anything. Not GDP (twice China's, the next highest), not military spending (being spent on research and development and invading countries), not space flight (rocked the moon), not charitable contributions (twice France's, the next highest), not pharmaceuticals (half of the top companies are USA based). The USA also doesn't get looked to when shit goes down. That's why when countries start going down the crapper, other world leaders don't look to the USA to do anything. Thank god too, because who wants the responsibility of helping the whole goddamned world.

Yeah, the USA is useless. Every one of its actions just proves that every anti-USA person, who only looks at the negatives of the country, is correct. The USA should just become isolationists again. Afterall, the world would be better off.

Re:Bad News for USD

[phantomfive]

I wonder if BRICS had not done this had not the US given BRICS the finger in WIPO and started the ACTA treaty outside WIPO ?

Yes. They've been looking for ways to move away from the dollar since the financial collapse. That is the motivating factor here, not the ownership of music and movies (which is a relatively insignificant portion of the economy).

Re:Bad News for USD

[dryeo]

What happens if you pick different dates, perhaps 1980 when gold was $850 an ozt? Also using cotton which is heavily subsidized doesn't seem right.

Re:Bad News for USD

[TheRaven64]

Absolutely not. Money is a medium of exchange, not a store of wealth. They are distinct concepts, and trying to use one for the other is a really bad idea. Value is stored in assets. Money determines liquidity, not wealth.

Re:Bad News for USD

[Omestes]

, not space flight (rocked the moon)

Err... how long ago was that? And looking around, we're going to not have any form of space program pretty soon. We're down to leasing use of Russian capsules to actually get people in space now. Hell, we aren't even able to replicate the aging technology that got us to the Moon in the first place. As a space nerd, these are very depressing times.

May I reiterate? We need Russian technology and approval to get a human in space! Sounds like we're winning, no?

We won the space battle, but completely lost the space war.

Thank god too, because who wants the responsibility of helping the whole goddamned world.

Vast swaths of the world (I'm thinking South America especially) would be very happy if the U.S. never "helped" it. Actually many of the problems we're today "fixing" were caused by us in the first place. U.S. foreign policy is very much damage control over past U.S. foreign policy.

I'm an American, and I'm not particularly anti-American, I just don't think that we're really the best at anything anymore. I find "exceptionalism" to be a bit odd, what are we really exceptional at? Metrics that matter? Education, not too exceptional. Health, not really that much better off than the rest of the "first world". Standard of living, we're so-so. Technology, falling all the time. Crime, I suppose we're exceptional in a bad way there. Etc... All exceptionalism means is hubris and the lack of ability to learn from more successful countries.

America should STRIVE to be better, and not just sit around claiming it is, empirically we aren't.

But then again I've always been suspicious of patriotism. How can we be "#1" when most of the world also claims that the land and people within their fictional borders are also "#1". Most patriotism boils down to the simple tautology "America is the best because we do everything better. We do everything better because America is the best!".

I like my country. Its terribly flawed, and growing more flawed every day. I'm deeply ashamed of some of our actions, and embarrassed for some of our people. Our government isn't something to really be proud of. Our respect and empathy for the average American (i.e. anyone not in our club) is deplorable and depressing. Our public debate is less mature than that which can be heard in a 3rd grade playground. Our institutions and infrastructure is decaying, and now much worse than other first world countries. Our government looks out for the rich at the expense of the other 90% of the population. We're barely literate. We're morbidly obese. We commit war-time atrocities and torture people.

I like my country and would like it to be better. We can live up to our ideals. But if we just sit around patting each other on the back for the accidental features of our birth, we're really not going to get anywhere, and will probably continue down of downward spiral.

Liking something is also admitting its faults, and striving to make it better. Blind pride is stupidity and generally only leads to decline.

That said, I will always hold my friends and family above any grand concept of "America". I more view myself as a citizen of the desert southwest than an American, really. Proximity breads importance, distance mere abstractness. What does "America" really even mean? We don't share a universal ideal, a universal value system, a universal culture. We somewhat share a language, but that's rapidly changing, and we will be fully bilingual by the time I die.

Re:Bad News for USD

[superwiz]

Pick your favorite news source: http://www.google.com/search?q=us+inflation+10%25

Re:Bad News for USD

[Kelbear]

I definitely agree that the US should not spend so much on the military.

But I'll just share an anecdote on a little game we played called Guns and Butter in history class back when I was in high school. Students were grouped up into teams and the teams were assigned resource profiles which were simple, but broadly analogous to various countries of the world, middling economies with no oil, high economies with little/no oil, middling economies with a some oil, low economies with lots of oil.

During each round, each team could allocate their resources to quality of living, improving their economy, or building a military. They could also negotiate with other countries and trade resources in whatever bargain they could strike.

There were no goals assigned, each country gets to decide for themselves what they wanted to do. My team was assigned the US. The highest amount of resources, and highest amount of military to start.

We quickly decided internally that our goal was to develop the most prosperity. We bought oil as needed, but mainly poured all resources into our economy on every turn, and even traded a little of our military resource away for some oil to increase our prosperity even further(prosperity is increased through economic resource, and some oil, and will in turn increase economic output slightly in future turns). Of course, we kept some of the military resources we started with, which should be more than enough since the rest of the world had virtually no military to speak of at the start of the game. We were one of only 2 countries that started off with enough military resources to fire a nuclear strike that would obliterate any country foolish enough to pick a fight.

As the game unfolded, the oil-rich nations bonded together into a parallel of OPEC. This was troubling to us, since this limited our growth potential. It was interesting how quickly this happened given that these kids had probably never even heard of OPEC, but recognized that it dramatically increased the value of their oil in trade when they all collectively set prices. Nevertheless, we kept right on with pouring everything into increased prosperity. We were quickly shut out by the oil alliance because they didn't want us to succeed, and were jealous that we had already started off with so much. But we just bought oil from 2 middling nations instead and we had enough for our purposes.

The middling nations pretty much kept to themselves, just cutting a handful of trade deals. Eventually the oil nations, while still incredibly poor, and individually weak, had amassed a significant military in the aggregate. But that still meant that the first to attack us would get nuked by us and drop out of the game. So we weren't too concerned. They even roped in a few middling nations towards the end, and we lost one of our oil contracts. This cut into our prosperity initiative since we weren't getting enough oil to improve on each turn. None of the other countries would deal with us to avoid getting burned on their own contracts with the powerful oil alliance. But we knew our goal and just invested in prosperity on every other turn when we saved up enough oil.

Then the nukes launched. The oil alliance had grown so incredibly paranoid of our power that their ultimate goal for the entire game was to take us down. One of the poor nations had volunteered to be the sacrificial lamb that kept building up military(with the assistance of the alliance) to the exclusion of all else, until they could fire a nuke.

We were aghast, we'd lost all of our progress in the game. We had been entirely peaceful, and aside from 2 oil contracts were complete isolationists. We sighed and fired our 1 nuke back. It was all we had left of our military since it was the highest possible deterrent and we didn't need conventional military arms for conquest. In the end, the small oil country was vaporized, and the US was nearly wiped out, and the useless remains were conquered by an oil nation on the following turn. The end of the game came

Re:Bad News for USD

[Grishnakh]

I more view myself as a citizen of the desert southwest than an American, really. Proximity breads importance, distance mere abstractness. What does "America" really even mean? We don't share a universal ideal, a universal value system, a universal culture. We somewhat share a language, but that's rapidly changing, and we will be fully bilingual by the time I die.

I live in the desert southwest too, and I can't wait to get the fuck out of this hellhole. This used to be a pretty nice place 10-15 years ago, but it's a shithole now. You can't even go to the Parks near the border any more because it's too dangerous, with heavily-armed mexicans running around.

This country is going down the toilet fast, and IMO, it needs to collapse and break apart for the good of the world. You're exactly right: we don't share any ideals, values, culture, or language any more. We're already bilingual, except that not that many residents (I won't even bother using the word "citizens" any more because that term no longer carries any meaning here) are bilingual themselves, which means we have multiple societies living in the same place but not interacting positively at all, leading to Balkanism. This situation is just going to get worse until something breaks.

The best thing for America would be for it to break up, before the economy totally collapses. The different regions need to go their own way. The Northeast has absolutely nothing in common with places like Hawaii, south Florida, Texas, Minnesota, etc. The country should split up into a handful of smaller countries, based on regions, each with several states. The southwest, for instance, can form a separate country composed of Arizona (where I live), southern California, New Mexico, and part of Texas. It might even decide to rejoin Mexico, as many of the people here want exactly that. The New England states should form their own country too, and maybe they can convince New Brunswick and Nova Scotia to join them, as those provinces have much more in common with the people of Maine than they do with the people of BC or QC. Hawaii should just declare independence, as it isn't benefiting from this union at all. The southeast states have been wanting to be independent for 160 years now, so I'm sure they'd be happy to be a separate country too (maybe they can call it "Dixie"), composed of TN, AL, MS, GA, SC, NC, maybe VA, LA, eastern TX, and northern FL. Southern Florida should be given to Cuba.

If they do this sooner rather than later, it probably won't be too painful a transition. Moreover, they could follow the European model, and form a loose confederation between some of the countries and Canada, and share a common currency and have free trade. Of course, some fool will probably reply and point to the Articles of Confederation and say "it won't work!", but it's working just fine in Europe, with the Euro turning out to be a much stronger currency than the US Dollar right now, despite the problems in Greece, and the 1770s were a very long time ago with very different factors, such as the fact that Britain still wanted to reconquer the USA at the time.

BRICS unable to change it my ass

[unity100]

ENTIRE modern financial structure depends on trust. That's that. Void papers and monies backed by various privately owned central banks or private investment firms had been the perpetrator of this trust system so far. And all the world obliged by it.

If you really go down to it, there is nothing real left backing the financial and monetary values and papers right now. They are SO inflated and complicated that, one top hedge fund manager said on cnn, even he himself doesnt know the exact composition of the fund he was managing. However this fund too, is taken as a real fiscal value, and is also considered as a backer of monetary value of the country it is being traded in.

water vapor. if you erase that water vapor and overinflated stocks, you will see that nothing remains backing the money of most countries like switzerland, britain, usa.

whereas this BRIC alliance that the summary so gleefully drops down, actually PRODUCES value. they have solid backing for their money. contrary to the others, you can actually buy solid products and services with that money from those countries.

Once there is traction behind these, and the water vapor of the established financial scourge in the west is ignored, everything easily will change.

really. china produces most of the world's products now. so, what ? some investment bank from wall street, is going to threaten china ? oh boy. what will happen if china says 'give me yuan' ?

Re:BRICS unable to change it my ass

[mveloso]

In any discussion of revamping the reserve currency, there's only one question that you need to ask:

Is the entity behind the currency willing to do what it takes to preserve the financial system?

Money talks, and bullshit walks. Do you think China is going to send billions of Yuan to Europe during a crisis? Fuck no. Their currency doesn't even float because their government is too chickenshit to expose their currency to the real market.

Russia, Brazil, South Africa, India, China - 4 out of 5 of those countries don't have functioning property rights regimes. I'm assuming South Africa does, but who cares about them - their biggest contributor to the world economy is a diamond monopoly that artificially inflates diamond prices.

What about the Euro? Anyone? Anyone?

These sort of articles are pathetic. Being n-1 has some substantial advantages, but it has substantial disadvantages as well. The choice of a reserve currency is a political as well as a financial decision. A bunch of countries getting together to denominate their loans in their respective local currencies isn't a new regime. It's not even a common market. It's a bunch of bilateral trade agreements. Come back when they start talking about a uniform way of handling disputes and enforcing rulings.

Re:BRICS unable to change it my ass

[Jane Q. Public]

"ENTIRE modern financial structure depends on trust. That's that."

Precisely! Yay! A voice of reason among the mumbling of the crowd.

As long as the "world economy" continues to rely on what we in the west call "fiat money" -- that is, money that is not backed by anything tangible, and is only "valued" by its relation to the money of other nations -- then the "world economy" will remain on a shaky basis, national economies will be vulnerable to other nations with malicious intent, and national economies will fail.

Until a genuine monetary standard is put back in place -- it doesn't have to be gold -- this will continue to be the case. Keynesian economics lost all credibility many decades ago. Keynesian economics just doesn't work. The only thing it has done well has been to allow governments and their corporate friends to steal the common man blind.

Re:OPEC have tried this

[darth dickinson]

Not to mention they'd immediately pull all our tech support and offshored coders, and *then* where would we be?

hahahahaha ...

[unity100]

"repatriate" your manufacturing ... WHERE will you sell your products to ? europe ? china ? russia ? india ? all the while where china produces the same product for dimes ? with its 1.5 billion population ?

in case you are not yet aware, china is the BIGGEST market on the planet, and one of its cards in his hand, is this. noone can ignore the market that is china and be set.

Re:hahahahaha ...

[Jane Q. Public]

I should add that it would be ridiculously simple to accomplish this: all we would have to do is start taxing the sh*t out of corporations that outsource across borders.

Domestic corporations that outsource are leeches on the economy. They enjoy the benefits of being in the US, but they don't give anything back. I think that's pretty much the definition of a leech.

Re:hahahahaha ...

[roman_mir]

You missed the point entirely. We will sell the products to OURSELVES. While at the same time enjoying the income from manufacturing them, too.

- you have to have investment capital for that. USA does not have hot stand by factories ready to start production with a snap of the fingers. The production capacity does not exist, it has to be rebuilt, but this takes money, and I mean real money. The kind of money that will buy the tools and labor, and since the tools are now mostly manufactured in China, you must have their money if they decide they don't want yours, which means you have to give them something they want first, but what do you have, and what about all the debt to foreign countries/debt holders and all the domestic social obligations (SS, Medicare, Medicaid, etc) and all the spending (war, financial, etc.)?

"Bringing home" our base of manufacturing -- even for just domestic goods, not exports -- would do wonders for our economy.

- nobody wants to invest in US economy though, that's why the investment capital left and is now producing in China.

First USA has to take a huge step forward, cut government spending by 99.9%, abolish IRS, Fed, FDIC, all government agencies, FHA, Freddie/Fannie. USA must start restructuring its debt and it must stop printing money.

If the money continues being printed, then there is no reason to invest into USA - it's impossible to keep value of money that is constantly being debased.

So 'Bringing home" - is a good idea, but the implementation will be very painful. Necessary, but painful. It's not going to happen until US dollar crashes and US economy burns and US people have no choice left.

And as a nice side effect, out children's toys will no longer contain lead or zinc and arsenic... our children's formulas will no longer contain melamine.

- to have businesses return you will have to abolish all business regulations, at least in the first years, otherwise there will be no incentive to return.

Of-course to prevent abuses you speak of, the USA will have to reinvent its justice system, to be able to deal with such calamities quickly and efficiently, and not the way it's dealing with them now. BTW., didn't you hear? over 50% of US meat on the market is contaminated with Staph bacteria, so whatever FDA is doing is shit anyway.

If they want to order the US around, I say let them do completely without the US for a while, and see how far they get. I predict it won't be very damned far.

- you are way off base.

China is now the major producer that the world buys from, they get to call the shots. USA borrows over 40% of what it spends from bond sales, 70% of those sales come from foreign banks.

USA has 50Billion/month trade deficit mostly with China. Yes, China imports a lot of stuff into USA. No, it does not need USA to buy its products.

All it has to do is let its own currency appreciate and Chinese 1.5 billion people will all of a sudden become a viable market with lots of purchasing power, that Chinese (and other) companies would be selling to.

Your ideas on production are correct, but your understanding on economy and politics are ..... lacking.

Yeah! ... The Almighty buck is no more!

[Gopal.V]

As someone sitting in India, I love this move. Sure my paycheck is going to suffer once they start cashing in all the dollars from their reserves and the rupee strengthens. But as a long term measure this is just absolutely required.

The dollar jumped to the forefront of all this because (IMHO) they managed to ensure OPEC only sells using dollars. But if Russia, China, Brazil and (hopefully) Iran starts selling things in other currencies, US loses the critical ability to just print out more dollars to pay off their deficits or the bring down the world economy just to get out of jail free. Which is what China's aiming for, I guess. And Manmohan Singh was one of the most famous finance ministers in India, responsible for the economic liberalization of the 90s, I guess he knows what he's doing as well.

The fall of the dollar is a big deal for the developing world.

Re:Yeah! ... The Almighty buck is no more!

[smallfries]

The dollar jumped to the forefront of all this because (IMHO) they managed to ensure OPEC only sells using dollars.

Your opinion is wrong: OPEC sells in dollars because that is the world's reserve currency. America has retained it's dominance this long because everything is denominated in dollars at some level. It doesn't seem to be just your misunderstanding, the second indiatimes link makes the same mistake:

Reserve currencies are not created by fiat; they emerge from historical forces of trade and investment. The dollar is the world's favourite currency because it is simply the most traded, circulated and accepted currency in the world. Brics or others hoping to supplant the dollar will have to develop large and deep markets, first within their own national economies and then across the world for bonds in those currencies.

Reserve currencies are created exactly by fiat: this is how the dollar was chosen at Bretton Woods. Everything else is backwards: the dollar is the most traded, circulated and accepted currency in the world precisely because it is the international reserve.

This move by BRICs does look like the first step towards expanding special drawing rights and replacing the dollar with a weighted basket of currencies.

Re:Yeah! ... The Almighty buck is no more!

[Arlet]

Your opinion is wrong: OPEC sells in dollars because that is the world's reserve currency

And because the major oil future exchange is in the US. A major shift to alternative currencies will only happen when there's a reliable and active futures market in those currencies.

Re:i don't understand what you are trying to say

[circletimessquare]

the american economy suffered a burst bubble from an overheated real estate market in 2008. it might be a long painful recovery

but if it gets your political inclinations excited to derive deeper portents, have at it

people trade in the currency that is seen most stable RELATIVELY. some background: as the 2008 crisis began, people began to flee the dollar. then, as the crisis began to ripple across the rest of the world, some places wound up weaker than the usa, and people began to return the dollar. why? not because the dollar was stable, but because the dollar was RELATIVELY stable compared to the problems in many other places, like europe

currently, the yuan is probably the most stable currency, but china has plenty of exposure to potential problems that could blow up worse than the usa. then the dollar might again be the most RELATIVELY stable currency, or not, or some other currency. i don't know. neither do you

Re:OPEC have tried this

[Semptimilius]

India is not an ally of China. There are huge land disputes, troops at the borders, etc. China has entered behind the scenes in the Kashmir dispute between India and Pakistan as well. (I believe part of it is building railroads in disputes areas.) China is also attempting to contain India in the Indian ocean too, with deals for ports to protect Chinese trade routes. Competition for resources can see these two at each other's throats in the future. (Large populations, proximity, clashing zones of influence.)

The BRIC alliance (South Africa is peanuts and just in there as the token African country) is much more pragmatic than Western media like to portray it. It's really these countries trying to wrest away some international power away from the West, and they know they can't do it individually.

The US is closer to being an ally to both India and China than the latter two are to each other.

This is not a surprise ...

[thephydes]

and is a sign of the future I think. The $US has been declining for some time - well the underlying economy has - , and the recent GFC did nothing so stem the tide.

Oh that is easy

[SmallFurryCreature]

Trade to be done in non-us dollars. That will hurt the US very very badly.

The oldest man just died recently, at 114 years of age. This means that he was born before 1900. When he was born and for a long time in his life, the British still had an empire. You wanna bet they didn't trade or loan money in USD? Who would use money from some backwards place filled with barbarous people with barely any history?

And then, the world changed. The US rose up to be the new super power. Pact Britannica, replaced by Pact USA. Not british warschips but American carriers patrolled the oceans, protecting trade... as long as it followed their rule. It is not without coincidence that oil is traded in dollars and some dare suggest that America's wrat was raised when certain oil producing countries dared consider trading in Euro's instead of dollars. Look it up and see just how many seconds it took for the US to declare the leaders in power a danger to western civilization.

All true? Partly. It is not like Saddam did not do plenty else to cause upset. Maybe it was just the straw that broke the camels back or one of the many straws already on the back. Who knows.

What is important here is that this old man saw the world change, saw certainties wiped away AND then replaced by new certainties. Many above post that US dollars are just the way things are. Yes, they are. For as long as they have been alive at least. But there are those who knew different realities in their youth, realities that seemed just as sure and to be able to last forever. Go ahead, travel back to the 1897 and declare the british empire will crumble in London. Don't worry if your timemachine can't travel forwards in time, I don't think you are going to need a return trip.

The BRICS countries are HUGE together and have tasted the downside of US dominance. Together they control more then half the world population. More resources then anyone else, more production then anyone else, more market then anyone else. And they realize this and are stirring. Should the US be worried? About as worried as the brits pre-WW1 should have been before the pound. Once the symbol of stability, now toilet paper.

And the brits didn't learn, they still cling to their ideas of empire and that the pound will beat everything else. That is why they didn't join the Euro and still beat themselves on the chest about it despite mass unemployment and mass debt that is tearing their society apart from the inside.

Is trade in another currency then dollars going to hurt the US? Yes and no. Yes because a lot of the value of the dollar hangs on the fact that it is used by everyone for trade. If this changes, a LOT of dollars will appear on the market because the need to have a huge pile in reserve to buy stuff (like oil) will disappear. Simply put, Holland needs a pile of dollars now if it wants to buy oil and a healthy reserve for emergency purchases whatever they might be. If oil trade changes to Euro's, then it doesn't need a pile of dollars anymore and even its reserves can go down since it already holds Euro's in reserve. That will lower the perceived value of dollars and might bring it down to the real value.

If the perceived value of the dollar now is equal to the real value, then the US won't be hurt. Nobody really knows but many doubt it is. On the other hand, IF the US "collapses" it could stop being the world police man, go back on itself and save a fortune on its military budget. If the dollar is worth less, then importing makes far less sense, US might start producing on its own shores again.

US bankers and the superrich won't like it. But the people of the US might be better off.

Re:i don't understand what you are trying to say

[AK Marc]

They didn't magnify their assets. They magnified their risk to magnify their gains. Nowhere did they claim they had assets they didn't. They just "leveraged" assets to multiply the possible gains (and risks) under the false assumption they were "safe." The problem was related to the real estate market in that the leveraged assets were real estate, chosen for that risk because, like you said, the value isn't gone. The problem was that "subprime" loans were made, then fraud was perpetrated by bankers when lying about the risk when the investments were bundled. Then, when foreclosure rates rose (but were still well below historical norms and below the calculated levels when the loans were made), it crashed the market because everyone recognized the fraud. Of course, you'll also note that the rich white bankers who committed the fraud quickly named the crash the "subprime" crisis to blame the minorities and poor.

But it wasn't about money they didn't have. They didn't lie to anyone about what their assets were, just about what their assets were worth. Of course, there is a drawback you pointed out. When you multiply the gains (and loss) by 61000%, a large-scale banker fraud of only a few percent here and there caused massive ripples. The problem wasn't caused by the 61000% multiplication. The problem was a few percent fraud by lying about risk when trading and with the irresponsible multiplication (irresponsible, but not the cause), the few percent multiplied to enough to crash the market. The cause was the fraud. The risk that allowed the cause to magnify to such a great proportion was the multiplication you complain about. The trigger was the return of foreclosure rates to historic norms after an aberrational low (in which all the bankers felt safe committing fraud, since no one would ever know unless the foreclosure rates rose, and it wouldn't have been an issue except so many independent loan officers and bankers thought the same thing at the same time).

The game is coming to an end

[argoff]

You see, in a normal world if I printed up some paper and tried to use it to buy goods and services from you, nobody would take it. But if you tax people in that paper, and you take measures that people owe you debt denominated in that paper, and you start out with a commodity (like gold) and switch it out for certificates of promise, and then paper later on. Then you can force something that's worthless to have value. (Of course, none of this stuff can be done without the force of law to pounce the crap out of people)

In a way, this is how all fiat money works. But since the US was the world reserve currency, we had the additional ability to print money more recklessly than in other places. That is, and get away with it without causing the US to become a banana republic. I think a lot of other countries are getting fed up with that (if not jealous), which is why the game is coming to an end.

Pile of bullshit.

[SEE]

Brazil: Only major BRICS trading partner is China. Is major trading partner with US, Japan, Eurozone.
Russia: Only major BRICS trading partner is China. Is major trading partner with US, Eurozone.
India: Only major BRICS trading partner is China. Is major trading partner with US, Eurozone.
China: No BRICS states among its major trading partners. Is major trading partner with US, Japan, Eurozone.
South Africa: Only major BRICS trading partner is China. Is major trading partner with US, Japan, Eurozone.

So, the only BRICS that's an important trading partner from the perspective of any of the other BRICS is China, and none of the other BRICS are important trading partners from the Chinese perspective. That means the only BRICS currency of any real importance in inter-BRICS economic activity is the Chinese renminbi.

And what are the major characteristics of the renminbi? It neither freely floats nor is freely convertible, which means it's unusable as a reserve currency. Further, since the major components of its currency basket are the dollar, euro, and yen, any general move to the renminbi from those currencies would require China to buy them to maintain the "managed float".

Oh, and the agreement is only about credit and grants, not use in trade, which makes it particularly pointless. None of these countries are major investors in each other, or likely to be anytime soon. Is the Chinese government going to stop building plants in China to start building them in India? Really?

Re:Pile of bullshit.

[SEE]

Oh, boy, a handful of headlines. Look, the BRICS all have net annual FDI inflows; they're importing capital, not exporting it. The Foxconn thing is like the US announcing a plan to export oil to Germany; we're an importer anyway, so on the aggregate level it doesn't actually mean anything. And this agreement is like the US and Germany lowering barriers to importing oil from each other; since neither is an oil producer, it just plain doesn't matter.

This year

[Dunbal]

but the BRICS by themselves are unlikely to to be able to drive that change.

However a recent Bloomberg article pointed out that China is now Germany's #1 client, replacing the US which has held that position almost since WW2. Considering that China's growth has "slowed" to a mere 9.7% per year, it won't be long at all before they are the largest economy in the world and we will have to do as China says. Another interesting side note is that all those German imports - precision factory machinery, BMW's and other cars, electronics, etc require energy to run. China's demand for oil is about to explode, at a time where we may be nearing peak oil. This is going to be very, very interesting.

The other side of the coin is that the US dollar as the world currency reserve means that the US is in a very special situation. The US is the only country in the world that can print US dollars. Every other country needs to trade valuable goods and services to obtain one US dollar with which to purchase commodities. The US can simply print it, and in fact this is what it has been doing for a while now. However the minute the US stops being the world reserve currency the US no longer can print its way to importing vital commodities. It will have to earn them like everyone else. Historical data shows that every country that loses status as the world's reserve currency (recent example, the British Pound pre WW2) undergoes severe economic distress. Americans are in denial of this, but irresponsible monetary policy always has consequences. A big hint is the Euro at 1.44 (as if the Euro were in great shape) and the Canadian dollar at 1.04 - not to mention all the other currencies. People don't want US dollars anymore, thanks to Ben and his buddies.

Try this...

[denzacar]

India and China alone are over ONE THIRD of humanity.

Now, when that one third of humanity gives loans to itself (C-I, I-C) it is no longer dependent on the current or the future state of US economy, nor does it have a reason to care about possible changes it may create there.
Where will this become apparent? Fungible assets that they spend more than anyone else - like food and fuel.

They take out a loan from each other to import goods, pay goods in dollars because they have to, which influences the dollar value in a positive sense (it goes up or it doesn't go down, but since everyone else is trading in dollars it is usually invisible) - but now, the price of their loans does not increase with the amount of grain or oil they import.

As a bonus, both economies being outsourcing centers for the US economy, the positive influence their importing makes on the dollar now makes the dollars they are paid in more valuable - while their interest rates and other costs of loan don't go up along with the value of the dollar.
Bonus points if the exporter country is the lender at the same time. Like say... Russia for grain/oil/coal.

A smaller economy/country would probably not have that much of a positive effect, but we ARE talking India and China here. And Russia.
And 2.5 billion people can eat a lot of food and burn a lot of fuel.

Re:Try this...

[denzacar]

it is no longer dependent on the current or the future state of US economy, nor does it have a reason to care about possible changes it may create there.

Well, that's not right. Just because they aren't directly dealing with the US, doesn't mean the US has no affect. It would still affect trade, the non-BRICS loans (C-I, I-C), it would affect their partners, the other banks they deal with, etc.

Ups! Should have added "regarding that particular action". No... wait... I DID add that.

when that one third of humanity gives loans to itself

And you should read a bit more carefully... Where exactly did I say "US has no affect"?
Granted... might be a bit hard to read the type on Slashdot while on horseback, but still...

If you're talking about the underwriting services provided by banks, such as bank bills so when trading with international companies, they can be assured the deal will go through, then you're wrong. First of all, bank bills and these notes (as far as I have seen) have always been denominated in the local currency. The bank isn't protecting them from exchange rate risk, only default risk.

Who said anything about "banks"? We are talking central financial institution of one country issuing a loan or grant to another country. At best it is A bank, or as the article puts it "our designated banks".
We're not talking commercial banking here - these are governments handing out loans to each other through the banks that are effectively extensions of their respective treasuries.
But that is besides the point.

The point is, they can give out a loan/grant in local not_directly_dependent_on_the_dollar currency to each other (let's call it loan A), which they can use to cover their loan from their local bank(s)/financial_authorityTM to get the dollars to buy goods they need. Call that the loan B.
That way, even though their loan B doesn't cover them from exchange rate risks directly, the loan B itself is covered by the loan A which does all the risk covering.
They do this reciprocally and they are both covered.

The article even states "this will not affect trade". This policy regards only loans made by banks, to entities in a BRICS country.

One, no it does not state that second part. It states "an agreement...in issuing credit or grants to each other."
You seem to be thinking that all trading EVER is done only between companies - and it is not. Governments CAN trade too.
Particularly in things like food and fuel which they are obligated to keep national reserves of.

Two, try thinking about it rationally. Would a cheap loan of great quantities of money to a country have an effect on the trade that country does? Hell yeah it would! They just found a huge pile of money. They're not going to use it as toilet paper. They're going to spend it. How do you do that? Ding! You buy stuff!

What would the absence of directly visible effect in such a case mean? Well, that might mean that there really is no effect on the trade cause they are trading with fairies OR that the effect is being masked somewhere in the chain.

Where would that masking take place? In the part where they would otherwise influence the value of the dollar in a positive manner, which would in turn influence their budgets in negative manner through increased costs of the loan.

They are practically saying it out loud - only it is politi-talk.

The rest of your response is babbling nonsense, and from what I can tell its still about trade, and is mostly addressed by the above. Are you sure you studied this at university?

Don't be silly! Who studies common sense and reading between the lines in university?
I mean, clearly, you didn't. Right?

Or you would pick up on the fact that I am not waving the banner of my extensive bachel

Archimedes called from Syracuse...

[mangu]

You take tungsten, slightly less dense than gold, and a lot cheaper, mix it with a small amount of a more dense but more expensive metal to get up to the right density, then mix and plate it with about 50% gold. Very difficult to detect if you do it right, and costs a little over half the price of real gold.

Look, Archimedes called and he wants his density method for counterfeit detection back. The method you describe may be sufficient to sell fake bullion to Ethiopia, where it seems that you don't even need to get the density right, but it will not fool any serious gold trader.

The problem is not density alone, hardness is fundamental, because practical methods to identify metals today are based on speed of sound in the metal.

Ultrasonic thickness measuring equipment is the best way to detect fake metals, it works in a principle similar to the traditional "ringing sound" method for detecting fakes. Gold coins and bullion have a precisely defined thickness, if you use an ultrasonic transducer to measure it and get a wrong result it's a fake. And, of course, the transition inside the bar from gold to tungsten is trivially detected when you have the proper equipment, which you surely have if you are trading in large amounts of gold.

In an "arms race" scenario, technology definitely works against the counterfeiters. It's much harder and more expensive to create a gold-coated tungsten bar than to detect it.

Re:Archimedes called from Syracuse...

[Doc Ruby]

1. You wouldn't collect SS if you were a committed Randian because your principles would stop you. Like every one of her fictional characters would refuse to collect.

2. SS doesn't steal your money. It forces you to invest it in the safest available investment, US debt, that returns about 50% interest. That also invests in running your country, which keeps all your investments safe.

If you're really just committed to grabbing as much money as you can, without any actual consistent principles, then you can do as Ayn Rand did. If you're willing to leave the majority of old people with losses instead of gains in their retirement investments, then you can get rid of Social Security. Congratulations! You're a reckless greedmonger, the kind that steered our country and its millions of old people into the grinding poverty of the Great Depression. AKA "Randian". Even if Ayn Rand herself was not. She was merely a hypocrite and a fiction writer.

Re:Archimedes called from Syracuse...

[roman_mir]

SS doesn't steal your money. It forces you to invest it in the safest available investment, US debt, that returns about 50% interest. That also invests in running your country, which keeps all your investments safe.

- time to rethink that

SS does steal your money, because it was never a fund in the first place. The money is taken in, spent and never invested. SS and other things like Medicare/Medicaid rely on constant inflow of new money, but there is no investment, there is no capital fund, there is nothing but US bonds. Those must be sold on the market to get money from them, but they are also DEBT even if you manage to sell them somehow (which is becoming less and less possible with every new day, as the Fed is now buying 30% of T-bills and the rest is bought by foreign national banks, who are just scared of the consequences of letting US drown and they do not care about the investment income.)

US debt is worthless, would you loan US government any money? Really, think about it, have they ever paid back the principal? They are refinancing the thing in short term bonds (thanks Clinton and Rubin,) and they are admitting to everybody that if the debt ceiling is not raised, they are done. Well that means they are done now. Imagine if it wasn't the Congress voting against the ceiling - but whatever market that is left for US bonds not buying? Then the Fed would buy it all, because it just will not let the US to default honestly, so it will hyper inflate.

Next QE is coming you know, and then another and another, it's all QEs all the way down now.

Not necessarily a big deal, thanks to derivatives

[__roo]

If Brazil borrows from India, it doesn't matter if those bonds are indexed in reals, rupees, renminbi, or Icelandic krona. Brazil can just go to JP Morgan, Deutsche Bank, BofA, or any other bank with a derivatives desk and buy some currency swaps. As far as Brazil is concerned the loan is now indexed in dollars. The bank doesn't want to take any risks, so they'll probably go straight to India and sell them the other side of the swap, and India would be more than happy to buy it. The bank now makes a fee without taking any risk, and Brazil and India get the PR boost of using bonds indexed in BRICs currency -- without giving up the relative safety of using dollars.

you've been duped, it is 10%

[rubycodez]

By the 1990 definition of CPI, we're at 6% (a 10% change over last year). shadowstats.com to see unemployment and inflation by older measures, before the government decided to sugar coat.