Current mood:
used The United States is perceived to be the richest country in the world. In reality, though, we're the biggest debtor nation in the world. And who are we indebted to? What many consider to be a Third World country: China.
The irony is that many Americans think we're rich and China is poor. Exactly the opposite is true. This is because the removal of gold's backing from paper money has created a virtual explosion in credit and liquidity. The sheer amount of liquidity around the globe is incalculable. Therefore making China ithe largest financial market in the world, with a DAILY average volume of over US $1 trillion.
This excess funny money causes people to feel rich and almost everything to be more expensive. Today, stocks, real estate, automobiles, and gasoline become more expensive as the dollar becomes cheaper.
While some people do become richer in this system, funny money actually punishes working people who save money. It devalues the value of your work and your savings, even though you may feel wealthier.
In overly simplistic terms, China and many countries in the world today lend us billions of dollars to buy their goods. They send us products like computers, televisions, cars, candies, and wines, and we send them funny money in return.
Since they can't spend those dollars at home, they simply lend them back to us so we'll buy more of their products. That would be like me going to my local grocery store and asking them for a loan so I could buy their tomatoes. A logical person would say, "That makes no sense." Yet it's exactly what happened after 1971, and to many highly educated people -- bankers and politicians, for instance -- it somehow does make sense.
You can find current smaller examples of such financial insanity. For example, many people refinance their homes to pay off their credit cards. This makes no sense; you and I know that someday that debt will have to be paid.
Yet getting deeper into debt does make sense as long as you can repay your lender with cheaper dollars, and as long as your lender is willing to take those cheaper, less-valuable dollars. To use my earlier analogy, it would be like buying an orange for $1 on credit and then paying him back for it a year later with 80 cents. As long as the grocer is happy with this arrangement, things are fine.
In real-world terms, one of the reasons the U.S. dollar only buys approximately 110 yen instead of 360 yen today is because the Japanese allowed us to continually devalue the dollar -- that is, to pay our debts with cheaper dollars.
Over the years, the yen got stronger and the dollar got weaker simply because we, as a nation, printed more and more money, all the while consuming more and producing less. Japan would lend us money and we would buy their products. Japan's economy boomed, and so did ours.
But an even bigger problem is looming: It seems like the rest of the world is less willing to play our money game. That's why the European Union introduced the Euro. If China creates an Asian equivalent of the Euro (which, admittedly, is a long shot) then the U.S. dollar could be in real trouble.
What is Euro? It is the official currency of the European Union's (EU) member states. The euro was introduced by the EU in to the financial community in 1999 and physical euro coins and paper notes were introduced in 2002. Euros are printed and managed by the European System of Central Banks (ESCB).
The euro is abbreviated by the symbol "EUR".
The euro is the national currency of the EU member states who have adopted it, including Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Portugal and Spain. Together, these countries create what is called the Eurozone, a region where the euro serves as a common national currency for all of the separate nations.
What does that mean for America, if the oil-producing nations stop accepting the dollar and switch to gold or the Euro, things will definitely get sticky. The world might be tipped into a global recession and possibly even a depression.
For now, though, this funny money game continues. How long will it last? I don't know. I do know that throughout history, all paper money has eventually come back to its true value, which is "zero". That's when the game truly ends, and a whole new cycle of pass begins.
Work Cites:
www.ft.com
www.ap.com
www.cnn.news.com
www.businessweekly.com
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