Wednesday, December 16, 2009

Demise of the Dollar

Sometimes I blog about things related to the economy, because it's such a big issue today. The dollar's days as the world's reserve currency are dwindling. I don't know exactly how it will play out, but there are more and more signals that other nations are getting out of dollar-denominated investments.
Last month the reserve bank of India exchanged dollars for 200 tons of gold. And today there's some news coming out of the Gulf states. They are planning to introducing their own currency (the "Gulfo") as an alternative to the dollar. The full story is here.

What does this trend mean for Americans? We need to get our financial house in order. Up to now we've been able to borrow money from other countries to finance our deficits. But with government spending spiraling out of control, wise people in other countries realize what many Americans do not: there is no reason in the world for them to finance our profligate spending. And what will happen when the U.S. Treasury holds an auction for T-bills and nobody buys? Americans will have to finance their own government's out of control spending. And with so many people in debt, there's no way we as a country can continue to live beyond our means. But imagine the social chaos that will occur when government checks stop arriving: whether they're Social Security checks or any other type of entitlement. Think it can't happen? It's happened to other countries and there's no law of nature that says the United States will always be prosperous no matter how reckless we are.