It will happen when the pain of losses, from the loss of value of their US assets, is overshadowed by the pain of inflation (and the riots in the street from rising food prices). When? This year maybe, next year at the latest. You could argue (like some have) that they should have done this far sooner (e.g. Henry Liu in Asia Times).

“Our behavior has been and is irresponsible, and now the bills are coming due.” True, but a bit harsh on the ordinary people who have (or will soon) lost their jobs. They have had no say in the post Bretton Woods economic system developed since the 80’s (TINA and all that), those who argued against were ignored or lost their careers or even jailed. I would rephrase it as “their (as in the elites) behaviour ….”.

Also it is a bit hard to condemn ordinary people when the entire financial system has been geared to increasing their debt, with all those wonderful marketing tricks. And Govts jumping on the bandwagon. Haven’t heard a single politician saying, “hold back”, or taking a single action to stop this nonsense. Or any Reserve Bank in the world reining it in at any point. Nope, not when there was so much money to be made. Politicians regularly parachuting into very highly paying jobs in the financial industry is just the same as Generals jumping into defence companies and we all know what that achieves.

I have to laugh (bitterly) at watching the banks, etc, lining up for Govt handouts (ie our tax money, which is a bit rich because they never paid any tax - “thats for the small people”). And spending tens (or hundreds of millions) campaigning for decades on tax reductions, privitisation, deregulation, ‘globalisation’, right wing think tanks, pliable politicians, et al.

The US dollar is dead, but it is not going to be, as it should have been, an orderly (and quite logical and very beneficial to the US as well) transition. It will be an unholy mess, with very unexpected and probably very unpleasant fallout. Not 1914, more early 1929 I think. We have 1939 to look forward to (if we stay stupid).

Yeah,, something, “anything.”

MaXimillian

http://observer.guardian.co.uk/world/story/0,,2212899,00.html

“They said Opec should formally express its concern about the weakness of the dollar when the cartel makes its official declaration at the close of the summit today. But the Saudis, the world’s largest oil producers and de facto head of Opec, vetoed the proposal. Saud al-Faisal, the Saudi foreign minister, warned that even the mere mention to journalists of the fact that leaders were discussing the weak dollar would cause the US currency to plummet.”

“Unfortunately his words and those of everyone at the meeting were being broadcast via a live television feed to a group of astonished reporters. ‘I couldn’t believe it,’ said one who was there. ‘When I realised they didn’t know they were being broadcast live, I frantically started taking notes.’”

http://www.voxeu.org/index.php?q=node/587
http://www.voxeu.org/index.php?q=node/699

for those willing to try to internally translate a high-level economics discussion to English. Although still blog postings, the base articles are cited for those who want the hardcore Econ analysis.

Nweaver: Obviously I believe a blog can comment on this issue, as I just did so. Both Prof Roubini and (especially) Brad Setser (Council on Foreign Relations) comment about currency dynamics on their blogs, but their serious analysis is done in long papers. Brad’s blognotes mostly relate current news and others’ analysis to the well-developed view of his papers. (Nouriel’s work these days mostly concerns the US economy.) The subject is too complex for brief treatment. I agree that both blogs are essential reading for anyone closely following the US and global economy.

The idea that China would “stop stabilizing the RMB/USD” is, in my opinion, very unlikely. To exaggerate, it is not likely that the head of the People’s Bank of China (PBOC) will push the red button on his desk and destabilize the global economy. Central banks are among the most reactive, incrementalist, and conservative institutions humanity has ever devised. More likely private bond investors will flee the US dollar, unhappy with poor returns and worried about more losses in the future. Currency flight will put the Central Banks that are supporting the USD in a painful spot. I doubt they will want to finance other folks’ flight from a currency that they’re supporting.

Noreil Roubini and Brad Setzer have covered a lot of these issues
http://www.rgemonitor.com/blog/roubini/
http://www.rgemonitor.com/blog/setser/
(Note that Roubini is very VERY bearish, Setzer a bit less so, but both are widely regarded experts in currency collapses, currency manipulations, etc)

Felix Salmon is another source
http://www.felixsalmon.com/
although he’s a bit broader these days. If you want finance, sign up fro the finance only RSS feed.

One thing which is really interesting is that so much of the collapse could be exaggerated should the Chinese choose to stop stabilizing the RMB vs the dollar, and instead let it float. Never get in a position where the people you declare are your enemies are able to say “We’re reposessing…”

One for the 4GW theorists however, is is it possible to ENGINEER a crisis? That is, if we are waiting for a “Wile E Coyote” momement in some market, what would it take to precipitate a crisis in that market?

Also, the one other curency to add to the list of “not trouncing the dollar”, the swiss franc:
http://bp0.blogger.com/_yBU2IH33oeM/RzMJ4lxpc6I/AAAAAAAAA1s/r1FmQ2aJpIY/s1600-h/swiss+francs+per+dollar.jpg
(credit to Cactus at Angry Bear)