Originally posted by RedDg
Ok, if that's true (or close to it), educate me. Why ?
To remain solvent, and to keep US citizens at the standard of living they have become accustom to.
http://www.census.gov/foreign-trade/balance/c0004.htmlLast year alone the US had a $650,929,000,000 trade deficit. That means the US got $650,929,000,000 in actual goods and services above and beyond what it exported. In exchange for these goods and services the US issued $650,929,000,000 in promisary notes or IOUs. These IOUs came in the form of the US dollar. As you can see by the data I linked to, this trade deficit has been growing incredibly for years and 2005 looks to be another record breaker.
With such a presistant and massive increase in the supply of US dollars you would expect the value of the US dollar to fall. And it has, but not nearly proportional to the amount of increase of supply. The reason for this is because the central reserve banks of the various nations which the US has a trade deficit buys them off that nations exporters.
For the purpose of the following example lets say that the US exports nothing to Canada (Canada has no demand for US goods and or services, or the US doesn't produce any goods or services that Canada wants).
A Canadian exporter sells some wood to a US importer. Because their is no demand for US stuff the Canadian exporter takes some US dollars in exchange. Now there is nothing he can do with those US dollars. He can only use them to buy US stuff and there is no demand for it. He can't pay his employees, creditors etc with them, he and his employees etc live in Canada and need to be paid in Canadian dollars. So he exchanges then at his bank. The Canadian Government, through its central reserve bank, buys them off the bank. In order to do that, it needs some Canadian dollers. So, it taxes the citizens to get the money. It buys the US dollers and sticks them in a vault never to be seen again.
In effect, the Canadian tax payers are paying for that wood. And the US is getting it for free.
This has been going on ever since the world went off the gold standard. There are now trillions of US dollars sitting in central reserve banks all around the world. Promisary notes in exchange for trillions of dollars of goods and services the US has already recieved.
This is usually where people have a few questions. First, "Why the hell are the governments of those nations continuing this insane practice?"
For one, politians are corrupt, ****ing retards who don't understand basic economics. The unions pull out some crappy socialist arguements about how people working is inherently good for the economy (pay one guy to dig a hole, and another to fill it in). Crappy economists say the same thing. And the US government (Bush at a recent G8 meeting said this), tell them that propping up the US dollar is good for them as well. And certainly the exporters tell them it's good.
Second, "Why the hell do the tax payers of those countries put up with it?".
They don't even know it's going on...for the most part.
At this point of the dicussion, well meaning Americans usually ask, "Well why don't those countries that the US has a trade deficit with buy more US goods and services." Firstly, if there was more of a demand for US products the situation wouldn't be what it is in the first place.
Secondly....well secondly this is what makes the article posted interesting. That's twice now that China has tried to buy a US good/service and was told to go **** themselves. Of course the damn Chinese company might not even exists. But the one that tried to by Unical certainly did.
Where does this lead?
Well, China can't buy what it wants from the US with the US dollars it has so those hundreds of billions of US dollars in it's central reserve bank is useless to them. But they can sell them for currencies from other countries that do want to trade (more equally) with them. The problem with that for the US (and other countries that hold on to their US dollars) is that supply of US dollars
in circulation goods up quite a bit. Because their is a greater supply, value drops.
Now other countries realise that their hundreds of billions of US dollars sitting in central banks aren't worth what they were. And they also start unloading them to get some value from them. It escalates, hyperinflation hits the US dollar until they are worth thier inherent value...a piece of paper with the picture of a dead President on it. US standard of living falls, and all the typical societal issues that come with it arrises.
Some people might say that the US currency defaulting is a rediculous proposition. But it has happened twice already. Once in the 1930s, and the goverment's reaction was to steal everyone's gold. And once in the 1970s, and the government's reaction was to convince the world that it didn't matter and the money didn't need to be backed by gold and that it magically had an inherent value.
For further reading the socialist fallacies I brought up and many others. I recommend the brilliant and extremely accessible for the laymen (such as myself), "Econonics in One Lesson" by Henry Hazlitt.
http://www.amazon.com/exec/obidos/tg/detail/-/0517548232/002-6821247-0673656?v=glance
