Cannabis Prices & The Coming Devaluation of the Dollar

Chief Rbud said:

the dollar will be gone in 5-10 years and replaced with a currency of their choosing.

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Sour Joe said:

So is it like this? a dollar dont mean crap as long as the gold behind it isnt there. Seeing as the inflation of the us is causing more physical dollars to be put in circuit, the gold behind it is being stretched to basically nothing a pound. As the Us continues to trade and acquire debt, as they pay off this debt the dollar reducing significantly as the gold is being paid back to people we owe. When there is no more gold the dollar would mean zero to the rest of the world and trading ceases. Is this the way its going?

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bobblehead said:

welcome to crazy town

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By BARRY EICHENGREEN

The single most astonishing fact about foreign exchange is not the high volume of transactions, as incredible as that growth has been. Nor is it the volatility of currency rates, as wild as the markets are these days.

Instead, it's the extent to which the market remains dollar-centric.
Consider this: When a South Korean wine wholesaler wants to import Chilean cabernet, the Korean importer buys U.S. dollars, not pesos, with which to pay the Chilean exporter. Indeed, the dollar is virtually the exclusive vehicle for foreign-exchange transactions between Chile and Korea, despite the fact that less than 20% of the merchandise trade of both countries is with the U.S.

Chile and Korea are hardly an anomaly: Fully 85% of foreign-exchange transactions world-wide are trades of other currencies for dollars. What's more, what is true of foreign-exchange transactions is true of other international business. The Organization of Petroleum Exporting Countries sets the price of oil in dollars. The dollar is the currency of denomination of half of all international debt securities. More than 60% of the foreign reserves of central banks and governments are in dollars.

The greenback, in other words, is not just America's currency. It's the world's.

But as astonishing as that is, what may be even more astonishing is this: The dollar's reign is coming to an end.

I believe that over the next 10 years, we're going to see a profound shift toward a world in which several currencies compete for dominance.

How could the dollar's longtime most-favored-currency status be in jeopardy?To understand the dollar's future, it's important to understand the dollar's past—why the dollar became so dominant in the first place.

First, its allure reflects the singular depth of markets in dollar-denominated debt securities. The sheer scale of those markets allows dealers to offer low bid-ask spreads. The availability of derivative instruments with which to hedge dollar exchange-rate risk is unsurpassed. This makes the dollar the most convenient currency in which to do business for corporations, central banks and governments alike.

Second, there is the fact that the dollar is the world's safe haven. In crises, investors instinctively flock to it, as they did following the 2008 failure of Lehman Brothers. This tendency reflects the exceptional liquidity of markets in dollar instruments, liquidity being the most precious of all commodities in a crisis. It is a product of the fact that U.S. Treasury securities, the single most important asset bought and sold by international investors, have long had a reputation for stability.

Finally, the dollar benefits from a dearth of alternatives. Other countries that have long enjoyed a reputation for stability, such as Switzerland, or that have recently acquired one, like Australia, are too small for their currencies to account for more than a tiny fraction of international financial transactions.
What's Changing

But just because this has been true in the past doesn't guarantee that it will be true in the future. In fact, all three pillars supporting the dollar's international dominance are eroding.

First, changes in technology are undermining the dollar's monopoly. Not so long ago, there may have been room in the world for only one true international currency. Given the difficulty of comparing prices in different currencies, it made sense for exporters, importers and bond issuers all to quote their prices and invoice their transactions in dollars, if only to avoid confusing their customers.

Now, however, nearly everyone carries hand-held devices that can be used to compare prices in different currencies in real time. Just as we have learned that in a world of open networks there is room for more than one operating system for personal computers, there is room in the global economic and financial system for more than one international currency.

Second, the dollar is about to have real rivals in the international sphere for the first time in 50 years. There will soon be two viable alternatives, in the form of the euro and China's yuan.

Americans especially tend to discount the staying power of the euro, but it isn't going anywhere. Contrary to some predictions, European governments have not abandoned it. Nor will they. They will proceed with long-term deficit reduction, something about which they have shown more resolve than the U.S. And they will issue "e-bonds"—bonds backed by the full faith and credit of euro-area governments as a group—as a step in solving their crisis. This will lay the groundwork for the kind of integrated European bond market needed to create an alternative to U.S. Treasurys as a form in which to hold central-bank reserves.

China, meanwhile, is moving rapidly to internationalize the yuan, also known as the renminbi. The last year has seen a quadrupling of the share of bank deposits in Hong Kong denominated in yuan. Seventy thousand Chinese companies are now doing their cross-border settlements in yuan. Dozens of foreign companies have issued yuan-denominated "dim sum" bonds in Hong Kong. In January the Bank of China began offering yuan-deposit accounts in New York insured by the Federal Deposit Insurance Corp.

Allowing Chinese companies to do cross-border settlements in yuan will free them from having to undertake costly foreign-exchange transactions. They will no longer have to bear the exchange-rate risk created by the fact that their revenues are in dollars but many of their costs are in yuan. Allowing Chinese banks, for their part, to do international transactions in yuan will allow them to grab a bigger slice of the global financial pie.


Finally, there is the danger that the dollar's safe-haven status will be lost. Foreign investors—private and official alike—hold dollars not simply because they are liquid but because they are secure. The U.S. government has a history of honoring its obligations, and it has always had the fiscal capacity to do so.

But now, mainly as a result of the financial crisis, federal debt is approaching 75% of U.S. gross domestic product. Trillion-dollar deficits stretch as far as the eye can see. And as the burden of debt service grows heavier, questions will be asked about whether the U.S. intends to maintain the value of its debts or might resort to inflating them away. Foreign investors will be reluctant to put all their eggs in the dollar basket. At a minimum, the dollar will have to share its safe-haven status with other currencies.

There will no longer be an automatic jump up in the value of the dollar, and corresponding decline in the value of other major currencies, when financial volatility surges. With the dollar, euro and yuan all trading in liquid markets and all seen as safe havens, there will be movement into all three of them in periods of financial distress. No one currency will rise as strongly as did the dollar following the failure of Lehman Bros. There will be no reason for the rates between them to move sharply, something that would potentially upend investors.

But the impact will extend well beyond the markets. Clearly, the change will make life more complicated for U.S. companies. Until now they have had the convenience of using the same currency—dollars—whether they are paying their workers, importing parts and components, or selling their products to foreign customers. They don't have to incur the cost of changing foreign-currency earnings into dollars. They don't have to purchase forward contracts and options to protect against financial losses due to changes in the exchange rate. This will all change in the brave new world that is coming.

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World must develop a global reserve currency
BEIJING -- The U.S.-led Western countries' advocacy of revising the way that current accounts are measured fully exposes their attempts to shift the responsibilities for the global economic imbalances to countries with a trade surplus.

Global economic imbalances are in essence a result of the imbalances in global comparative labor advantages among different countries. There are two major labor divisions in the current global economy, namely in trade and finance.

The first category is mainly represented by Germany, Japan and China, all big commodity exporters that hold a huge current account surplus, and the second is represented by the U.S. and some European countries that enjoy huge financial advantages in exporting capital and various kinds of financial products and services that contributed to their huge current account deficits.

While the global manufacturing sector has shifted from developed countries to emerging markets, developed economies still firmly retain their status as the world financial centers. Developing countries, due to their less-developed financial markets and vulnerable financial systems, have to employ established reserve currencies for their overseas trade pricing, settlements, lending and investments. As a result, emerging economies have to sustain bigger exchange rate and asset risks.

The huge current account deficit of the U.S. is a reflection of the current skewed international monetary order. As of Jan. 31, the total U.S. public debt was US$14.13 trillion, 96.4 percent of the country's 2010 GDP of US$14.7 trillion. By taking advantage of its long-established monetary dominance, the U.S. has a long history of credit abuse and its trade and fiscal deficits have increased far faster than production. The volume of U.S. national debts held by foreign countries and regions has kept rising over the past decade and it has issued 32 percent of the world's total bonds.

However, Washington has skillfully utilized the U.S. dollar as the world's leading reserve currency for overseas financing of its national debts and promoted their international circulation to the U.S.' advantage.

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whodare said:

unfourtunatley i have to side with crazy town here, not saying itll happen tommorrow or even that it will for sure but you can bet your ass that there are countries and people that want it changed and they sure are trying right now. if we dont END THE FED the the american dollar will be in jeopardy...

euro ring a bell?

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WEDNESDAY, MARCH 2, 2011
Pentagon Report Predicts Phase Three Economic Attack
An unclassified 2009 Pentagon contractor report “Economic Warfare: Risks and Responses” by financial analyst Kevin D. Freeman is the focus of an important article by Bill Gertz. The Gertz article, "Financial terrorism suspected in 2008 economic crash", appeared in the Monday edition of The Washington Times. Although most of the Gertz article focuses on "the first two phases", the most important information for us today is the prediction of the "PHASE THREE ATTACK":
The Pentagon report states that the evidence of financial subversion revealed that the first two phases of an attack on the U.S. economy took place from 2007 to 2009 and “based on recent global market activity, it appears that the predicted Phase III may be underway right now.”
The entire one hundred and eleven page report is available online at here at Scribd. The key section entitled "Phase Three: Collapse the Dollar, Bankrupt the Treasury" appears on page 66.
Based on the assumed nature of Phase One and Phase Two, a Phase Three attack would likely involve dumping of U.S. Treasuries and a trashing of the dollar, removing it from reserve currency status. This is clearly foreseeable as a risk and even could float under the cover of a natural outcome in much the same way that Phases One and Two potentially have been hidden.

The implications are extremely serious. If the dollar were not the reserve currency, there would be a mass dumping of Treasury instruments by foreign holders. Treasury interest rates would skyrocket, further worsening the annual deficits due to sharply higher interest payments on expanding debts. The Treasury would have to raise taxes dramatically, further dampening growth or the Federal Reserve would be forced to monetize the debt, worsening inflation concerns. Pushed to the limit, could the U.S. dollar would follow the path of the German currency in Weimar Germany following defeat in World War I.

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The first phase was a speculative run-up in oil prices that generated as much as $2 trillion of excess wealth for oil-producing nations, filling the coffers of Sovereign Wealth Funds, especially those that follow Shariah Compliant Finance.
This phase appears to have begun in 2007 and lasted through June 2008.
The rapid run-up in oil prices made the value of OPEC oil in the ground roughly$137 trillion (based on $125/barrel oil) virtually equal to the value of all otherworld financial assets, including every share of stock, every bond, every private company, all government and corporate debt, and the entire world‘s bank deposits. That means that the proven OPEC reserves were valued at almost three times the total market capitalization of every company on the planet traded in all27 global stock markets.
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The second phase appears to have begun in 2008 with a series of bear raids targeting U.S. financial services firms that appeared to be systemically significant.
An initial bear raid against Bear Stearns was successful in forcing the firm to near bankruptcy. It was acquired by JP Morgan Chase and the systemic risk was averted briefly. Similar bear raids were conducted against various other firms during the summer, each ending in an acquisition. The attacks continued until the outright failure of Lehman Brothers in mid-September. This created a system-wide crisis, caused the collapse of the credit markets, and nearly collapsed the global financial system. The bear raids were perpetrated by naked short selling and manipulation of credit default swaps, both of which were virtually unregulated. The short selling was actually enhanced by recent regulatory changes including rescission of the uptick rule and loopholes such as ―the Madoff exemption.‖
While substantial, unusual trading activity can be identified, the source of the bear raids has not been traceable to date due to serious transparency gaps for hedge funds, trading pools, sponsored access, and sovereign wealth funds. What can be demonstrated, however, is that two relatively small broker dealers emerged virtually overnight to trade
―trillions of dollars worth of U.S. blue chip companies. They are the number one traders in all financial companies that collapsed or are now financially supported by the U.S. government. Trading by the firms has grown exponentially while the markets have lost trillions of dollars
in value.‖
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The risk of a Phase Three has quickly emerged, suggesting a potential direct economic attack on the U.S. Treasury and U.S. dollar.
Such an event has already been discussed by finance ministers in major emerging market nations such as China and Russia as well as Iran and the Arab states. A focused effort to collapse the dollar by dumping Treasury bonds has grave implications including the possibility of a downgrading of U.S. debt forcing rapidly rising interest rates and a collapse of the American economy. In short, a bear raid against the U.S. financial system remains possible and may even be likely. Phase Two may have concluded with the brief market rebound that was supported by an emerging regulatory response calling for greater transparency across the board. Efforts including regulation of credit default swaps and proposed oversight of previously unmonitored trading activity, as well as Federal support of systemically vital institutions.
But, we remain left with the critical unanswered questions of who and how?
The recent seizure of $134 billion face value in supposedly counterfeit U.S. Federal Reserve bonds underscores the reality of the economic threat. This may be as significant as the Japanese radio intercepts were before December 1941. Immediate consideration of the issues outlined in this report is vital. Further study is essential and prospective responses must be crafted to address future risks. Finally, there are legitimate questions about the performance of the regulatory regime and Wall Street institutions. Implications that these parties have been complicit or otherwise co-opted cannot be ruled out. Therefore, it is strongly recommended that this study and any task-force response be conducted outside of traditional Washington and Wall Street circles.

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bobblehead said:

I think you need to finish business school before asking such complex questions. Too many factors involved. The price of cannabis doesn't move unilaterally with gold. You have to take into account economies of scale with the cannabis industry. More and more people are getting into the medical industry, more states are decriminalizing consumption... Who told you the dollar is losing power? lol... Against which currency? Do you know how the value of a currency is calculated? The yuan has been held artificially low for at least the past decade... And the Chinese are holding TRILLIONS of dollars... they're not about to let the dollar collapse, and lose their investment. Tell me of a country that's not experiencing recession now.

Like I said, you have more to learn before you can truly understand what you're asking.

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whodare said:

what's the point of this thread???

you are both saying the same thing essentially...

inflation is happening.

thing is Bobble is trying to say because the dollar is the worlds reserve currency when our dollar is devalued so is everyone elses.

until the world reserve currency changes we wont get killed with hyper inflation because the fed will continue to print money.

so we will see a rise in prices but it wont be as bad as anywhere else in the world (for now at least) because our government is printing money to pay it's own debt

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whodare said:

in time of inflation look at what the rich do with money.. they put it into physical goods.

commodities, in other-words silver, gold, wheat, rice, cotton, oil etc.

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Cheeb said:

So ....

what should we all do with the million US dollars we all have buried in our backyards?

I know - can goods and guns. But what else can be done to protect ones current paper wealth with no real means to buy substantial land for self sustaining once shit hits the fan.

backpacks and pocket knives?

-

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David762 said:

Do you think that the Chinese ... are too focused on short-term quarterly profits like we are here in the West?
No, I know that Chinese have massive savings... I also know that relationships are important to them, and they'll forgo more profit to keep doing business within the group. They tend to plan more for the future... however like I said at the beginning of this thread... If the yuan were allowed to float on the currency exchange market, the value would increase, and their exports would become more expensive... slowing their economy.

While the Chinese do hold a significant portion of the USA's foreign balance of trade deficit in USA dollars, they have slowed down their buying of USA Treasury bonds. The Federal Reserve has been printing money to buy USA Treasury bonds to loan to the USA government. That cannot last.

The Chinese economy is growing at an annual rate of 14%. They are beginning to focus on increasing the domestic consumption of their population -- and most of "our goods" are already manufactured there in China. The Chinese government will "spend" their holdings of USA dollars in the USA, while the dollar is still worth anything. They will buy our technology companies, our agricultural companies, and real estate. They will buy the futures in all of our agricultural output.
Okay, so they're going to continue making a bad investment?

There has already been a tremendous increase in talk about switching the global reserve currency to something other than the USA dollar -- it may wind up being the yuan.
True. How long did they talk about the Euro before it actually happened? The chances of the dollar crashing in a ball of fire are small imo. The chances of more people choosing to diversify their holding in various currencies rather than just dollars is probable. That will take time though.

What direction do you think that the USA economy will go when we have to buy imported oil, rare earth metals, and everything else that we import instead of extracting, creating, or manufacturing domestically?
What statistics are you reading? We're already importing oil, rare metals, etc... The manufacturing industries that are afloat are surviving because of subsidies and tariffs, not b/c they're competitive.

The Chinese, as well as a number of other Asian "tiger" economic powerhouses have populations that have dramatically higher rates of saving, including especially gold and precious metals. Do you think that their consumers will continue to buy USA dollars? I don't think so.
Tiger economies also have exploding populations...

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