Monday, October 03, 2005

News: Chavez: Venezuela Moves Reserves to Europe: "'We've had to move the international reserves from U.S. banks because of the threats,' from the U.S., Chavez said during televised remarks from a South American summit in Brazil. 'The reserves we had (invested) in U.S. Treasury bonds, we've sold them and we moved them to Europe and other countries,' he said."

Heaven help the US and the dollar if more countries start doing this.

Posted by Bernard at 3.10.05

6 comments:

Big Gav said...

I think the Saudis are well on the way to doing the same thing (sorry - can't remember where I read this) and I have a feeling Norway has already done this as well (and they have lots of oil cash to invest).

It seems to be largely East Asian exporters and Caribbean countries (ie. "hedge funds" or whoever is funding them) holding it together for now.

There is no shortage of fringe sites speculating about how big the crash will be and if it has been deliberately engineered (which seems to just be a conspiracy theory, but who knows - right wing politics has changed shape dramatically over the past 20 years - whatever happened to the concept of fiscal discipline ?).

9:23 pm
Bernard said...

It is the East Asian central banks (China, Japan, South Korea etc) who are holding the really big dollars now. They are basically lending money to the US to plug the budget deficit and fund the Pentagon, and holding dollars and treasury notes in return. The situation is unsustainable. To some extent it is a question of who bails first, and Venezuala has most probably made a smart move to sell out before any possible dollar crash. What is the US going to do, invade them or mount a coup?

7:55 am
Anonymous said...

We'll do nothing. Why bother? Those nations have sold us actual physical goods for dollars. They have traded those dollars for promises to pay more dollars in the future (treasury bonds). All we have to do is inflate the hell out of the money supply and they'll end up getting not much actual goods in exchange for their treasury bond payments. meanwhile the actual physical goods that I have bought from them still exist. Those goods will be said to be worth $10 whereas before the big inflation they were said to be worth $1. So I have to add a zero - who cares.

Wake up!

12:55 pm
Anonymous said...

Big inflation solves all prior problems. It just means that the next day will be hard. For example, who will sell me oil the next day? The US is a big country. We have natural resources. There is no reason for us to pick the high hanging fruit now(expensive home grown resources). But it doesn't mean we can't do it some day.

Further, most of the worlds big economies depend on being able to sell to usa. It'll hurt them the day after they shut us down just as much as it will hurt us.

Really, the only essential factor is that the usa must be physically able to keep someone from coming to collect real assets in our country. Invading the USA would be difficult.

1:03 pm
Bernard said...

jeff, you are right that Asian countries hold nothing more than bits of American paper, which the US might not honour (they may already have no intention of ever paying). But as well as being a colossal loss to Asia and a major economic disruption, that would be the end of US dollar hegemony, US global economic and military hegemony. Its a kind of balance of financial terror.

8:42 am
Anonymous said...

I don't suggest that the USA dishonor its debt. I am saying that inflation/decreasing value of dollar will mean we are effectively paying less when we pay principal and interest on the bonds.

9:31 am

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