Why the World Needs America

[Dog's_Breakfast]

Most Americans do no understand the fact that much of the USA's current wealth and importance stems from the fact that the US dollar is the world's "reserve currency." Under the present world banking system, everyone needs dollars to conduct international trade. However, there is no reason why this arrangement can't be circumvented. A few countries do trade directly without going through the dollar or any other cash system, relying instead on barter. North Korea, for example, might trade weapons with some African dictatorship for oil. But if a major economy bypasses the dollar, it could be "game over" for America.

Most of the dollars that are transacted do not exist in physical form. Rather than paper, they are mere digital bits and bytes flowing through banking computers. They can, and are, created at will by the US Federal Reserve. The ability to do this allows the USA to buy, for example, all the oil it needs from countries that are willing to exchange it for the digital currency. The system will persist only for as long as other countries continue to have faith in America. But that faith is eroding fast, especially in light of all the financial shenanigans on Wall Street, in which something like $600 trillion of phony "derivatives" have been created, which is about 10 times the size of the world's economy.

The USA's worse nightmare may be coming true:

China And Japan Dropping Dollar Cross Rate System, Will Transact Directly

What that means is that neither China nor Japan will need dollars to conduct trade with each other. If more countries do that, the USA's number one Ponzi scheme (selling digital dollars) comes to an abrupt end. In that case, the USA will have to go back to the old system of producing real wealth instead of the current system of getting something for nothing. Hopefully there are still enough people left in America who remember real engineering (knowing how to actually make things), as opposed to Wall Street's "financial engineering."

[headhonchoII]

Nah, the USD is still setup to do nicely especially as confidence in the Euro plummets. See the flight to safety continue. As long as America can maintain a relatively strong economy the USD is safe.
Don't forget many of the wealthy citizens of the world want to keep their money out of their own governments hands and want to escape their shithole countries China included.

[Dog's_Breakfast]

Nah, the USD is still setup to do nicely especially as confidence in the Euro plummets. See the flight to safety continue. As long as America can maintain a relatively strong economy the USD is safe.

First, I do suggest you go and read the article I linked to, which I think you haven't done.

But yes, the Euro jitters will give the dollar a temporary boost. I emphasize "temporary" because the dollar is even more of a Ponzi scheme than the Euro. The Euro is only getting slammed now because some countries (starting with Greece) are thinking of defaulting on their unpayable debts, which will necessitate them leaving the Euro zone. The US dollar has an advantage in that the USA is just one country, so a default has to be nationwide - no bit players to overturn the apple cart. But the USA suffers from the same core problem as the Euro, that is to say a huge empty shell of bogus debts that can never be repaid. At some point the USA has to default, either by declaring default or (more likely) engaging in massive money printing, which is a time-honored tradition (think Germany's Weimar Republic). Money-printing is default via the back door, but default nonetheless.

The unfolding disaster in the Euro is one reason why countries like China and Japan are considering circumventing the system and trading directly. Countries have only been willing to trade in dollars because in the past they had confidence that the USA would never counterfeit its own currency. But they are losing that faith quickly.

One thing I will say for your argument, HeadhonchoII, is that there will indeed be a "flight to safety." But that flight doesn't have to be US dollars. When all else fails, panicked investors look to things that can't be counterfeited, like precious metals, but oil and diamonds are other possible "safe havens." When currency becomes toilet paper, you want to be holding something that can't be produced on a computer keyboard or printing press.

[sandman]

the alternative to American power was not peace and harmony but chaos and catastrophe—which is what the world looked like right before the American order came into being.

OK, I know you're just posting that for effect, but still... You are NOT that ignorant. Are you?

[headhonchoII]

You see it's the 'at some point' that I have a problem with. That could be decades away and devaluation of a currency is not a default, just devaluation. Devaluation would suit the US nicely in terms of export earnings and competitiveness.

The GBP devalued by about a third to the euro and USD, these things happen all the time. The Franc did roughly the same when it linked to the Euro.

[MikeN]

Nah, the USD is still setup to do nicely especially as confidence in the Euro plummets. See the flight to safety continue. As long as America can maintain a relatively strong economy the USD is safe.

....
The US dollar has an advantage in that the USA is just one country, so a default has to be nationwide - no bit players to overturn the apple cart. But the USA suffers from the same core problem as the Euro, that is to say a huge empty shell of bogus debts that can never be repaid.

Why is it bogus, and why can it never be repaid? Twelve years ago, Alan Greenspan was freaking out because the national debt looked like it was going to be all paid off. Even now, simply allowing the Bush tax cuts to expire would solve about 3/4s of the deficit (not debt) problem- though that would involve turning the country back into the Stalinist hellhole it was under Ronald Reagan.

Why does the US have to pay off this debt? Is it planning on leaving the planet, and has to settle up before it goes?

At some point the USA has to default, either by declaring default or (more likely) engaging in massive money printing, which is a time-honored tradition (think Germany's Weimar Republic). Money-printing is default via the back door, but default nonetheless.

Just like neo-cons, for whom it's always 1938, and we're always at Munich, for gold bugs it's always Weimar in 1923. Uh, do you ever think that the reason you have to use the same example over and over again is that it's such a rare occurrence? (Oh, wait, Zimbabwe!)

The unfolding disaster in the Euro is one reason why countries like China and Japan are considering circumventing the system and trading directly. Countries have only been willing to trade in dollars because in the past they had confidence that the USA would never counterfeit its own currency. But they are losing that faith quickly.

So why are they so anxious to get US debt that they are willing to pay the US gov't to take their money? Ten-year Treasury bonds are payng below-inflation interest rates- foreigners are saying "here, take my money for safe-keeping, and in 10 years you can pay me back less than what I gave you."

One thing I will say for your argument, HeadhonchoII, is that there will indeed be a "flight to safety." But that flight doesn't have to be US dollars. When all else fails, panicked investors look to things that can't be counterfeited, like precious metals, but oil and diamonds are other possible "safe havens." When currency becomes toilet paper, you want to be holding something that can't be produced on a computer keyboard or printing press.

And remember that there will be zombies everywhere, too- I'd go for canned goods and ammo.

[TheGingerMan]

I've heard tell that American sandbags are the best element for an eroding perimetre.

[Dog's_Breakfast]

The US dollar has an advantage in that the USA is just one country, so a default has to be nationwide - no bit players to overturn the apple cart. But the USA suffers from the same core problem as the Euro, that is to say a huge empty shell of bogus debts that can never be repaid.

Why is it bogus, and why can it never be repaid?

I don't think we're talking about the same thing. You're thinking of just US government debt, also known as "Treasury Bills." That is a problem, because it now amounts to $16 trillion, when the size of the US economy is about $15 trillion, with deficits currently adding another $1.5 trillion per year. Bad enough, but now add to that the "bogus" private debt known as "derivatives," the fraudulent financial instruments created by Wall Street that have a face value of around $600 to $800 trillion (exact figures not easy to come by). Considering that the WORLD economy is about $65 trillion, you've got a problem. The banking system has created bad paper amounting to roughly 10 times the size of the world economy, more than 40 times the size of the US economy. This is a true Ponzi scheme, and is very similar to what happened in 1929, only the amounts are actually much bigger this time. Furthermore, globalization assures that the contagion will be worse, especially when you've got most of the world using US dollars as their reserve currency.

Twelve years ago, Alan Greenspan was freaking out because the national debt looked like it was going to be all paid off.

Correction, the Bush administration twisted Alan's arm to give him a green light for massive deficit spending so he could cut taxes for the rich and go on a military spending binge. Greenspan delivered. Let's also remember that in 1999, it was Greenspan who convinced Clinton to repeal the Glass-Steagall Act, which would have prevented the whole Wall Street fraud binge that nearly crashed the world in 2008, and will still probably crash it again (maybe soon). In other words, Greenspan has no credibility.

Even now, simply allowing the Bush tax cuts to expire would solve about 3/4s of the deficit (not debt) problem- though that would involve turning the country back into the Stalinist hellhole it was under Ronald Reagan.

Scratching my head. I've heard Reagan called many things, but "Stalinist?" A new one for me. Allowing the Bush tax cuts to expire is Stalinist? You're going to have to explain that one, you've lost me there.

Why does the US have to pay off this debt? Is it planning on leaving the planet, and has to settle up before it goes?

It's not going to be paid off. It's going to be defaulted, either by direct default or money printing. The US economy could never pay off even the $16 trillion of Treasury debt, let alone the $600 or more trillion of Ponzi paper, without a very busy printing press. The price of direct default is total collapse of the banking system, while the price of inflating is Weimar Republic replay. Neither is desirable, but I'd rather have Weimar than a banking collapse.

Just like neo-cons, for whom it's always 1938, and we're always at Munich, for gold bugs it's always Weimar in 1923. Uh, do you ever think that the reason you have to use the same example over and over again is that it's such a rare occurrence? (Oh, wait, Zimbabwe!)

Weimar was not unique, just the most famous case because it was so extreme. More recent replays include Vietnam right after the Vietnam War ended (1975), at least half of Latin America in the 1980s (inflation rates of 1000% per year were not uncommon), the former USSR circa 1991, Argentina around 2000, Zimbabwe (as you've mentioned), and pretty soon Greece. Printing your way out of debt is one of two options, the other being default which also happens often enough (much of Africa has defaulted on debt, and look at their "thriving" economies). Most countries recognize that they can't run up such enormous debts and avoid doing so, but we've had a real debt orgy over the past decade, and this is behind the current disaster in Greece and is causing the Euro crisis.

So why are they so anxious to get US debt that they are willing to pay the US gov't to take their money? Ten-year Treasury bonds are payng below-inflation interest rates- foreigners are saying "here, take my money for safe-keeping, and in 10 years you can pay me back less than what I gave you."

You're behind the times - that hasn't been true since 2008. Most US Treasuries are being bought by US banks, and they're doing so because they are actually being paid by the US government to do so. Very bizarre situation - the Federal Reserve lends money to US banks at 1/4 percent interest and the banks buy the Treasuries at 5-1/4 percent, a guaranteed 5 percent profit and they don't risk any of their money. And the Federal Reserve gets that money by "printing" it (on a computer, not physical). This is a Ponzi scheme, borrowing money that doesn't actually exist.

And remember that there will be zombies everywhere, too- I'd go for canned goods and ammo.

It may well come to that. The Great Depression was a dress rehearsal. But I have no guns and ammo, I'm in Taiwan and just hope that things will be better here. That's not guaranteed.

Lastly, I would like to say that I think you're making the mistake of believing that I'm a neocon, which I am definitely not. I think they are idiots. They are only concerned about the debt now because Obama is president. When Bush and Reagan were in office, they didn't care about the debt at all. If Romney gets elected in November, the debt will cease to be an issue with them once again. I believe it was Dick Cheney who said that Reagan "proved that deficits don't matter." The neocons never saw a tax cut (for the rich) that they didn't like, or a cut in "entitlements" (unemployment insurance, social security, Medicare) that they didn't like. Their basic philosophy is "give to the rich, steal from the poor." How that is supposed to create a healthy economy, I can't imagine.

I'll end by saying that if I was dictator in chief, I would not being promoting austerity. I'd go ahead and print the money, let inflation rip, and throw all the Wall Street crooks in jail for fraud. It wouldn't be pretty, but we are running out of options.

[MikeN]

I don't think we're talking about the same thing. You're thinking of just US government debt, also known as "Treasury Bills." That is a problem, because it now amounts to $16 trillion, when the size of the US economy is about $15 trillion, with deficits currently adding another $1.5 trillion per year. Bad enough, but now add to that the "bogus" private debt known as "derivatives," the fraudulent financial instruments created by Wall Street that have a face value of around $600 to $800 trillion (exact figures not easy to come by). Considering that the WORLD economy is about $65 trillion, you've got a problem. The banking system has created bad paper amounting to roughly 10 times the size of the world economy, more than 40 times the size of the US economy. This is a true Ponzi scheme, and is very similar to what happened in 1929, only the amounts are actually much bigger this time. Furthermore, globalization assures that the contagion will be worse, especially when you've got most of the world using US dollars as their reserve currency.

Well, in your previous post you said

But the USA suffers from the same core problem as the Euro, that is to say a huge empty shell of bogus debts that can never be repaid. At some point the USA has to default, either by declaring default or (more likely) engaging in massive money printing, which is a time-honored tradition (think Germany's Weimar Republic). Money-printing is default via the back door, but default nonetheless.

The fact that these are dollar-denominated debts doesn't really matter- anymore than if I borrow ten US dollars from you here in Taiwan and agree to pay you back in dollars makes it necessary for the US to back that debt.

Twelve years ago, Alan Greenspan was freaking out because the national debt looked like it was going to be all paid off.

Correction, the Bush administration twisted Alan's arm to give him a green light for massive deficit spending so he could cut taxes for the rich and go on a military spending binge. Greenspan delivered. Let's also remember that in 1999, it was Greenspan who convinced Clinton to repeal the Glass-Steagall Act, which would have prevented the whole Wall Street fraud binge that nearly crashed the world in 2008, and will still probably crash it again (maybe soon). In other words, Greenspan has no credibility.

To clarify, 1n 1999/2000 Greenspan was in favour of the surpluses generated under Clinton being used to pay down the national debt, because he was worried that otherwise those crazy liberals would use it for something like paid maternity leave or pre-Kindergarten health/nutrition programs or high-speed rail.

When Bush was elected he immediately pivoted (no arm-twisting required) to supporting Bush's massive tax cuts for the wealthy, which as a good Randian (Ayn, not Paul) he was all in favour of.

Even now, simply allowing the Bush tax cuts to expire would solve about 3/4s of the deficit (not debt) problem- though that would involve turning the country back into the Stalinist hellhole it was under Ronald Reagan.

Scratching my head. I've heard Reagan called many things, but "Stalinist?" A new one for me. Allowing the Bush tax cuts to expire is Stalinist? You're going to have to explain that one, you've lost me there.

Sorry, sarcasm (I tend to do that a lot) referring to all the right-wingers freaking out about Obama's "socialism".

It's not going to be paid off. It's going to be defaulted, either by direct default or money printing. The US economy could never pay off even the $16 trillion of Treasury debt, let alone the $600 or more trillion of Ponzi paper, without a very busy printing press. The price of direct default is total collapse of the banking system, while the price of inflating is Weimar Republic replay. Neither is desirable, but I'd rather have Weimar than a banking collapse.

The US doesn't have to pay off the $16 trillion, and it doesn't owe the derivatives debt floating around out there.

Krugman says it better than I could:(Sorry, long quote):

Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.

This is, however, a really bad analogy in at least two ways.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.

But isn’t this time different? Not as much as you think.

It’s true that foreigners now hold large claims on the United States, including a fair amount of government debt. But every dollar’s worth of foreign claims on America is matched by 89 cents’ worth of U.S. claims on foreigners. And because foreigners tend to put their U.S. investments into safe, low-yield assets, America actually earns more from its assets abroad than it pays to foreign investors. If your image is of a nation that’s already deep in hock to the Chinese, you’ve been misinformed. Nor are we heading rapidly in that direction.

http://www.nytimes.com/2012/01/02/opini ... -debt.html

Lastly, I would like to say that I think you're making the mistake of believing that I'm a neocon, which I am definitely not. I think they are idiots. They are only concerned about the debt now because Obama is president. When Bush and Reagan were in office, they didn't care about the debt at all. If Romney gets elected in November, the debt will cease to be an issue with them once again. I believe it was Dick Cheney who said that Reagan "proved that deficits don't matter." The neocons never saw a tax cut (for the rich) that they didn't like, or a cut in "entitlements" (unemployment insurance, social security, Medicare) that they didn't like. Their basic philosophy is "give to the rich, steal from the poor." How that is supposed to create a healthy economy, I can't imagine.

I'll end by saying that if I was dictator in chief, I would not being promoting austerity. I'd go ahead and print the money, let inflation rip, and throw all the Wall Street crooks in jail for fraud. It wouldn't be pretty, but we are running out of options.

No, I don't think you're a neo-con (and I agree with the last paragraph above) - I just think you're way too pessimistic.
But maybe that's just my naturally sunny nature

[Super Hans]

Why the World Needs America

Coffee from Nicaragua is absolutely fabulous, and right now my laptop is probably using lithium mined in Bolivia.
Canadian oil drilling equipment is pretty good - the world needs that, and sugar and zinc are pretty plentiful from Canada.
I need Mexico for my weekly hit of narcotics - related beheading videos.
The Amazon is integral to the worlds eco-system.
And let's face it, without much of America, there would be fewer countries for the United States to install CIA sponsored despotic leaders into.