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Politics : Foreign Affairs Discussion Group
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To: neolib who wrote (169297)8/18/2005 2:53:00 PM
From: Sun Tzu  Read Replies (1) of 281500
 
I see your point completely. I too would like to buy property elsewhere in the world but for the security concerns. But I think you are missing big point about the role of USD in international trade.

USD does not have an intrinsic value beyond its near term utility. Say you are a country like China or Japan with huge surplus and you get to keep a lot of USD. Then you become hostage to US monetary policy. Hypothetically speaking, Greenspan could print enough money tomorrow to pay off all US debt. The government could ease its constituents' hardship via some form of exchanging all dollars within the US with New USD and leave the foreigners holding the bag. This is of course an extreme option that is not likely to happen anytime soon. But it is an option that is there. More likely, we'll slowly inflate our way out of it...which is how USD is now worth about 5% of it used to be worth. Regardless, the point is that why would any nation keep large amounts of USD at hand when such action puts their fortune at the whim of the Federal Reserve?

The amount of USD anyone would be comfortable holding is relative to how much USD they expect to spend over the next 5 years or so. If oil ceases to become one of those expenses that are to be paid for by USD, then this comfort zone decreases. Since there are too many countries out there who have the tiger by the tail, i.e. have way too much USD than is healthy for them, I expect the dollar to stay in a stable decline for a while. But by the time I retire, I expect to see a real collapse of the dollar.
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