GOODBYE, DOLLAR, HELLO WHAT????, DROPPING THE DOLLAR AND WORLD PRESTIGE

It was inevitable; the value of the dollar as a world reserve currency is now in jeopardy as a result of the mindless social engineering and tinkering with the worlds most robust economy, and economic engine.

Think of it this way: if there is a lot of something, anything-apples, wheat, corn, oil, DOLLARS, its market value drops.

Well, our government is at work creating a plethora, an oversupply of DOLLARS created though the deficits and all the related out of control programs.

There will be dollars increasing by leaps and bounds all over, and as their supply becomes worth less, since if everyone has dollars, why would their value go up?

What this means is that today, if you want to buy something for $100, next month or next year, someone will want to get $110 for that same item since there are dollars everywhere.

Oh, that may also be $120 or $150, depending on the demand of the product which itself will carry a perceived value by consumers. It is sort of like the supply of $50 tickets to the world series....when there are no more tickets, it takes more dollars to buy one $50 ticket.

If the perception becomes that the dollar will fall in value, vendors, producers of goods and services will will demand to get more of the dollars for their product, as they perceive it having less value.

That is called inflation, that destroys the value of your savings, that destroys the value of your labor-the salary you get buys less goods and services as prices for everything go up.

It only gets worse.

China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.

In an essay posted on the People’s Bank of China’s website, Zhou Xiaochuan, the central bank’s governor, said the goal would be to create a reserve currency “that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies”.

Analysts said the proposal was an indication of Beijing’s fears that actions being taken to save the domestic US economy would have a negative impact on China.

“This is a clear sign that China, as the largest holder of US dollar financial assets, is concerned about the potential inflationary risk of the US Federal Reserve printing money,” said Qu Hongbin, chief China economist for HSBC.

Although Mr Zhou did not mention the US dollar, the essay gave a pointed critique of the current dollar-dominated monetary system.

“The outbreak of the [current] crisis and its spillover to the entire world reflected the inherent vulnerabilities and systemic risks in the existing international monetary system,” Mr Zhou wrote.

China has little choice but to hold the bulk of its $2,000bn of foreign exchange reserves in US dollars, and this is unlikely to change in the near future.

To replace the current system, Mr Zhou suggested expanding the role of special drawing rights, which were introduced by the IMF in 1969 to support the Bretton Woods fixed exchange rate regime but became less relevant once that collapsed in the 1970s.

Today, the value of SDRs is based on a basket of four currencies – the US dollar, yen, euro and sterling – and they are used largely as a unit of account by the IMF and some other international organisations.

China’s proposal would expand the basket of currencies forming the basis of SDR valuation to all major economies and set up a settlement system between SDRs and other currencies so they could be used in international trade and financial transactions.

Countries would entrust a portion of their SDR reserves to the IMF to manage collectively on their behalf and SDRs would gradually replace existing reserve currencies.

Mr Zhou said the proposal would require “extraordinary political vision and courage” and acknowledged a debt to John Maynard Keynes, who made a similar suggestion in the 1940s.

What this means is that sometime in the future, if you want to get that cuddly toy from China, the one your three year old is screaming for, you have to possibly buy it in "Chindollars" (I made that name up), or whatever, and pay the exchange rate for that new currency. Your dollar is now at the mercy of the other currency's value.

It still gets worse.

All foreign trade, all purchases of oil, foreign goods etc., will then also be settled in the new currency, which will be converted from the dollar, or you have to buy it, by selling your dollars.

Now what happens, when all the parents in america have to buy 50 million cuddly toys using Chindollars?

THEY HAVE TO SELL THE US DOLLARS TO DO SO, that's what!.

What happens when a lot of people have to sell something, like their US DOLLARS to get Chindollars?

You got it; it GOES DOWN IN VALUE.

So, that is your short lesson to watch for the future value of the dollar.

I read that the administration said that "we will emerge from this stronger than ever!".

Now how exactly will this action make the USA or its currency, the DOLLAR, stronger than ever?