One of our most important exports is US Dollars (we need to sell north of 2 billion dollars worth per day to keep the lights on). The main reason we are able to sell them up till now has been (1) Stability, the USD was considered as stable as gold, thus foreign nation kept them as reserves, and (2) Bretton Woods accord, the Accord stipulated that oil would be traded and priced in US Dollars. Because it was traded in USD, countries needed those USD'd to buy oil. They bought those USD'd from the USA.
The Bretton Woods accord is breaking down. Few countries are left that sell oil only in USD, mainly Saudi Arabia. Several Opec members will not trade in USD anymore (Iran, Venesuela, several more are looking to switch out Jan 1, 2008). They are looking to trade in Euro's. Countries will need fewer dollars to hold for oil purchases.
Bretton Woods accord worked while the US Dollar was respected by the US govt, as much as it was respected externally. In the last 7 yrs, the govt broke that covenant. The Administration disrespected the dollar, foreigners were left with no other choice.
Being past peak oil, the "real" value of oil will continue to rise (against solid currencies such as Euro, NZ dollar, Icelandic etc...), as well as against rising stars (Yuan, Aus Dollar, CDN Dollar), and even more so against declining currencies (US Dollar, Zim dollar).
Countries are watching their "gold equivelant" reserves of US Dollars depreciate before their eyes. They don't like that. They are not renewing their T-Bill purchases when they expire. In the last 60 days worth of auctions, more dollars were repatriated to the US then purchased (roughly 80 billion dollars short of expenditures for 60 days). The last 2 T-Bill auctions have been abysmal (anemic attendance, and not much interest at all). China, Japan etc.... are slowly (quietly) reducing their piles of USD, in exchange for Euros. This is being done quietly, not for our sake, but for theirs. If they dumped their reserves they would collapse the US economy, and more importantly their reserves value of USD would collapse. They simply want to get their "value" out of the dollars before the USD takes a shit.
The #1 export for the US has been agricultural products (raw & refined), they have been off tremendously due to water shortages, floods in some areas, basically crap yields. The rust belt is not too productive lately. One of our main exports has been our debt, and dollars. We sell our debt as though it was a product. The world has not taken to kindly to discovering that our product "debt" was misrepresented in value and solidity. They will not want to be burned again, thus our ability to finance through that channel of debt has been hammered (we acted like a 16 yr old with their first credit card at a shopping mall, drunk on shiny things. We didn't stop to think that we need to pay it back). If foreigners will lend less to us, how will we finance economy, exports, imports, inputs. I have no idea, but if USD's won't buy it, we'll need to aquire currencies which will. But we'll need to earn those Euros, can't just borrow them.
Where will we come up with the equivelant value of "2 billion dollars" (or should we say 1.4 billion Euros) per day. What happens if oil is traded in Euro's in the near future, and we need to earn those Euros. What do we have that others dont? I'm sure we have stuff, but is it unique enough that there is no equivelant elsewhere. I sure don't have the answer to that.
What will we do when we can't sell the equivelant of 1.4 Billion Euros in dollars per day. Where do we start shutting off services, and what services should we shut off. 720 billion dollars of value (or should I call it 514 billion Euros) in Govt expenditures is a lot. There are only 3 govt entities which use that kind of money, the Defense budget, health and human services, and fed reserve. We can take fed reserve off that list, 500 billion per year is just the interest paid on the US debt. Can't scratch that one.
In order to absorb that hit, all the following federal departments would need to be shut down to zero dollars: Dept of Agriculture (90 bil), Vetrans affairs (80 billion), Homeland security (50 billion), Dept of Justice (50 Billion), Department of Energy (40 billion).... then we can round off the rest to hit that target by canning the following NASA, Corp of Engineers, National Science Foundation, Dept of State, Dept of Interior, Dept of Commerce. If we canned all of those (to zero dollars) we could do it. Oh yeah....stop paying any social security, medicare or medicade. Then we can do it.
As we ponder that, lets look into the future and try to imagine that social security and whill it be worth what we've been dutifully paying into it (value wise, not just the "number of dollars").
I am really glad to see so many people thinking about this shit seriously. I don't have the answers, hell I don't even have all the questions. And some of my questions are undoubtably quite wrong.
