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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.
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.
