Quote:
Originally Posted by TinyRedLeaf
Meanwhile, regarding Green2's assertion that the bailout would weaken the US dollar, he is right. In the long term, the US Treasury will have to print more money to pay for all the debt it is proposing to buy.
That would eventually lead to the devaluation of the US dollar, which would make imports more expensive. That would curb consumption, and if this happens severely enough, it could trigger a US recession. On a wider scale, the world might be tempted to abandon the greenback on global forex markets, which would further destablise the US economy. A weaker dollar also makes US dollar-denominated financial instruments less attractive to foreign investors, making it harder for the US government to raise cash to pay for the bad debts.
On the other hand, a weaker dollar could help boost US exports, and in a best-case scenario, that could help the US close its trade deficit. It would also make US assets more attractive to foreign buyers. Of course, Americans would be leery about letting foreigners buy various national institutions, but then again, beggars can't be choosers.
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The US dollar will not be devaluated by US actions alone since the US dollar (till recently) is the sole transaction currency for purchacing oil and OPEC nation's currencies are pegged to the dollar. This can only be maintained if they purchace a certain amount of dollar for every bill they instate.
Most people do not understand the implications this has to the US economy so let me elaborate.
For example, every barrel of oil bought by Japan have to be paid by US dollar so the Japanese company purchacing that barrel needed to exchage Yen into dollar and everytime a currency transaction is made a US Federal Bank made profit through transaction surcharge of 2 percent.
OPEC nations selling oil (after placing some of the dollar into national reserve), is placed into investment to another nation's economy. Keep in mind that the fund is in US dollar so if placed into another nation's economy other than the US then transaction surcharge will be subtracted from the gross amount so OPEC nation's logical choice will be to invest primarly into the US economy.
This was the main driving factor of the US economy.
This was further exceled by the entire oil future index subjagated by
WTI prices which consists of only 1 percent of the global oil transaction amount thus making it much easier to manipulate then taking on the entire global oil market.
I believe the original intent of WTI was to maintain oil prices at a low rate to ensure it will not hamper the growth of US economy but this changed substantially as institutional investors came in "investing" into this market.
Bottom line is US federal banks made tons of money out of nowhere by just changing money from one foreign currency into US dollar and then re-investing those dollars as fund by OPEC nation into other investments like sub-prime loans, stocks, and/or commodity future index and everyone was pulled into this money game like a bug attracted to a lamp post at night.
Oil transaction surchage is like heroin to the US economy(especially the federal government) and the nation as a whole should go into rehab of it.