"Reserve currency doesn't mean that other nations peg the value of their money to the dollar, which is how you were using the term. Most major currencies float, which means the market sets the exchange rate. If these currencies were pegged to the dollar there would be a constant exchange rate, and it hasn�t been like that in nearly 30 years."
MacLorry -
You are confusing two entirely different things. Yes other nations do in fact depend on the value of the dollar to give their currency its value. Yes, the market does set the exchange rate. The USD is what backs the currency of other countries. However, that is not the only factor involved in setting the exchange rates between currencies. Lets take Japan for example. When Japan recently decided to devalue their currency to enhance their ability to export their products, they simply printed more yen, thus devaluing their currency. They did not change their reserves, but they did increase the supply of Yen thus diluting the value of the Yen in the world market.
"I posted the number using the most gold the U.S. Government ever held, and to have enough dollars to replace the current money supply the official exchange rate would need to be over $15,000 per oz. If it takes $1,700 to buy an oz of gold today and tomorrow it takes $15,000 to buy that same oz of gold, that's devaluing the dollar relative to gold, particularly if you then are backing dollars by gold. Remember, for the dollar to be backed by gold the exchange rate is set by the government, not by markets, so we would be locked in, but other nations could still buy and sell gold on the $1,700 per oz market price. There's no law saying other nations have to follow us over the cliff.
In order to be backed by gold the government must set the exchange rate by law (fiat) and be willing to both buy and sell dollars for gold at that official rate, at least with other governments. So Canada could use their gold reserves to purchase dollars at $15,000 an oz and then use those dollars to buy U.S. property and goods. The same for China, Europe, Russia and every other nation. If we increased the dollar price to compensate, that would mean something that sold for $1,000 would have to sell for $8,823 to represent the world market value of gold. If we didn't do the 882% inflation we would end up with lots of gold, but the world would own the U.S."
I don't mean to be offensive, but it is obvious that you still do not grasp the concept of real money. Currency and money are not the same thing. Without backing our currency by something SOON, the rest of the world WILL own the US in the very near future. Our currency is well on its way to becoming worthless.
Let me explain by going back to something very basic. The purpose of the Federal Reserve is to keep the economy moving without going too fast which would result in massive inflation. The Fed is like the gas and brake peddals on a car. They lower interest rates (gas) to spur the economy, or raise interest rates (brake) to control inflation. The Fed has had interst rates set at 0 to .25% for about two years. They are trying to spur economic growth, but have been unsuccessful. Next the Fed tried to spur the economy with "Quantitative Easing" which is a politically correct way of saying that they printed more money. This has also failed to spur the economy. So lets look at the tools that the Fed can still use. Interest rates can not go lower, so that is not an option. The only thing they can do is print more money. Printing is a problem with the rest of the world because we can not sell our Treasuries. The Fed has been buying over 70% of all the Treasuries we have sold for quite some time. The rest of the world does not have faith that we can or will repay them. The Fed simply "creates" the money to buy our Treasuries, which is how we are financing our deficit spending. So when it comes time to pay up on maturing treasuries, we simply gin up the printing presses (or do it on a computer balance sheet) and hand over the money. If you were China, and bought a 5 yr treasury at 2% and waited to maturity, only to discover that the dollar that you invested 5 years earlier has been devalued by the fed by 20% as a result of Quantitative Easing, would you be anxious to invest again????? Probably NOT! With that being said, the Fed has already printed much to much currency, and the only reason the USD has not crashed, is because other countries have also been printing more currency. This is a major factor in why exchange rates are constantly changing.
In addition, because we are the worlds reserve currency, when we print more money, it dilutes the value of all of the US dollars in the world - - - - not just the dollars in the US. We thereby export much of our deficit spending. The rest of the world pays for part of our deficit spending when they hold US dollars. This is the reason that other countries are trying to create a new reserve currency. They are tired of paying for our deficit spending.
Now lets talk a little more about inflation. Inflation is a function of the amount of currency chasing products and services, and the velocity of that currency. The amount of currency is an easy concept to understand, but most people do not understand velocity as it relates to currency. In short, "velocity" is how fast the currency moves in the economy. In a healthy economy, dollars change hands quickly. In our current economy, people don't spend as much and velocity slows. If the US economy ever picks up again, inflation will be massive. So far, we have seen the price of the neccesities of life inflate very quickly. This inflation has been quite evident in all commodities. Just look at what has happened to the price of energy, cattle, hogs, metals, lumber, grains etc. etc.. This is what we can expect the price of everything we buy to do if the economy ever tries to recover.
As far as mike762 is concerned, I think he has done his homework and has a very good understanding of the subject at hand. I really hope that this exchange of ideas will remain in the realm of discussing facts and not dive off into personal attacks.
