Monday, March 23, 2009

"China's top banker proposes new world currency" by Stephen C. Webster

Really good article reporting that China is discussing doing what should have been done a long time ago: giving up the dollar as the world benchmark and instead having international institutions, the IMF in this case, back an international reserve currency with gold and silver. China holds billions of dollars in Treasury bonds, which will now either have to be sold to make money or will be cashed in, making the U.S. pay the dollar cost for what it promised to pay on the bonds in the first place. Both of these alternatives will be bad for the U.S., but they're made possible and inevitable because the United States abused its position as the holder of the world currency to the point where the present economic collapse could occur, financial mismanagement on a massive scale. There's no longer any reason to have faith in the U.S. economy so no reason to continue to prop it up by buying bonds with the understanding that they'll never be repaid. So how does the new spending bill fit into this?

Well, it probably depends on what steps are taken with regards to the banks. Money will be tighter because of this and it makes more sense not to sponsor a giveaway that will line the pockets of executives but instead to severely restructure the financial sector instead. Forget about being nice about it. When China starts calling in their bonds it's going to be even more unpopular for the executives who got us into this mess to receive golden parachutes paid for by tax payers. Instead, people are going to want some sort of action that works without being overly costly.

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