emordnilap wrote:UndercoverElephant wrote:http://dollarcollapse.com/currency-war- ... trodollar/
To understand why trade deals between Russia, China and India are potentially huge, a little history is useful: Back in the 1970s, the US cut a deal with Saudi Arabia — at the time the world’s biggest oil producer — calling for the US to prop up the kingdom’s corrupt monarchy in return for a Saudi pledge that it would accept only dollars in return for oil. The “petrodollar” became the currency in which oil and most other goods were traded internationally, requiring every central bank and major corporation to hold a lot of dollars and cementing the greenback’s status as the world’s reserve currency. This in turn has allowed the US to build a global military empire, a cradle-to-grave entitlement system, and a credit-based consumer culture, without having to worry about where to find the funds. We just borrow from a world voracious for dollars.
But if Russia, China and India decide to start trading oil in their own currencies — or, as Zero Hedge speculates, in gold — then the petrodollar becomes just one of several major currencies. Central banks and trading firms that now hold 60% of their reserves in dollar-denominated bonds would have to rebalance by converting dollars to those other currencies. Trillions of dollars would be dumped on the global market in a very short time, which would lower the dollar’s foreign exchange value in a disruptive rather than advantageous way, raise domestic US interest rates and make it vastly harder for us to bully the rest of the world economically or militarily.
For Russia, China and India this looks like a win/win. Their own currencies gain prestige, giving their governments more political and military muscle. The US, their nemesis in the Great Game, is diminished. And the gold and silver they’ve vacuumed up in recent years rise in value more than enough to offset their depreciating Treasury bonds.
The West seems not to have grasped just how vulnerable it was when it got involved in this latest backyard squabble. But it may be about to find out.
Put that way, this could be it, the biggie. What do you think?
I think it is just the first really obvious manifestation of a process that has been going on for several years now. Power has been shifting from North America and Europe to China, Russia and India. It's only when some crisis occurs, like the one in Ukraine, that we can actually see that this has happened.
The writing has been on the wall for the US dollar for at least the last ten years. It was only a matter of time before major players started trading oil in something other than dollars, and that was always going to be a nightmare scenario for the US.
A question: why does there have to be a 'reserve' currency? What's wrong with all currencies tootling along doing business with each other?
"Reserve" is a name for something you use to store excess wealth. So it's not so much about who is doing business with who, but about what is the most reliable way of "saving" on the level of an independent country. I suppose there doesn't "have to be" one, but there's a natural tendency for one to emerge as the strongest or most reliable, and as soon as that happens then that's the one everybody wants.
For most of monetary history there was no such thing as a "reserve currency" because that role was played by gold and silver.
PS I'm bemused by the the bit 'cradle-to-grave entitlement system'. I thought that was an unattainable goal dreamed of by socialists, not set in type about extreme right-wing military regimes.
Yeah well the author is an American...
