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The threat of hyperinflation is more real as Russia and China announce that they are renouncing the U.S. Dollar for and will use domestic currency in bilateral trade.
So, what does that mean to you, average American.
Well, first you need to understand that the only reason the US Dollar was chosen to be the World reserve currency is because, no other currency in the World was as stable as the US Dollar.
Now, that has all changed. With the Fed doing these “Quantatative Easements” which is essentially monetizing the debt, the world is wising up and moving out of the dollar.
It just dosen’t make any monetary sense for these countries to hold onto US Dollars because they are loosing money due to the fact the Fed is monetizing the debt. To make this a bit more real for you to understand, imagine for a second, you and I are countries. So, let’s say…..I want to sell you something, anything but, you can’t pay for it right now, you need to pay for it in six months, when we ultimately settle. Now, here is the problem. If your currency that you pay me in isn’t stable and it’s value drops 10% over that 6 months well, I just lost 10% on my deal.
Now, translate that to how America is purchasing money from China in the form of loans. China isn’t going to continue to loan because even if they charge us higher interest rates, we are devaluing our money so quickly, they still end up loosing millions, billions and possibly trillions of dollars before the bill is even due!
So, what does China do? They start selling off their dollars by renouncing the dollar and moving all their trade deals to their own domestic currency. In other words, they will flood global markets with so many dollars that instead of seeing dollar values drop 10% over 6 months, we can see it drop 10% in hours.
In other words, domestic US prices of goods and services will skyrocket equal to the amount of loss and because this will create panic with in the US financial system, you will see a run on banks which we all know, they don’t have the cash to pay out because of the real estate bubble bursting.
I am normally not a doomsday type of person however, when countries start announcing that they are no longer trading their goods and services in US Dollars but, instead they start selling those dollars to try and recoup whatever they can, I am afraid we may have slept through the wak up call.
The point is, the more Quantatative Easement we do, the more we end up screwing foreign countries and the less powerful our dollar becomes against other currencies. The biggest fear is that ultimately our country could end up moving towards a more socialist society in response to this mistake the Feds are making.
The IBT reports:
“We agreed to expand the possibilities for application of national currencies during trade and economic contacts,” said Russian Prime Minister Vladimir Putin after holding talks with the Chinese premier Wen Jiabao.
However, the move is not aimed at challenging the dollar but to protect their economies, as the countries started exploring other options in the wake of the global financial crisis.
With Russian ruble already trading on the Chinese exchange, yuan trade in Moscow is expected to begin in early December.
The bilateral trade between the two countries is estimated to reach above $50 billion by the end of 2010, according to the Russian government. A major chunk of the trade is transacted in US dollars currently.