Prior to the 1930’s Americans could trade their U.S. dollars for gold. During the Great Depression the US government stopped that and made it illegal for Americans to use gold for money.
On the other hand foreigners could trade any U.S. dollars they had for gold up until 1970. The US dollar was good for world trade because it was backed by gold.
Since then the US government has gotten off the gold standard and has been printing boatloads of dollars that are backed by nothing more then the paper they are printed on. And because of that the world is leery of using American dollars for the world standard of money.
And that is what this article is all about. An American dollar that is backed by nothing but paper and treated as gold thru out the world.
Arabs don’t like giving us boatloads of oil in exchange for dollar bills that are worth only the paper they are printed on.
The Chinese and Japanese don’t like shipping us freighters full of high tech gizmos in exchange for dollar bills that are worth only the paper they are printed on.
And the Europeans free the same way. They don’t like giving customers in the USA their valuable products and raw materials in exchange for dollars that are worth only the paper they are printed.
There has to be a crash sometime. The only question is when will the overpriced American dollar that is worth only the paper it is printed on crash?
Whodunit? Sneak attack on U.S. dollar
REUTERS/Mark Blinch Eamon Javers Eamon Javers – Thu Oct 8, 1:43 pm ET
It’s the biggest mystery in global finance right now: Who conducted a sneak attack on the U.S. dollar this week?
It began with a thinly sourced but highly explosive report Monday in a British newspaper: Arab oil sheiks are conspiring with the Russians and Chinese to quit using the dollar to set the value of oil trades — a direct threat to the global supremacy of the greenback.
Is it true? Everyone from the head of the Saudi central bank to U.S. officials scrambled to undercut the story, but no matter.
With the U.S. economy on the ropes and America by far the world’s biggest debtor, investors aren’t feeling as secure about the dollar as they used to. And the notion of second-tier economies ganging up on Uncle Sam didn’t sound so far-fetched.
For American officials, the possibility of the dollar losing its long-term dominance in global commerce is a nightmare scenario because it would likely mean sharply higher interest rates at home and a declining ability to finance the U.S. debt. No one believes it could really happen right now, but stories like the British report this week make it seem incrementally more likely.
So the piece by Robert Fisk of the Independent shocked currency traders around the world and almost instantly sent the value of the U.S. dollar spiraling downward and the price of gold skyrocketing to an all-time high, as a hedge against a weakened dollar.
The website drudgereport.com quickly amplified the impact of the story with a headline atop the site: ARAB STATES LAUNCH SECRET MOVES WITH CHINA, RUSSIA, FRANCE TO STOP USING DOLLAR FOR OIL TRADING ...
“You read that story, and you do two things: You sell the hell out of dollars and you buy gold,” said Les Alperstein, president of the financial research firm Washington Analysis. “The story has a lot of credibility, with some caveats.”
So who wanted dollars diving and gold rising? In other words, who is Fisk’s source, and why did he or she want to tank the dollar? It’s the global currency version of the old Washington parlor game of speculating on the real identity of Deep Throat.
No one knows.
But one thing is for certain: With the price of gold jumping to $1,048.20 per ounce, traders who moved early enough stood to make millions.
So in government circles in Washington, speculation immediately centered on gold traders: With the skyrocketing price of gold, they’d be the biggest beneficiaries of the article.
Fisk’s story itself isn’t much help in solving the mystery — it is sourced vaguely to “Gulf Arab and Chinese banking sources in Hong Kong,” and it included one blind quote, attributed to “a prominent Hong Kong broker.” That doesn’t narrow down the pool very much.
The story doesn’t name any officials who had allegedly participated in the secret meetings involving the Arab states. It didn’t say where the meetings occurred or when. Other than saying the plan is to stop using the dollar by 2018, there was precious little detail to the account.
Around the world, traders turned to Wikipedia to find out more about Fisk himself. There, they learned that Fisk is a legendary British foreign correspondent who has been based in Beirut for more than 30 years and has won a slew of journalism awards. They also learned that he is one of only a few journalists to have interviewed Osama bin Laden (three times) and that he has expressed doubts that the United States has told the full story about the Sept. 11 attacks.
An analyst’s report from the Royal Bank of Scotland concluded, “Fisk is a veteran of the Middle East. ... he is also increasingly associated with more radical theories thus weakening the credibility of the story.”
Beyond the specifics of the story, the geopolitical implications of the report sent shudders from Riyadh to London to Washington: Has the long-dominant American economy been so humbled by the economic crisis that these nations would mount a frontal attack on the dollar, the underpinning of the world’s biggest economy?
That question is on the minds of global investors, who are keeping a skittish eye on the weakening dollar. And over the past several months there has been a steady drumbeat of Chinese, Russian and other officials who have talked openly about finding a replacement for the dollar as the global economy’s default currency. Any effort to do that would be fraught with difficulty. But however unlikely, the possibility represents a threat to the American economy, which has come to depend on the significant advantages it reaps from minting the currency most used around the world.
In another era, the dollar could shrug off such a vaguely sourced, thinly detailed story.
But not anymore.
The dollar is weak and vulnerable to rumor-mongering because many traders believe it will only get weaker. “The fundamental reason why this occurred is that after 9.8 percent unemployment on Friday, nobody can say with certainty that the recovery is sustainable,” said one analyst familiar with the situation.
“In years past, when the U.S. economic dominance was more pronounced and emerging markets were marginal players in the global economy,” noted an analyst’s report from HSBC, “the debate on pricing commodities in currencies other than the [U.S. dollar] typically came down to the lack of practicality. ... Today, emerging markets are clearly wielding much more influence in the global economy, and they want more, as will be borne out in this week’s IMF meetings.”
And that means U.S. officials whose job it is to defend the dollar may have their work cut out for them in the months to come.