The Hobo Philosopher
Dollars and Sense
By Richard E. Noble
There is a popular journalist who wrote recently about the collapse of the dollar and consequently the Great American Empire. Here’s how it will supposedly happen:
The world at large is suddenly going to realize that the U.S. dollar is worthless. Countries like China and Russia and whoever are then going to grab up all of their treasury bonds and run to the Federal Reserve demanding payment. The Federal Reserve will then start the printing presses rolling in order to payoff the demands of these frightened Chinese and others. The increase in the market place of all these new dollars will bring about a hyper-inflation, the United States of America will go bankrupt, the American people will panic and starve to death, and all that will remain of the once late and great American empire will be their bloated and overly aggressive military.I have since read other journalists who are quoting this journalist and confirming his economic “logic.”
I don’t agree.
First of all, the United States doesn’t have to redeem anything and certainly not if it means bankrupting itself. That would be crazy or should I say the obvious … stupid. The countries who have these notes will have to keep them or sell or trade them on the “open” market.
Second: If China loses faith in our treasury bonds or certificates why would they run to the Federal Reserve to get more of the same? Why would the Federal Reserve redeem their certificates? What would they redeem their certificates with? If our, interest bearing, paper treasury notes are no good, why would anyone in their right economic mind want to cash them in for more worthless paper but of smaller or different denomination or texture?
If you think the dollars in your pocket are worthless would you run to the corner bank and cash them in for more new worthless dollars?
I don’t think so. You would spend them as fast as you can. Buy whatever you could get.
What China could do – and has already threatened to do – is cash in their U.S. currency for some other country’s currency. Trade their U.S. treasury bonds on the open market. But why would they want to exchange one country’s paper for another country’s paper? And who out there in the economic wilderness has better paper? Besides these creditors have so much American paper they can’t deal with a little country. And no matter which country they chose or if they choose every country, they are still going to have paper. Paper that is backed by more paper. Europe has as many problems, if not more, than the U.S. Trading paper would be a political move not an economic move. There is still no currency out there that is a better economic bet than the U.S. dollar.
They were threatening to buy up Euros awhile back – probably until they took a good look at the Euro and all of its intrigues. In any case, they will have their vaults filled with European paper as opposed to American paper. They already have lots of European paper in their vaults. China has been the biggest exporter in the world for decades. It has piles of everybody’s money. And if they start buying European paper that will create a shortage of whatever brand of European paper that they choose and those countries will be forced to print up more of their paper to make up for what the Chinese have bought – more inflation problems everywhere. Initially the more franks, or marks the Chinese buy the more expensive those currency will become. China’s purchasing of large amounts of any other country’s currency will cause that country big problems. They will then be forced to print up more of their currency to make up for the drain. The problem remains the same for the Chinese no matter where they try to peddle their paper.
The fact is that no country’s paper is any more valuable than American paper – even now. When others buy American bonds or treasury notes, they have made an investment (read gamble) in the country of America. If they try to sell short, they will lose their investment. Other countries will buy up our notes at reduced prices and reap the rewards that the sellers are forfeiting. All they have to do is sit and wait and they will eventually get their agreed upon return. They’re getting their interest payment right now. No one is reneging.
If the world all feels the same about dollars, as our journalist friends contend, then the entire world will be busted because everybody still has and is still using dollars. All the free world is invested in dollars. They use dollars in Russia and Cuba and everywhere.
When Sadamm Hussein was caught, he had a suitcase of American Dollars. He could have taken diamonds or jewels or gold or Euros or whatever. But he chose dollars because dollars are good all over the world. China uses our treasury notes as collateral for their money. Our treasury notes are their gold. And the same goes for numerous other nations.
The Chinese might not be able to buy any other country’s paper with American paper because nobody will want U.S. interest bearing treasury notes?
Maybe they will have to auction our treasury notes off for half or a quarter of their value? At that price, I’m sure they will sell. The U.S. could manipulate the money exchange market place also and buy back its debt for a fraction of what it is worth in future dollars.
The Chinese and others have billions and billions of U.S. notes. If they rush to the money market place buying other national currencies, they could bankrupt the countries of many European nations – including the home nations of these journalists who are spreading the “panic.” When these countries realize that China or any other country is buying up their currency they will have to put a stop to it. In fact, they may have to put a stop to currency trading altogether. It is a bad deal for any country to have speculators playing with their nation’s medium of exchange. They may have to make new rules on all commodity trading – and futures too.
Small purchases and fluctuations in a country’s paper money supply are fine but large manipulation would have to be stopped.
The fact of the matter is that it is a paper world. Playing with paper on the world market is fun and games for the small time world money hustlers and speculators but countries like China and the U.S. can’t play that game. They are all in on it. They can’t play against the “house” when they are the house. To do so would be to bankrupt themselves, that ain’t going to happen. Unless everybody running these countries is even dumber than I am.
What China and any other nation can do with their treasury notes, is cash them in for commodities. They can buy stuff.
They could by gold. But gold is no more valuable than paper. It is also a faith based medium. And it is subject to chance, loss and gain, just like the paper. If one country had all of the world’s gold, what would they do with it … buy paper? The U.S. has vaults filled with Gold and so does Russia. So what? If they dump all the gold on the market as Britain threatened to do a few years back they could bankrupt all the gold bugs overnight.
There is way, way too much paper out there to even be considering gold. The gold standard is over. One grain would be worth millions. The world is dealing in trillions. Paper is the most acceptable medium of exchange. And every country’s paper is backed by everything they have and are.
America’s money is backed by its people, its land, its businesses, its military, its financial institutions, everything we own or possess. When the world loses confidence in us, our dollar goes down. As the world gains confidence our dollar goes up.
At the moment the U.S. dollar is the only game in town. The Euro has big problems. China is decades, maybe a century, away from having a paper that will exhibit the world confidence of the U.S. dollar. Before any country or group can replace the American dollar, they have to create a group that will win the world’s confidence. All money in today’s world is “faith based.” Pick a nation that you think can win the world’s trust to a greater extent than the U.S.A. Who do you trust? Who would you trust? Not for just a couple of weeks or a month, fast enough to get a quick return, but over the long haul. America needs to clean up its act but it is still number 1 around the world.
Possibly all of Asia combined could develop a unified currency to compete with the dollar. But it would be a hard sell right now and my guess is it will never be negotiated – too many animosities between Asian nations to even consider such a thing. It will take a lot of cooperation and financial success for a new currency to compete with the dollar.
If any country tried to back its money with a precious metal it would be swamped and out of business before it got started. There isn’t enough metal of any kind out there. Countries would have to re-invent paper or something like it or the world will be back to barter and the problems of trading a quarter of a chicken for two pounds of butter. It doesn’t work. That day is over. It is “faith paper” or it’s no more trading and a world collapse.
A tractor or land mover is more valuable than gold or silver to a country like China. They can buy things or places. They can come to America with their American Dollars, as the Japanese have, and start up businesses to make and manufacture things they can sell to the world and use to help themselves. They can use their money to build up America and enhance their holdings and their investments.
They can buy American products or anybody’s products. They can use their foreign money to invest in things around the world.
They can do the same in other countries but China has enough problems of its own. They need to invest in their own country. They need to use their money and other capital they have to make and produce goods to sell to their own people and put their own people to work. They need more rice and hoes for their domestic market and fewer Hula-hoops and Reeboks for the world market.
China has 1.3 billion people. They have the largest potential commodity market in the world. They should start feeding their own consumers. They should take a tip from Henry Ford and start building a middle class by paying their own people better wages. The value of their money is in their people, their country and their natural resources. And it is the same for the U.S. and everywhere else. Countries have to reevaluate and start reinvesting in themselves. Start building, start paying, start designing, start producing NEW things and old things that their people need. China should start worrying about China and not the Global market place. That is what America and the rest of the world has to do too. If everybody competes to just see who can produce the same old goods and services at the cheapest price, then the games will come to an end shortly.
The world needs NEW energy, NEW games, NEW ideas, NEW markets, more products, fair wages and higher wages for the middle class so that people all over the world can buy all these new things. Individuals have to increase their own market base and start selling to themselves. They seem to have forgotten the basics of economic growth – self interest. And national interest is self interest. Adam Smith’s touted invisible hand may once again come into play as the “individual” nations of the world start pursuing their own self-interests in fair and moral ways.
It is time to Come Home America as author William Greider says. Think American, buy American, be American. And China and everywhere else can do the same thing and watch the global community grow. Charity begins at home. Stop fighting and start selling. Start buying. Start producing. Stop hiding. Stop sneaking around. See no evil, hear no evil, and speak no evil. Just do it! And do it by good example, positive persuasion and a smile and not bulletproof vests and AK-47s, and armed personnel carriers. Let’s make a new capitalism – a positive, ethical, moral capitalism.