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| Zhang Li 张俪 (born 8 Jun 1984) is a model and actress from Guilin 桂林, China. |
This is where the Feds come into picture. The most important regulators are those taking care of the financial system as they are the ones who will determine how freely (liquidity) and safely (disposition) the credit flows. The U.S. banking system is ridiculously complicated and the top dog of regulators is The Federal Reserve regulating the bank holding companies like Citigroup and state-chartered banks. The Fed's actions are independent and therefore the Chairman can easily be considered the *second most powerful man* in America!!
The Fed's creation can be traced back a long time ago during the Panic of 1907 and was finally passed as an act in 1913. What the act said was that it gave the Fed permission to create an "elastic" currency, one that essentially means the ability to expand (print) or shrink (take out from circulation) the money supply as needed. Hence their two powerful roles: Lender of Last Resort and Dictating Monetary Policy. The Feds power was clearly demonstrated when the financial crisis and recession of 2007-2009 came about; printing money to lend to all (which is for bailouts), slash interest rates and buy up tonnes of bonds.
Malaysia's Central Bank (BNM) is similar to the Fed but with *one key* difference that we are not able to print the Ringgit at will (please do not believe our pig headed dumb ass ruling party politicians) because we are not a global currency. The ringgit has little value outside our national borders as no other country uses that for their reserve currency. The U.S on the other hand, has the Fed to issue the U.S Treasury securities and conducts Treasury security auctions and there are always buyers. And who buys them? Other countries...China holds ~28% of U.S debts followed by Japan at ~20%. U.S debt is projected to be at 100% of the GDP (the total size of their economy) by end of 2011 which is ~15 trillion dollars. All I can say is that debt to GDP ratios are irrelevant (I'll talk more in another posting). E.g. Greece had 130% and collapsed. Japan is at 200% and is in safe fiscal position.
Back to the issue. Why does the USD still hold the demand. 1. It has value 2. Intl accepted payment for G&S 3. Huge liquidity in the world financial market and 4. Been in the radar and is engraved in the world's trading infrastructure. Our Ringgit fulfills not of that and is why we can't simply print money, it will devalue it tremendously and quickly. This is also the sole reason why the U.S is a consumer driven economic country. Foods and goods are cheap because they are priced in the US dollars. Consider this:
Gas prices in the US is cheaper compared to any other country because they do not suffer from converting their own currency to the dollar (only true for countries that are weaker compared to the USD). In Europe most countries pay anything between $7 to $10 per gallon (mostly due to heavy tax). In Msia we pay about $3 per gallon but that is after subsidies. This is true for all imports which are paid in dollars and only true for the United States. And for all goods that are made using oil and gas which it mostly is, everything will be cheaper in the States. Other countries have to first change their currency into dollars to settle their balance of payments on imports and exports. This is the main advantage of being a reserve currency for the world and sadly America is abusing that state by printing more money every year and then.
Yes, of course the $$ can lose its value one day but what's the cue?? Two possibilities I can think of, one that the market decides not to use USD to price commodities. E.g. imagine when the oil players OPEC decide to use something like Yen instead. Second, that the US one day might be totally unable to repay its interest of its debt/default. You saw this year's US credit rating downgrade from AAA as the politicians bicker amongst each other. The consequences from this would be catastrophic: hyperinflation, big loss of USD value, shocking rise of interest rates, unemployment; practically an end of a nation just like Greece. The best indicator IMO is to look at the *Foreign Currency Reserves* which shows the USD declining slowly but gradually.
Source: IMF
Because I am following the 2012 Primary Debate in the US, one particular Republican candidate by the name Ron Paul intrigues me.
His stance that US has been overspending and he wants to end the Fed. As mentioned the Fed answers to no one, they don't face audits, nobody can question their actions, they are not accountable to the US Congress as well. Why is the Fed so dangerous? Money in the US now comes into existence via debt which is then used to create more debt. The Feds make funds (from thin air) available to the US government to overspend, instead revenue should be gotten from direct taxation. Whether he is right or wrong is itself another posting and is also a difficult question to answer. It's more or less an Austrian economics vs Keynesian economics. Folks and experts have been debating on this for decades. I'm an Austrian believer and I believe free market pricing is better than interventionism (which is exactly what the Fed is doing; distorting the market value).
What's to look at in the near future? Italy and Spain is on the verge of unable to service their debts. Because Germany and France (the biggest economies in the EU) won't have enough money to bail both of them out in addition to save Greece, only the US can step in to help. US banks have stakes in these countries though only a small fraction of it. The US can be tempted to save them because if Europe goes into recession US economy will falter just as they begin recovery. If they decide to help guess who needs to print more money: *the FEDS*. Dangerous times we live in which is why I wrote this post in the first place :) Next I will post on the AirAsia/MAS debacle.
Gas prices in the US is cheaper compared to any other country because they do not suffer from converting their own currency to the dollar (only true for countries that are weaker compared to the USD). In Europe most countries pay anything between $7 to $10 per gallon (mostly due to heavy tax). In Msia we pay about $3 per gallon but that is after subsidies. This is true for all imports which are paid in dollars and only true for the United States. And for all goods that are made using oil and gas which it mostly is, everything will be cheaper in the States. Other countries have to first change their currency into dollars to settle their balance of payments on imports and exports. This is the main advantage of being a reserve currency for the world and sadly America is abusing that state by printing more money every year and then.
Yes, of course the $$ can lose its value one day but what's the cue?? Two possibilities I can think of, one that the market decides not to use USD to price commodities. E.g. imagine when the oil players OPEC decide to use something like Yen instead. Second, that the US one day might be totally unable to repay its interest of its debt/default. You saw this year's US credit rating downgrade from AAA as the politicians bicker amongst each other. The consequences from this would be catastrophic: hyperinflation, big loss of USD value, shocking rise of interest rates, unemployment; practically an end of a nation just like Greece. The best indicator IMO is to look at the *Foreign Currency Reserves* which shows the USD declining slowly but gradually.
As of Q2 2011 (most recent report), there was a record $3.28 trillion in foreign government reserves held in dollars. This represents 60% of total measurable reserves, down from Q3 2008, when dollars comprised 67% of reserves. Since the percentage of dollars is slowly declining, this means that foreign governments are slowly moving their currency reserves out of dollars. In fact, the value of euros held in reserves increased from $393 billion to $1.45 trillion during this same time period.
Source: IMF
Because I am following the 2012 Primary Debate in the US, one particular Republican candidate by the name Ron Paul intrigues me.
His stance that US has been overspending and he wants to end the Fed. As mentioned the Fed answers to no one, they don't face audits, nobody can question their actions, they are not accountable to the US Congress as well. Why is the Fed so dangerous? Money in the US now comes into existence via debt which is then used to create more debt. The Feds make funds (from thin air) available to the US government to overspend, instead revenue should be gotten from direct taxation. Whether he is right or wrong is itself another posting and is also a difficult question to answer. It's more or less an Austrian economics vs Keynesian economics. Folks and experts have been debating on this for decades. I'm an Austrian believer and I believe free market pricing is better than interventionism (which is exactly what the Fed is doing; distorting the market value).
What's to look at in the near future? Italy and Spain is on the verge of unable to service their debts. Because Germany and France (the biggest economies in the EU) won't have enough money to bail both of them out in addition to save Greece, only the US can step in to help. US banks have stakes in these countries though only a small fraction of it. The US can be tempted to save them because if Europe goes into recession US economy will falter just as they begin recovery. If they decide to help guess who needs to print more money: *the FEDS*. Dangerous times we live in which is why I wrote this post in the first place :) Next I will post on the AirAsia/MAS debacle.
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