- May 17, 2007
- 3,216
- 170
- 254
Quote:
Looking back at the market crashes, they tend to happen in October. And, that happens to coincide with the next IMF meeting at which they will decide upon new reserve currency policies. The dollar will be replaced by a basket of other currencies, and the Chinese currency will eventually be the major reserve currency. Reserve currency is the money used in international trade to settle debts. Previously, it was the British pound. When the dollar replaced the pound, it lost half of its value. In 1965, the silver backing of the US dollar was removed. It became a fiat currency. To give it value, the US convinced the oil producing nations to price oil in dollars. That was the beginning of the Petro dollar. In return, the US promised to protect those Arab nations producing oil. We no longer do that. We have exited the area. Now, the Arabs have no reason to price oil in dollars. We are in for a black swan event. When the US dollar is no longer needed for international trade, those dollars will gravitate home. Foreign holders of the dollar will be buying real estate, gold, silver and other metals looking for hard assets that will weather the coming inflation. Devaluing the Chinese currency will stimulate their exports and make imports more expensive. But it will also make it easier to eventually peg their currency to a metal base. The Chinese stock market was in a bubble. The price to earnings ratios were way off. It needed to come down, and a gradual devaluation of the currency is the best way to created a soft landing. That is my take on the situation. I am sure others have their own ideas. I guess we just have to wait to see how things work out.
Looking back at the market crashes, they tend to happen in October. And, that happens to coincide with the next IMF meeting at which they will decide upon new reserve currency policies. The dollar will be replaced by a basket of other currencies, and the Chinese currency will eventually be the major reserve currency. Reserve currency is the money used in international trade to settle debts. Previously, it was the British pound. When the dollar replaced the pound, it lost half of its value. In 1965, the silver backing of the US dollar was removed. It became a fiat currency. To give it value, the US convinced the oil producing nations to price oil in dollars. That was the beginning of the Petro dollar. In return, the US promised to protect those Arab nations producing oil. We no longer do that. We have exited the area. Now, the Arabs have no reason to price oil in dollars. We are in for a black swan event. When the US dollar is no longer needed for international trade, those dollars will gravitate home. Foreign holders of the dollar will be buying real estate, gold, silver and other metals looking for hard assets that will weather the coming inflation. Devaluing the Chinese currency will stimulate their exports and make imports more expensive. But it will also make it easier to eventually peg their currency to a metal base. The Chinese stock market was in a bubble. The price to earnings ratios were way off. It needed to come down, and a gradual devaluation of the currency is the best way to created a soft landing. That is my take on the situation. I am sure others have their own ideas. I guess we just have to wait to see how things work out.
