Dollar Melts and Bush takes no action, page 2

This is an extremely complex topic that most people have very great difficulty understanding. Go back and read each of the splendid posts by MrNice, he really has a deep understanding what is going on, and explains things extremely well.

I will try and put it much more simply.

By agreement the US dollar was made the world currency shortly after the second world war. All world trade was carried out using US dollars as the medium of exchange, and this was true up until very recently.

Every country had to earn export dollars in order to pay for it's imports, but all payments were made using US dollars. The countries own currency was either allowed to float, or was tied to the US dollar.

This put the US in the wonderful position of being able to print its own US dollars, whereas other countries had to earn theirs by buying them with exports. It was like the US had a printing press in the basement. Everyone else in the street has a job, but the US has a printing press.

There is far more to it than that, but that is just the basic idea.

Other countries were quite willing to do this because the US dollar was backed by gold. Your green dollars could be exchanged for gold at any US bank, so everyone was happy, and it worked well.

The first problem arose during the Vietnam war. Nixon was printing far too many green dollars to pay for the war than there was gold to back them. Too many people asked for the gold in exchange, and the trick was soon exposed as America then looked like running out of gold.

Nixon then took the US dollar off the gold standard in 1971, and the US dollar has been backed by absolutely nothing ever since.

The US continued to print vast amounts of new dollars, and this made America even more prosperous, as it bought up cheap imports, especially cheap oil. The living standard in America rose very quickly with cheap oil. All these imports were paid for with worthless paper. The Euro emerged shortly after this as a competitive world currency, but it never really caught on at the start.

The whole world became awash with excess US dollars, and many of them went into the stock market boom that continued up to about 2000. Vast amounts of money bid up the stock market technology boom. Americans became still more prosperous.

A lot was going on behind the scenes in secret. The gold price was artificially kept low, to hide inflation, and OPEC countries were threatened and coerced to continue to accept US dollars for their oil.

Then, Saddam was the one to stand up to America and DEMAND to be paid in Euros for his oil. He went to the UN and successfully had the food for oil deal changed so he could be paid in Euros. The US was absolutely furious because it set a dangerous precedent. Bush spread this rubbish about WMD and the war on terror, and invaded Iraq as a lesson to other OPEC countries.

All of Europe were quite happy to see the Euro be accepted for oil, it set a new precedent. So Europe stayed out of the Iraq war. Iran also threatened to accept Euros for its oil, but later backed down. The way it is now, other countries like Russia are now accepting Euros, and it is spreading.

America can no longer use the threat of military force, to compel the rest of the world to accept its unbacked worthless US dollars. The US dollar is now slipping fast. There is nothing Bush can do about it now.

The problem is that the US has lived for far too long on free money. While the rest of the world has to work and be competitive.

To catch up to the rest of the world, the US living standard is going to have to drop a very long way indeed. Most Americans just cannot understand why such a prosperous country can suddenly go totally broke.

Unfortunately the future for the US dollar now looks very grim indeed. The big bluff no longer works.

[edit on 20-11-2004 by Warpspeed]