You see, last week the US dollar took a further nosedive in its valuation relative to other free floating currencies on Planet Earth. The Buck fell to at least a twenty month low. Last Friday, a Euro cost $1.33, a British Pound cost $1.98, and a Japanese Yen cost $.0087. This downward trend has been going on since Thanksgiving. Uncle $ugar is now a “net debtor” nation and “net interest” payer. Several nation states (Japan, China, UK...) as well as a couple of groups (the EURO Zone, and the Arab OPEC’s) are sitting on at least a Trillion of “Dollar denominated assets” – US Treasuries, stocks, bonds, mortgage backed securities, etc. Every 10% drop in the relative valuation of each $Trillion equates to a loss of “value” of 100 Billion for each of them. Such losses clearly do not make happy campers. Please read on.
At the macro or national level, we have been living well beyond our means because of the largesse of foreigners and foreign central bankers who have been willing to accumulate and hold Dollars. The fact that the US Buck was the “official” currency of OPEC gave US/us a clear advantage in our status as the World’s Reserve Currency. Until the 1980’s, the US was THE manufacturing engine that produced the goods and services the world wanted. We had huge trade surpluses, we were a “net creditor” nation, and we were a “net interest” receiver. How things changed in the last twenty five years! After that status changed, the world was willing to advance US/us credit because of the stability of the Dollar, our reputation, and our history. It is now the stability of the Dollar, our reputation, and our recent history which are causing the world to question the wisdom of continuing that policy. It gets worse...
At the micro or household level we have been living well beyond our means because of the largesse of mortgage bankers and credit card companies. I will stick my neck out and propose that a majority of US households have taken a page out of Uncle $ugar’s book and have been creating their own liability or debt-based money. Every new home equity loan and every newly accessed credit card has “created” money for the households (which they have spent) in a manner no different from the money “created” by Uncle $ugar’s Treasury and Central Bank. What is the sum total of this quantified? How will US citizenry bail out Uncle when a majority of them is as bad as or worse off than he is?
Debt based money is a relative newcomer in the broader scheme of this planet’s historical and incestuous love affair with its “moneys.” Throughout most history, real money at least had the intrinsic value of the guaranteed convertibility (or melt down value) of the metal behind it – be that platinum, gold, silver, copper, bronze, tin or even zinc! How did we ordinary folk become bamboozled by the central bankers of the world into believing/accepting that money backed by a liability (debt) was as good as money backed by an asset (substance with intrinsic value)? And... what will be the final (or resolved) outcome?
I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.