What if the World is flat?
It sure looks flat. You have to go to space to see that it’s round, even in an airplane it looks pretty flat, doesn’t it? Well, fiat currencies are like that too. We talk about Quantitative Easing as if the World is flat because Americans (who are trained to be self-centered to the point of Xenophobia from birth) don’t think of their connections to other counties on this planet. To understand the American investor is to look at this map and understand that it is not a joke…
So investors in the US discuss Quantitative Easing as if we can simply devalue the dollar and every other country on Earth has no choice but to bend over and accept our worthless currency because they are lucky we even bother to trade with them. To most American’s, it’s still 1950 and we just won the war and Europe better kiss our ass and the rest of the World better fear us or they’re NEXT. That pretty much sums up our next 50 years of diplomacy, doesn’t it?
That is the mindset that now permeates investors attitudes towards our currency which is, in fact, the World’s Reserve Currency. What does it mean to be the World’s Reserve Currency? Well, nothing more than the fact that it is held in significant quantities by governments and institutions as part of their exchange reserves. That is what our government and the Fed are now taking advantage of by printing Trillions of additional dollars and devaluing our currency, which is currently 62% of the World’s reserve holdings, although that is down from 71% in 1999 and 64% in 2008.
That’s the problem the rest of the World faces as we race to devalue our own currency – they simply can’t replace it fast enough to stop us. The only real alternative to the dollar is the Euro, which makes up 27.3% of the World’s reserves, next is the Pound at 4.3%, followed by the Yen at 3%. Let’s say, for argument’s sake, there is an even $100Tn in the World. That means $62.2Tn of it is the US Dollar and $3Tn is the Japanese Yen. No matter how irresponsible you think the US is being with it’s currency – you simply can’t buy enough Yen to replace them. There are only $27.3Tn in Euros (and they don’t look like a good bet, do they?)…
