Being a Fiat Currency (Faith Backed) - the U.S. Dollar (USD) is only as good as the full faith of the U.S. Government. The USD is NOT backed by anything, other than faith.
The government (in the simplest terms) has two sources for creating money (without monetary inflation), Collecting taxes (revenue) and Raising money by selling Treasuries (debt).
However, if we print TOO much money (regardless of reason) we may not be able to collect enough taxes in the future - thus we increase the debt. However, more importantly (while taxes are future revenue to pay down debt) - we need to finance the money TODAY. That is the function of treasuries. However if we print more than we are able to sell in the Treasury market we are now creating inflation (printing too much money).
Currently the government is printing so much money that we can't finance it. It has gotten to a point where the Federal Reserve (Bernanke) has printed $1 trillion (of which a large portion) is being used to purchase U.S. Treasuries. Why is that crazy? Because the Goverment (Treasury) is printing money and it is being funded by the Fed who is printing money. Both are printing money - so we are really NOT financing the debt - on paper it looks like it - but WHERE is the FED getting the money? They are not really able to fiance it - they are just printing it.
The US Dollar has been falling quickly as the world reserve currency. OPEC is increasing taking other forms of currency for payment for oil. China is been actively buying gold. And if that wasn’t proof of the eroding faith in the dollar , the FED is printing money to buy Treasuries (other printed money) because they know the market cannot absorb the debt.So is there a new currency coming?
Who knows – but at this point it is not out of the question. China thinks there should be a new reserve currency!
Read story:
No comments:
Post a Comment