A friend of mine, a very smart local restaurant owner, had a long talk broadly on this subject yesterday. We both believe the same thing: 1) the US government and other major governments have been negotiating and executing for a long time on a smooth as possible transition from the US dollar being the world's reserve currency to using special drawing rights (SDRs) as the reserve currency. 2) This will badly effect the economy of the USA for several years and the economies of other countries for a much shorter readjustment period of time. 3) A lot of moves to reduce privacy and rights is an attempt to make sure that society remains civil during this transition. 4) It is crazy to not be at least a little prepared by having 3 or 4 weeks of water and food in your home just in case there are supply disruptions.
We also talked about the normalization bias of most people we know - people are so uncomfortable talking about this that they simply deny the possibility of this happening. Best thing: do a little prep work, try not to take on new debt, and after preparing live life and don't worry about the future.
The argument, that makes sense to me, is that other countries pay a high "tax" for the US dollar being the world's reserve currency, and they don't like it.
I don't read ZeroHedge but my son in law does.
My attitude is that the things to do to prepare for "The Death of the Dollar" are the same things that make sense even if this does not happen (or happens far in the future): don't take on extra debt, have job skills that are globally valuable, keep a reasonable amount of emergency supplies in your home (the US government has a web site with recommendations: http://www.ready.gov/kit (except I would argue having more than just a few days of emergency supplies, a few weeks would be better)).
Then why would the US go along with allowing the dollar reserve currency to go away? Answer: they won't go along with it at all.
There's no strong replacement for the dollar, and looking out over the next 20 years, there are none even on the horizon. An independent digital currency perhaps, but that would be outside the realm of the context you're talking about.
China is one of the most indebted nations on earth, even more so than the US, and the Yuan isn't a first tier currency. As they accumulate ever more debt, it's going to guarantee their currency is never trusted globally.
The Euro is practically ripping itself apart at this point, and always had to (unless they choose to go all the way as a union). After seven years of zero growth, the ECB has taken to debasing Euro members standards of living to reduce debt and artificially (and temporarily) juice the economy. Unlike with the US QE program, in which dollar inflation is substantially exported and others pay part of the QE cost, the Euro members will bear almost all of the cost of the debasement there.
The other major currency, the Yen, is aggressively being debased by the Japanese government, because it's bankrupt and can no longer afford to pay the interest on its debt. While simultaneously the Japanese people have stopped saving, in an economy that hasn't grown in 25 years; which means the government has run out of sources to borrow, forcing them into currency devaluation to reduce debt (hammering Japanese standards of living).
So there are the major competitors, all in terrible shape.
The US will do a lot of things before it allows the dollar standard to go away.
Just 5% interest on the US national debt would bankrupt the government (or wipe out social security or the military). Zero chance they just roll over and allow it to occur, much less actively sign on to such a thing.
Thank you for your well thought out reply, I appreciate it.
I still argue that using the dollar for country to country trade and commerce (where neither country is the USA) is in general not good for either country if they can negotiate a fair rate of exchange between their own currencies. This is letting market forces work as they should work. What we have in the USA with the Federal Reserve is far from free market capitalism (source: Katherine Austin Fitts (solari.com), and I agree with her - she compares our current system to Soviet era style central planning).
There are trading blocks that are increasingly trading in their own currencies and in a few cases there is not much my country (USA) can do about it. Recently there have been large trade and cooperation deals between China and Russia and I would bet that they will not be using the US dollar, similar to the BRIC (Brazil, Russia, India and China) trading block.
Unless anyone mistakes me for a pessimist, I think the long term outlook for the USA is pretty good. Our advantages are great natural resources and relative geographic isolation. In the future after we adjust to much of the trade in the world not denominated in the US dollar, I wouldn't be surprised if we don't end up in good shape again like we were in the 1990s.
Sorry, in my other reply I didn't state any hard evidence. Assuming my theory/prediction/opinion is true, it is unlikely that there would be a public release of information concerning secret inter-government negotiations.
However, this did happen: 1) three countries (Iran, Venezuela, and North Korea) in the early 2000s publicly stated their intention of going off of the US dollar for trading (the first two, Iran and Venezuela are oil producers). 2) shortly afterwards, all three countries were labeled "axis of evil" states. I am no fan of any of the governments of any of these countries but it seems like more of a coincidence that strong actions were taken right after the declarations to go off of the dollar. In addition to sanctions against Iran, shortly after Venezuela made its announcement, the US Navy had it largest ever peace time prolonged naval exercise right off of the coast of Venezuela.
So, I admit that I personally don't have any hard evidence, just my own analysis. That said, I thought that I made it clear in my top level comment that what I was saying was the shared opinions of my friend and I.
You claim the US is going to sign on to a gradual removal of the US Dollar global reserve currency, switching to SDRs.
Then you claim that the US Government is very aggressively fighting to prevent such an outcome. And is so powerful, it can apparently wreck the world's 27th largest economy (Venezuela) without so much as breaking a sweat.
I don't think that I am contradicting myself. My government can be negotiating a slow burn transition off of the dollar, while still digging in its heals when that makes sense.
Maybe I am just being too optimistic, but given my belief that year after year the US dollar will be used less in international trade and business, I HOPE that my government negotiates to make the transition as slow and painless as possible. Some countries we will be able to bully and some countries we can't.
I subscribe to Katherine Austin Fitt's solari.com report - she and her guests usually seem very well informed. She was the under secretary of HUD in the George H. Bush administration, but got it some trouble for publicly speaking about how US government finances work. She claims that Dick Cheny tried to ruin her life.
I also like James Rickards' two books "The Currency Wars" and "The Death of the Dollar."
Thanks for posting that. SDRs are a basket of currencies, including the US dollar.
The thing that will change, if I am correct in my prediction, is that all countries whose currencies are part of SDRs (including the USA) will have a difficult time printing money out of thin air.
Can you explain what SDRs are and what the implications of such a move would be, in particular why it would be disruptive and why major governments would want it?
We also talked about the normalization bias of most people we know - people are so uncomfortable talking about this that they simply deny the possibility of this happening. Best thing: do a little prep work, try not to take on new debt, and after preparing live life and don't worry about the future.