Perspectives on the global economic meltdown- (Nov 28 2010)

[Austin]

What is quantitative easing?

[RoyG]

Gold is being accumulated in secret by Russia and China. They are trying to hedge against a falling dollar and eventually back up their own currencies. The fall in gold and silver relative to currency is only temporary.

[member_26147]

Gold is being accumulated in secret by Russia and China. They are trying to hedge against a falling dollar and eventually back up their own currencies. The fall in gold and silver relative to currency is only temporary.

This I can agree with. India bought gold at a very opportune moment and it should bolster it now at a dip. This will give the BRICS ammunition to prevent USA to get away with diluting their loans via inflation and money printing. Also, they need to team up to set IMF SDR as a trading currency between nations instead of USD.

[Suraj]

Good Point Suraj.

I have also read alternative views on the Debt part which goes like this though its comforting that our Debt of around ~ 70 % is mostly internal but like any debt one has to pay it back with interest and principal , if we simply repay those debt by printing more notes , then eventually hyper inflation will set in hence for Rupees there is limit on the excessive money floating into the system , for reserve currency like $ or Euro that limit is substantially higher. High Debts in some parts also affects credit rating of a nation

Sorry, I have been traveling lately and have not checked BRF much for the last few weeks.

Here's an alternative viewpoint: essentially our entire debt load is currently held at the highest interest rates in recent (~last 15 years) history. Monetary easing that the govt is inclined towards in order to more easily pay off the debt, also pushes down real and effective interest rates. The debt load is not static. There's a continuous process of refinancing down to lower rate debt terms. Had the debt load been accumulated at historically low rates, there would not have been much potential to refinance down. However, that is not the case today - with most of the recent debt accumulated at the highest rates in the past decades, there'll be a continuous process of both devaluing the debt through weakening the currency, and reducing the interest burden in absolute terms by refinancing down.

The Japanese, on the other hand, have built up a substantial debt load at historically low rates. So their primary alternative is weakening the currency to boost inflation - BoJ just upped the inflation target to >2% from 1%. JPY:USD is now 103.xx/$ , which is very good for their exports, and for those visiting Japan and buying stuff there (as was the case for me too).

As for the Chinese, my view is that they'll lose around $1-1.5 trillion of their forex holdings no matter what they do. That's just too much hoarded nominal holdings to effectively manage. The far east Financial Times edition a couple of days ago reported how NO one wanted to head the CIC, which is in the agency in charge of investing the Chinese forex reserve load. Even the vice-mayor of Shanghai ran away like a cowering SDRE - no small matter considering all chosen nominees have to explain their rejection to the President and Premier, who head the committee to find the new head. The problem is that everyone knows huge losses may be hidden on the books, and no one wants to kill their career by being the scapegoat.

[Neshant]

If at all the world moves to an IMF SDR, it will be at the behest of the US not any other country. They control the IMF.

The SDR is a last ditch option to transfer western debt onto the backs of other nations of the world. US dollar debt would get converted into SDRs - automatically making US debt the liability of other countries. China would want this provided the SDR stays in tact long enough for them to benefit from spending their hoard of IOUs from the US govt.

However in doing so, the USD would cease to have an exclusive monopoly as a reserve currency - which I doubt is something they want.

SDR like all other paper money systems will soon enough prove worthless. The illusion of giving other countries a stake in being the reserve currency of the world will be dangled as a carrot but will prove to be a con job.

[TSJones]

^^^^There is already a currency that fits this scenario: The Euro.

Unlike the US dollar, the Euro must use various countries' government debt as the basis of its currency so there is way less possibility of a government inflating its way out of debt and in fact, its member countries are qute prone to austerity which makes the currency more stable for the rest of the world. By golly, I think you are on to something here Neshant! However, don't look to the Euro membership economies to lead the way because they might be be very stagnant for a while. But their currency will be wonderful! Iran was going to only accept the Euro for its oil. I wonder what happened?

[TSJones]

As for SDRs:

"Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions. In addition to its role as a supplementary reserve asset, the SDR serves as the unit of account of the IMF and some other international organizations."

I think this would be a wonderful opprtunity for countries like China and India to purchase SDRs with their country's currency.

[member_26147]

If at all the world moves to an IMF SDR, it will be at the behest of the US not any other country. They control the IMF.

The SDR is a last ditch option to transfer western debt onto the backs of other nations of the world. US dollar debt would get converted into SDRs - automatically making US debt the liability of other countries. China would want this provided the SDR stays in tact long enough for them to benefit from spending their hoard of IOUs from the US govt.

However in doing so, the USD would cease to have an exclusive monopoly as a reserve currency - which I doubt is something they want.

SDR like all other paper money systems will soon enough prove worthless. The illusion of giving other countries a stake in being the reserve currency of the world will be dangled as a carrot but will prove to be a con job.

What a hoopla of self-contradiction! According to you, US wants the world to move to SDR but they also not want to do it since they would lose exclusive currency monopoly?

US doesn't want to lose the dollar as the reserve currency. No nation would. The British Empire had to be hand-wrangled at the bretton-woods conference to give up the pound sterling as the reserve currency. The US would have to be hand-wrangled by the BRICS and other stakeholders similarly if they don't want to implode while holding dollar denominated debt. In order to do that, they would need Gold backing, or go to war. Gold backing is a smart thing to do. War would setback everything that has been achieved in the last 40 years by China. India cannot even think of going to war with the western nations. The pentagon war machine is still decades ahead of even China.

[TSJones]

^^^^If you want to have a reserve currency then you must have an unrestricted economy. China doesn't have it. While it is true that no economy is completely unrestricted or pure capitalist, the US economy has fewer restrictions compared to other countries. A lot of countries don't want this aspect of having a reserve currency.

However, if you have lots of gold sitting in storage it is conceivable that you can have a reserve currency. I can certainly agree with that. So who is going to do it that way?

[svinayak]

China has the ambition

[Suraj]

I find the debate on what it takes to be a reserve currency - everything from convertibility to gold backing - largely pedantic. A currency will gain de facto reserve status when the economy backing it generates the level of activity and trade volume that incentivizes others to depend upon that currency as a medium of transaction. To the extent that more and more trading partners of PRC are happy to transact in CNY, their currency already is a reserve currency.

[svinayak]

It is all about trust in that economy and the trust in that currency

[TSJones]

I find the debate on what it takes to be a reserve currency - everything from convertibility to gold backing - largely pedantic. A currency will gain de facto reserve status when the economy backing it generates the level of activity and trade volume that incentivizes others to depend upon that currency as a medium of transaction. To the extent that more and more trading partners of PRC are happy to transact in CNY, their currency already is a reserve currency.

As long as one is willing to barter for the goods and services they require, the currency can be in wampum or Yap stone money. But sooner or later peope will want some sort of script because it is just easier that way. So gather your trading partners around you and use what ever script that is mutually acceptable. Just don't go demanding US dollars without some sort of value refernce point.

A little bit off the topic:

Liberty Reserve is busted:
http://insidecostarica.com/2013/05/28/u ... osta-rica/

[svinayak]

China is a sucker

[member_26147]

A currency will gain de facto reserve status when the economy backing it generates the level of activity and trade volume that incentivizes others to depend upon that currency as a medium of transaction.

Make SDR liquid enough and fully convertible and you cannot have a better reserve currency. It can encompass the trade activity of the entire world and stakes can be proportionally allotted to a country based on their current account surplus. This will reduce the incentive to create inflation as a hedge against debt.

[RoyG]

SDR will collapse just like the rest. Central banks know this so they are accumulating gold.

[ramana]

Can we have more comprehensive posts in this thread than half liners?

Thanks, ramana

[Suraj]

A reserve currency has to be backed by the, or one of the, preeminent economies of the time. It is the strength and trading power of the economy behind it that gives it its status. Further, a reserve currency provides the issuing nation the profit and convenience from the seigniorage. The SDR is nothing of the sort, even if the US has control over the WB and IMF; it's an idealized currency that sounds like a great reserve medium in academic terms, but which no one has an overriding interest in actually wanting as a reserve currency.

[svinayak]

A reserve currency has to be backed by the, or one of the, preeminent economies of the time. It is the strength and trading power of the economy behind it that gives it its status.

There should also be a trust in the preeminent economy by other trading partners that it will always play by the international rules and is transparent.

[Vayutuvan]

There is not much anybody (country, organization, entity) can do if the preeminent economy flouts the rules. (sorry Ramana garu, can't resist the one-liner, or does this comment make it a two-liner ?)

[TSJones]

A reserve currency has to be backed by the, or one of the, preeminent economies of the time. It is the strength and trading power of the economy behind it that gives it its status.

There should also be a trust in the preeminent economy by other trading partners that it will always play by the international rules and is transparent.

Please, point out an example of said perfection. I'm moving there.

(Sorry for the one liner Ramana, couldn't resist. Although most of my messages are not one liners.)

[Austin]

Dollar could be in danger as the world’s currency

[Sri]

As for the Chinese, my view is that they'll lose around $1-1.5 trillion of their forex holdings no matter what they do. That's just too much hoarded nominal holdings to effectively manage. The far east Financial Times edition a couple of days ago reported how NO one wanted to head the CIC, which is in the agency in charge of investing the Chinese forex reserve load. Even the vice-mayor of Shanghai ran away like a cowering SDRE - no small matter considering all chosen nominees have to explain their rejection to the President and Premier, who head the committee to find the new head. The problem is that everyone knows huge losses may be hidden on the books, and no one wants to kill their career by being the scapegoat.

Gao Xiqing (Current #2) is interested. But he is disqualified because he did his law in US. Man what a contrast from India.

It seems that President and Premier look at this posting as a chance to reward the faithful.

http://www.scmp.com/news/china/article/ ... leaderless

[member_26147]

A reserve currency has to be backed by the, or one of the, preeminent economies of the time. It is the strength and trading power of the economy behind it that gives it its status. Further, a reserve currency provides the issuing nation the profit and convenience from the seigniorage. The SDR is nothing of the sort, even if the US has control over the WB and IMF; it's an idealized currency that sounds like a great reserve medium in academic terms, but which no one has an overriding interest in actually wanting as a reserve currency.

Nothing has to be backed by anyone or anything. The banking cartels make up rules as they go and the rest have to follow. Moreover, if a reserve currency is backed by the entire world, that is better than the reserve currency being backed by one country. It makes it less volatile. The SDR can be made a reserve currency. The other countries just need to rally around to do it.

[Suraj]

And how do you think the banking cartels become what they are ? Because they're the biggest banks of the most powerful economies of the day...

No one is going to make the SDR a reserve currency because it is in no one's self interest.

[svinayak]

There has to be a sponsoring country which will back it up. It may have shadow banking system and other cartels but currency futures and currency trading must be atleast seen transparent


In the present world, nations are not able to work together closely enough to be able to produce and support a common currency. There has to be a high level of trust between different countries before a true world currency could be created. A world currency might even undermine national sovereignty of smaller states.

[Suraj]

What is a 'sponsoring country' ? The notion of SDR as a reserve currency means *everyone* will have to convert their currency into SDRs. That means no one has the convenience and profit potential of seigniorage. That takes away the self interest on anyone's part to make the SDR a reserve currency, including any sort of banking cartel of any country. Keep in mind that SDRs have been around since before 1970. It's had almost half a century to take over it's role of a global currency, and will continue to remain in the 'sounds great on paper' category.

[Austin]

Don't worry about a recession — we are in a depression’ – James Rickards

The Managing Director of Tangent Capital and one of the world’s best known experts on currency wars, James Rickards believes that the American economy is in bad shape and the state of the economy can be described as a “depression”.

“If you take the classic definition of a sustained, long-term downturn with economic growth below trend, then we are in the midst of a depression”, he told the New York Post. In Rickard’s view, the Chairman of the US Federal Reserve, Ben Bernanke does not have an “exit strategy” for the quantitative easing program. Obviously, designing an exist strategy for a gargantuan trade worth 3 trillion dollars is challenging in an environment plagued by regional and global currency wars, but the Bernanke’s problem may have a psychological aspect. “Bernanke’s not a trader, so doesn’t think like a trader; he has no exit plan”, Rickards told the New York Post.

An orderly unwind of the gigantic quantitative easing program is needed because the Fed cannot continue it indefinitely and should not have an ever expanding balance sheet. At the same time, “tapering” or unwinding the quantitative easing could have disastrous effects on the stock markets, on the bond markets and on the US Government’s ability to borrow at low interest rates.

So far, even the slightest hints of reducing the amounts of liquidity injected in the stock and bond markets through quantitative easing program have had instant negative effects on the US markets. Even unsubstantiated rumors regarding a possible “tapering” of the assets purchases operated by the Fed send stock index futures “in the red”. In such a difficult context, the lack of a viable and well-thought exit strategy could mean that the Fed will be locked for a long time in prolonging the use of a dangerous strategy. If there is no exit strategy for the quantitative easing program, then James Rickards is right in pointing out that the situation of the US economy will not improve.

[svinayak]

The foreign exchange market is unique because of the following characteristics:
its huge trading volume representing the largest asset class in the world leading to high liquidity;
its geographical dispersion;
its continuous operation: 24 hours a day except weekends, i.e., trading from 20:15 GMT on Sunday until 22:00 GMT Friday;
the variety of factors that affect exchange rates;
the low margins of relative profit compared with other markets of fixed income; and
the use of leverage to enhance profit and loss margins and with respect to account size.
As such, it has been referred to as the market closest to the ideal of perfect competition, notwithstanding currency intervention by central banks. According to the Bank for International Settlements,[3] as of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98 trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007. Some firms specializing on foreign exchange market had put the average daily turnover in excess of US$4 trillion.[4]
The $3.98 trillion break-down is as follows:
$1.490 trillion in spot transactions
$475 billion in outright forwards
$1.765 trillion in foreign exchange swaps
$43 billion currency swaps
$207 billion in options and other products


Currency restrictions regarding renminbi denominated bank deposits and financial products were greatly liberalized in July, 2010.[18] In 2010 renminbi denominated bonds were reported to have been purchased by Malaysia's central bank[19] and that McDonald's had issued renminbi denominated corporate bonds through Standard Chartered Bank of Hong Kong.[20] Such liberalization allows the yuan to look more attractive as it can be held with higher return on investment yields, whereas previously that yield was virtually none. Nevertheless, some national banks such as Bank of Thailand (BOT) have expressed a serious concern about RMB since BOT cannot substitute the depreciated US Dollars in the 200 billion dollar Foreign Exchange Reserves held by BOT with Renminbi Yuan as much as BOT wishes because:
The Chinese Government has not taken the full responsibilities and commitments on the economic affairs at the global levels.
Renminbi Yuan still has not become well-liquidated (fully convertible) yet.
The Chinese government still lacks deep and wide vision about how to perform fund-raising to handle international loans at global levels.[21]
However HSBC expects the Renminbi to become the third major reserve currency in 2011.[22]
Countries that are left-leaning in the political spectrum have also begun to use the Renminbi as an alternative reserve currency to the United States dollar; the Chilean central bank reported in 2011 to have US$91 million worth of Renminbi in reserves, and the president of the central bank of Venezuela, Nelson Merentes, made statements in favour of the Renminbi following the announcement of reserve withdrawals from Europe and the United States.[23]

[svinayak]

Economists debate whether a single reserve currency will always dominate the global economy.[6] Many have recently argued that one currency will almost always dominate due to network externalities, especially in the field of invoicing trade and denominating foreign debt securities, meaning that there are strong incentives to conform to the choice that dominates the marketplace. The argument is that, in the absence of sufficiently large shocks, a currency that dominates the marketplace will not lose much ground to challengers.
However, some economists, such as Barry Eichengreen argue that this is not as true when it comes to the denomination of official reserves because the network externalities are not strong. As long as the currency's market is sufficiently liquid, the benefits of reserve diversification are strong, as it insures against large capital losses. The implication is that the world may well soon begin to move away from a financial system dominated uniquely by the US dollar. In the first half of the 20th century multiple currencies did share the status as primary reserve currencies. Although the British Sterling was the largest currency, both the French franc and the German mark shared large portions of the market until the First World War, after which the mark was replaced by the dollar. Since the Second World War, the dollar has dominated official reserves, but this is likely a reflection of the unusual domination of the American economy during this period, as well as official discouragement of reserve status from the potential rivals, Germany and Japan.
The top reserve currency is generally selected by the banking community for the strength and stability of the economy in which it is used. Thus, as a currency becomes less stable, or its economy becomes less dominant, bankers may over time abandon it for a currency issued by a larger or more stable economy. This can take a relatively long time, as recognition is important in determining a reserve currency. For example, it took many years after the United States overtook the United Kingdom as the world's largest economy before the dollar overtook Sterling as the dominant global reserve currency.[7] Schenk has shown in her 2009 study that in 1944 (Bretton Woods) the US dollar was chosen as the world reference currency whereas it was only the second currency in global reserves.[7]
The G8 also frequently issues public statements as to exchange rates. In the past due to the Plaza Accord, its predecessor bodies could directly manipulate rates to reverse large trade deficits.

[svinayak]

A report released by the United Nations Conference on Trade and Development in 2010, called for abandoning the U.S. dollar as the single major reserve currency. The report states that the new reserve system should not be based on a single currency or even multiple national currencies but instead permit the emission of international liquidity to create a more stable global financial system.[23][24][25]
Countries such as Russia and the People's Republic of China, central banks, and economic analysts and groups, such as the Gulf Cooperation Council, have expressed a desire to see an independent new currency replace the dollar as the reserve currency.
On 10 July 2009, Russian President Medvedev proposed a new 'world currency' at the G8 meeting in London as an alternative reserve currency to replace the dollar.[26]
According to economist Michael Hudson, China has said, "we don't want to make any more foreign exchange reserve of any paper currency, because all the paper currencies are government debt currencies." China, Russia, India, Turkey, Brazil, Venezuela and oil-producing countries have recently agreed "to transact all of their mutual trade and investment in their own currencies" effectively minimizing the need, at least in the short term, for a global reserve currency.[27] And yet oil is still priced in dollars, which has brought complaints about OPEC's policies of managing oil quotas to maintain dollar price stability.[28]

[member_26147]

And how do you think the banking cartels become what they are ? Because they're the biggest banks of the most powerful economies of the day...

No one is going to make the SDR a reserve currency because it is in no one's self interest.

The banking cartels are going to make money in any country that has a fractional reserve banking system and a federal/central reserve bank. If they have an added incentive of more stability rather than inflation dilation, what do you think they will choose? That is why there are talks of a one economic system. You think the United States Government likes bleeding money and diluting the influence of dollar by outsourcing in the name of globalization? That would be very naive of you. The more countries these people control the better for them. Remember, it was not the common man who suggested SDR as a reserve currency. It was the IMF. And the cartels control the IMF.

[Suraj]

Acharya: please stop posting excerpts without attribution.

DhruvP: Your so called "banking cartel" exists on the back of whatever is the preeminent economy of the time. For them to have such influence entails their being the banking system of the economy with the greatest economic clout and trading/mercantile strength. Otherwise they wouldn't become influential enough to become such a cartel to begin with. In the process, they'll transact in the currency of the underlying economy. The cartel has controlled the IMF since it's founding. The overwhelming majority of the world's trade, commodities and complex financial instruments continue to be denominated in the USD, not even the EUR/JPY/CHF or any other, much less in SDRs. Any bank that pushes for SDRs is on the way to no longer being part of the cartel

[member_26147]

DhruvP: Your so called "banking cartel" exists on the back of whatever is the preeminent economy of the time. For them to have such influence entails their being the banking system of the economy with the greatest economic clout and trading/mercantile strength. Otherwise they wouldn't become influential enough to become such a cartel to begin with. In the process, they'll transact in the currency of the underlying economy. The cartel has controlled the IMF since it's founding. The overwhelming majority of the world's trade, commodities and complex financial instruments continue to be denominated in the USD, not even the EUR/JPY/CHF or any other, much less in SDRs. Any bank that pushes for SDRs is on the way to no longer being part of the cartel

The banking cartels have existed throughout history in every empire and kingdom, big and small. They just didn't have unchecked power until the advent of democracy. They couldn't make backroom dealings with the monarch. With the advent of globalization, the banking cartels can move through nation states, creating boom/bust cycles and load up during these cycles to become more powerful. With the arrival of capitalism in America, the bankers for the first time in history became more powerful than the executive branch of the federal government. They immediately started systematically buying out or pushing out the elected legislators and pushing for legislation that served their interests. Look up the quotes of Thomas Jefferson on bankers. Woodrow Wilson was a sellout of bankers who gave in to the creation of a federal reserve system. The reason given to the public was to control the wild boom/bust cycle but that was a ruse. The boom and bust still happen but the cartel don't go out of business. They make bets that make them wildly rich during these cycles and if they make bad bets, they are bailed out by the government. There is no risk! So, now that both the executive and legislative branch of the US government is in their pocket, they are trying that in other countries. Any country that resists will be termed as an enemy. China's political system is still not under the control of the cartel but they opened up the economy, so the cartels profits increased since their investments in the outsourcing corporations increased. So they are playing the game. Eventually, Chinese leadership will be subjugated either by carrot or by stick. Now that the stakes of the bankers are worldwide, they are not tied to the dollar alone anymore. They want a systematic migration to a one world currency. And they will have it.

[Suraj]

And why have the supposedly omnipotent cartels not moved to the SDR for the last 45 years ? In that time the USD has gone off the gold standard, PRC became the factory of the world, Japan rose and stagnated, the EUR came into the picture, there were multiple economic and equity boom/bust cycles and the USD is *still* the reserve currency by a wide margin. Good conspiracy theory though. I'm surprised there has been no reference to the Rothschilds, Skull and Bones and other shady sounding names

[TSJones]

I would also point out a particularly thorny issue that comes with being the reserve currency: lender of last resort. It's really a big deal not ony within the economy of the country with the reserve currency but also the global economy.

Now you might think "so what, the central bank just gets its money back with interest after the crisis is over". This is true generally, but there are no guarantees. For instance, recently congress got very angry when it thought the Fed *might be* stepping in to help out the Euro. The Fed didn't perform any long term help but did provide some short term help *and* got its money back much to the relief of the Tea Party. So it is a verfy sensitive issue. Back in the 90's a number of Asian currencies went under water and the Fed (under Alan Greenspan) refused to step in and made the IMF do it instead. There were problems with it and the Asians were not happy.

The Fed under Bernanke is much more interventionist. When the crash in 2008 happened there were a number of foreign banks that the Fed stepped in as lender of last resort, Deutsche Bank in particular comes to mind. There were rumblings from political activists about that as well. But they got the help.

So if there is a true global reserve currency, SOMEBODY with great big gonads is going to have to step in and be lender of last resort. It will take somebody who believes in intervention, somebody who understands austerity is only called for when times are good not when times are bad, and somebody who genuinely believes that capitalism while not perfect, is better than any other economic idea yet invented.

[svinayak]

Chinese are suckers

[member_26147]

And why have the supposedly omnipotent cartels not moved to the SDR for the last 45 years ? In that time the USD has gone off the gold standard, PRC became the factory of the world, Japan rose and stagnated, the EUR came into the picture, there were multiple economic and equity boom/bust cycles and the USD is *still* the reserve currency by a wide margin. Good conspiracy theory though. I'm surprised there has been no reference to the Rothschilds, Skull and Bones and other shady sounding names

Don't put words in other person's mouth. You're a moderator. You should know better.

I never said the cartels are omnipotent. They were vilified by Andrew Jackson during his presidency but they regrouped. They lost almost everything during the second depression because they couldn't time the market except for the Rothschilds but they still regrouped. The key word is globalization. Their stakes are now worldwide. During the world wars, their stake was in Western Europe and United States. Their profits multiplied during globalization and that is the reason why globalization is here to stay despite multiple overtures by Obama. And since globalization is here to stay, one reserve currency will be attained if the bankers win. And this is advantageous and fair to every country. Why should one country be allowed to randomly left only for others to hold the bill when it defaults?

[wong]

As for the Chinese, my view is that they'll lose around $1-1.5 trillion of their forex holdings no matter what they do. That's just too much hoarded nominal holdings to effectively manage. The far east Financial Times edition a couple of days ago reported how NO one wanted to head the CIC, which is in the agency in charge of investing the Chinese forex reserve load. Even the vice-mayor of Shanghai ran away like a cowering SDRE - no small matter considering all chosen nominees have to explain their rejection to the President and Premier, who head the committee to find the new head. The problem is that everyone knows huge losses may be hidden on the books, and no one wants to kill their career by being the scapegoat.

57% of CIC assets are outsourced to professional money managers around the world. The sovereign wealth fund only has $500 billion in assets. To lose $1 Trillion dollar is impossible. Even if it was possible, it would be a 20 sigma event and pretty much the end of the world. If you mean China will lose 50% of its $3.2 Trillion forex, short of a selective default by the US, that also would be pretty much impossible. The day the US defaults on its debts is the day the US dollar ceases being a reserve currency. If you mean the dollar will collapse, that's also pretty much impossible as long as the US military guarantees the Arabs must accept US dollars in trade for petroleum. In the meantime, China will continue to buy as much commodity real assets as possible with its American IOUs. It just bought $7 billion worth of pigs yesterday.

[svinayak]

PRC is a sucker