|What is the US dollar really worth ? ... ... ... ... ... ... ... ... ...|
"America’s budget deficit, Social Security liability, trade deficit, negative balance of payments, ballooning home mortgage amounts, humongous credit card and personal debt and absolute no desire to pay for anything right now is actually hiding behind the glamorous legendary American image of the twentieth century. People in the world still believe US dollar is more safe than gold. But that belief can disappear soon if world economy tanks, crude oil hits 100 Euro per barrel, oil cartel decides only to accept euro for oil and as a result US defaults on international interest payments. It will be dark day for the world if that ever happens.
How far is that day? It really depends how you see that. The earthquake does not happen without reason. Stress builds along the fault line for many years and then all on a sudden without any notice everything gets devastated. Think of the civilization of Atlantis. It was one of the most advanced ancient civilization that disappeared overnight because of massive volcanic eruption.
US Dollar is actually driving the emerging economies. US Government is trying to negotiate with China and to some extent countries like India who peg their currency to US Dollar, to revaluate or increase the value of their currency with respect to US Dollar. The hope is that will correct the current trade deficit as Chinese goods will be costlier is US and American goods and services will be cheaper for Chinese to buy in China. Unfortunately, that will never really happen. Because there is so much deflation in China and India, once these countries increase the value their currency, export prices will immediately fall to make sure they can sell to America. Consequently getting out of this spiraling trade deficit is not possible with even collapsing dollar.
The problem is that if dollar collapses, there is nothing that can stop a catastrophic worldwide depression. The whole worldwide trading system under World Trade Organization (WTO) and the central banking systems that controls currency exchange rates through mutual cooperation (and not through open market auctions) will collapse overnight.
So what is the real value of US dollar?
Have you ever built a home right on top of San Andreas Fault? If you did, what is the value of your home really?
The answer is simple, if you are convinced the great earthquake of California is not going to happen in the next thirty years, then your home has normal good value. But if you believe the stress building has reached a limit and something big is coming in a year or two, your house is worthless.
American treasury is planning save the social security by borrowing an additional trillion dollars and partial privatization of social security for younger people. Well it is similar to borrowing some more against your house to pay of some current debt till you cannot pay the mortgage. Believe or not common citizens in America in the last two years have literally refinanced their homes, taken more loan against their home on an assumption, that they will never lose their job or get sick.
Again US dollar will continue to hold its ground no matter how weak it is on the surface till people in the world start calling it worthless.
Can the meltdown occur now? Not really. The US stock market continued to go up and up for almost twenty tears till it finally collapsed in 2000-2002. Right now we may be seeing a cyclical bull market in stocks to be followed by the next leg of the secular bear market.
What is really holding US Dollar from tanking is the purchasing power of America. Americans buy more than three times goods and services than the rest of the world. If China and Japan cannot sell to US, their economy and currency will become worthless overnight. Europe will suffer too though to some less extent. If American companies do not outsource from India, Indians will have more than 50% unemployment among the educated ones! So, US Dollar is really bread and butter for the developing world that really depends on Americans to keep buying.
It was very interesting to note that Alan Greenspan refused to become the Treasury Secretary. That tells you something!
But do not count on dollar collapsing overnight! Even if we are seeing some legendary secular bear market in US Dollar, first it will go up, make all belief that this article is bogus, make all sell their gold holding and then show its teeth on the downside.
That is how the market works. Betting on dollar collapse can technically make your finance collapse too! "