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Just an idea but I feel like I need a remedial class and, judging by the collective brain cramp over EJ's last post re. Japan's debt deflation experience, I suspect I'm not alone.
So here goes...
What is the itulip answer to the objection that there is no good alternative to the dollar as a reserve currency? What will the world move to? A basket including gold, oil etc? (Sounds familiar - maybe this has been stated already. I know EJ has suggested that some sort of form of gold backing or anchoring is now inevitable - that struck me as a major development in the thesis.)
Have the difficulties in making this transition really been discussed here enough?
I came across a handy notion called the Triffin dilemna (Wikipedia):
In order to maintain the Bretton Woods system the US had to:
a) run a balance of payments current account deficit to provide liquidity for the conversion of gold into US dollars. With more US dollars in the system the citizens began to speculate, thinking that the $US was overvalued. This meant that the US had less gold as people starting converting the US dollars to Gold and taking it offshore. With less gold in the country there was even more speculation that the $US was overvalued.
b) run a balance of payments current account surplus to maintain confidence in the $US.
If you strip away the gold anchor and just say... provide liquidity to the world economy I think you can update this and it captures the problem quite neatly. If you then add the mercantilist countries dulling the threat of a vote of no-confidence you basically have our world.
If you accept that we've reached a tipping point or puke point where the ability of the US FIRE economy has reached the limits of its ability to produce debt vehicles with any plausible claim to being payable in anything other than a severely depreciated dollar you still haven't answered the question of what the alternative is and what the dificulties, limitations, instabilities in these alternatives might be.
If there's one thing an (admittedly dilletante's) study of economics has shown me its that its never going to be a question of whether you are going to have problems but more which problems you're going to have.
So here goes...
What is the itulip answer to the objection that there is no good alternative to the dollar as a reserve currency? What will the world move to? A basket including gold, oil etc? (Sounds familiar - maybe this has been stated already. I know EJ has suggested that some sort of form of gold backing or anchoring is now inevitable - that struck me as a major development in the thesis.)
Have the difficulties in making this transition really been discussed here enough?
I came across a handy notion called the Triffin dilemna (Wikipedia):
In order to maintain the Bretton Woods system the US had to:
a) run a balance of payments current account deficit to provide liquidity for the conversion of gold into US dollars. With more US dollars in the system the citizens began to speculate, thinking that the $US was overvalued. This meant that the US had less gold as people starting converting the US dollars to Gold and taking it offshore. With less gold in the country there was even more speculation that the $US was overvalued.
b) run a balance of payments current account surplus to maintain confidence in the $US.
If you strip away the gold anchor and just say... provide liquidity to the world economy I think you can update this and it captures the problem quite neatly. If you then add the mercantilist countries dulling the threat of a vote of no-confidence you basically have our world.
If you accept that we've reached a tipping point or puke point where the ability of the US FIRE economy has reached the limits of its ability to produce debt vehicles with any plausible claim to being payable in anything other than a severely depreciated dollar you still haven't answered the question of what the alternative is and what the dificulties, limitations, instabilities in these alternatives might be.
If there's one thing an (admittedly dilletante's) study of economics has shown me its that its never going to be a question of whether you are going to have problems but more which problems you're going to have.
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