Nice global reserve currency you've got there...

[xthread]

The US Dollar is presently the prevailing global reserve currency.
This means that foreign governments hold their reserves in dollars (instead of gold), multinationals denominate their transactions in dollars, and so on. It also means that the US essentially gets a continuous loan from the rest of the planet to operate, in exchange for not screwing the currency up. This also provides some significant disincentive to other countries to piss us off too much, because anything they do that hurts us hurts themselves even more. When the Dollar stops being the planetary reserve currency, we'll have to be a bit more careful with our finances, which will hurt.

It looked like the Bush Administration had managed to screw that up, by running up the US structural deficit too much. However, while the entire planet is engaged in a full-on run on the world stock market, they're busily fleeing to... (wait for it)...

US Treasury bills. Yes, that's right, the US financial system is in a bad way, the US economy is guaranteed to be in a nasty recession, the US Gov't is about to borrow a non-trivial fraction of the US national debt to recapitalize our banking system, China (our largest creditor) has been diversifying out of treasuries since the spring (under the rule that if someone owes the bank a million bucks and can't pay, they have a problem, but if someone owes the bank ten million bucks and can't pay, the bank has a problem), European banks are in a world of hurt because they bought too much US Fannie and Freddie debt (thinking that it was US Gov't-backed) and have had their own subprime meltdowns, China has been on a fast growth track because they were the US' backyard manufacturing center, but their expansion is going to be in a world of hurt because of our recession, Russia had been running a fine resource-export economy (albeit with a really pushy foreign policy), but that's now going to bite them in the ass because world resource demand is tanking in response to the first world recession, Iceland has managed to run up a serious banking collapse with credit-default swap exposure of nearly four times their GDP...

And people want to buy T-bills, because that's the least risky thing on the planet to be holding on to at the moment. At the very least, it will be really cheap for the US Government to finance recapitalizing our banks.

Comments

[jeffpaulsen.livejournal.com]

Yeah, it's a hell of a thing. Our conversation a couple weeks ago about how this whole situation was hastening the end of USD as the global reserve standard --- but that is NOT going to happen now.

What neither of us realized then, and Stuart reminded me of not long after, is the INSANE exposure of non-US financial organizations. While we fretted over the wisdom of having let some companies run at 12:1 or 20:1 leverage, Deutsche Bank was at 50:1.

While this means that there's no safe haven anywhere from this crisis anywhere in the world, it also means we probably won't see gross devaluation of the dollar relative to anything. It feels like this increases the chances for a soft landing somewhat.

[a-steep-hill.livejournal.com]

Bizzare.

As it was recently pointed out to me

If you had purchased $1,000 of shares in Delta Airlines one year ago, you would have $49.00 today.

If you had purchased $1,000 of shares in AIG one year ago, you would have $33.00 today.

If you had purchased $1,000 of shares in Lehman Brothers one year ago, you would have $0.00 today.

But, if you had purchased $1,000 worth of beer one year ago, drank all the beer, then turned in the aluminum cans for recycling, you would have $214.00.

Based on the above, the best current investment plan is to drink heavily & recycle. It is called the 401-Keg.

Funny thing being...

[sinicism.livejournal.com]

...that it may be China, India, Brazil, etc with their currency reserves that end up bailing out some of the "first world" economies like Iceland, Switzerland, etc....

[japlady.livejournal.com]

poke poke...

I had a giggle over this..

[justicar.livejournal.com]

Over the diplomatic incident between the UK and Iceland that has occurred.

Iceland went bankrupt a day or so ago (as in the country itself) evidently as it was supporting the banks, then realized it had over extended itself reportedly 50% beyond their GNP.

So they then stated they wouldn't guarantee the funds invested, etc.

A large part of the UK local councils and charities had their money in said banks. Icelandic Banks having done a massive business within the UK.

So the UK invoked the Terrorist Powers act or some such, and seized Iceland's assets within the UK.

I understand Iceland first said something on the lines of 'oh well, we can always go back to fishing' until someone pointed out that their primary customer was, you guessed it, the UK.

From what I have heard in snippets from the media, Iceland is now playing nice nice and in talks with the UK gov over the issue. On the lines of can we have our stuff back....please?