Thursday, April 9, 2009

Spare a dollar, buddy?

Interesting piece by Gillian Tett in the FT. When hedge fund managers talk of moving out of the American money and into gold and the Chinese call for a new neutral reserve currency rather than the US note, there’s no doubt the dollar is heading for choppy waters.

The question is whether it is just a bit of turbulence or a big, epoch-making moment. The US is heading for a seriously big deficit and will stoke inflation to ease the debt burden. This should seen the greenback being dumped. Unless the US cons the world into believing its Ponzi scheme, sorry economy, delivers real assets to back all these new dollars.

Hence the call for a gold standard. As Ms Tett points out that fallen god of finance, Al Greenspan, thought this way in the 1960s.

But the US will not give up the dollar's role so easily. Because the dollar is the world's reserve currency, the US government can outspend any rival. The power to issue money is intimately related to the power of a country. No country, least of all America, will give up power that easily.

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