posted on Oct, 6 2009 @ 06:32 PM
It'S always said that the big dollar reserve holders will never move away from it because they already have so much. So therefore, the argument
goes, its OK for the US to print up a parabolic curve of ever-expanding dollars and dollar-denominated debt from here to eternity, and our pac rim
buddies will just keep sopping up all that yummy liquidity -- forever, like some kind of MC Escher illusion or perpetual motion machine.
But if that's the only strongest argument for a strong dollar, sounds suspiciously like "too big to fail," doesn't it? That argument simply might
not go over well with foreign nations that have less vested interest in propping up the US domestic economy in and of itself.
Eventually, "getting 40 cents on the dollar" for their holdings may start to look like a pretty good deal indeed to the Chinsese and Japaense if the
US stays in its slap-happy credit-creation smoke-and-mirrors mode too much longer. Heck, $0.04 on the dollar might end up being a pretty good deal.
You see, at some point, if they finally lose the last shread of their already-dangling confidence in our ability to pay them back in meaningful
currency, they may just decide to take the two-trillion-dollar hit and "mail back the keys." If the Chinese economy grows large enough and oil is
priced in terms of a "basket of currencies" rather than the dollar alone, that two trillion will start shrinking rapidly in real value, and at some
point it would make strong economic sense (especially for a centrally planned, forward-looking economy that thinks in decades rather than "makin' it
until next quarter's bonus") to simply dump the dollar and take the hit. Sure, they'd have lost a big chunk of their reserves, and it would hurt,
but if they do it fast and hard enough and are the first out the door, they'll loose less than they would by holding. I've heard heroin withdrawal
is very painful, but if you can make a go of it you're probably better off in the long run.
[edit on 10/6/09 by silent thunder]