Dollar Standard in Jepordy

The Greater Fool Argument of finding someone who will purchase your property for a greater price in unstable conditions.

I think that it is irreverent at this point. How many people will get hurt in this exchange?

Answer, the whole world.

Real Estate is not our greatest asset in jeopardy. Personal bankruptcy and ruined lives aren’t either. The greatest threat is ubiquitous.

Right now the major threat to the US and its people is the ending of the US Dollar Standard. The US dollar is the world’s reserve currency. This means that all other currencies are measured to the US dollar.

Other countries keep assets and financial paper denominated in terms of the US dollar. They do this to hedge against fluxuations in their own currencies. This has given the US a dominant roll in world finance.

Since the US has a negative trade balance, foreign banks are collecting enormous amounts of US dollars and financial paper. Foreign banks have so many US dollars in their banks that if they were to trade them for assets denominated in another currency, the US dollar would decline.

Since the US financial paper is a huge amount of foreign banks assets, if the dollar would to decline substantially, it would lead to a foreign banking crisis.

This has shielded the US from a decline in the buying power of foreign goods. Foreign banks cannot do anything with their US dollars except to buy more US financial paper.

This is why our sovereign debt and mortgage backed securities (MBS) have such low interest rates. When MBS’s are low mortgage rates are low as MBS are mortgages that have been converted to bonds and sold on the international market.

If we go through a housing crash than the monthly payments to these bonds would be lessened to a great degree. This would cause untold banking crisis all over the world.

In order to save the international banking system the government would have to try to bail out the defaulting mortgages. The amount would be in the trillions of dollars.

I think the government would have to create “new money” because in the event of massive housing crash all of the lending sources oversees would be unavailable.

In times of crisis lending is very hard to come by. Superpowers have defaulted on debt in the past. US sovereign debt may not be viewed as a safe investment at that time and liquidity may dry up.

I also believe that the amount involved is just too large. Bailouts need to be done fast. Even if you could borrow trillions of dollars, could you do it fast enough?

We may very well find out.

If foreign lenders did in fact buy our sovereign debt, then what would they do with the money. They already have too much financial paper in terms of the US dollar.

This action would increase the amount to ludicist new heights. What would they do with the money, buy more US debt, assets, or securities?

The government would have to borrow money just to pay on the debt, not that we don’t already, but I think we couldn’t deny it any longer.

Countries would have to seriously look at their relationship with the US dollar standard. I am willing to bet that their analysis will not be favorable to us.

I would think that countries holding colossal amounts of US dollars would have to start to get rid of them or the investments would become sterile.This would still lead to a steep decline of the dollar and a new international banking crisis.

The dollar standard would be over forever. No longer could the US keep on piling up debt like it has for the last 80 years.

Our way of life would change forever.

Chromatic Dispersion