A tectonic shift
Oil touching $150 a barrel. Gold is touching $1000 an ounce. USD is falling like a dead bird. Inflation is going through the roof in every country in the world. What is going on here? World was a very happy prosperous place only 8 months ago before the US housing collapse hit the financial markets. Since then it has been one bad news after another.
This is my perspective on what is happening. A perspective made on the basis of regularly following economic news, blog sites over the past one year.
Everyone knows that dollar is the world’s reserve currency. All the commodities, minerals, metals, oil are priced in USD. Money supply in every country is controlled by their respective Reserve banks. Most of the countries maintain a peg with the US dollar i.e. they maintain a constant exchange rate with the dollar. They do this by buying dollars and giving out equivalent local currency.
Over the years USA has been borrowing to sustain its consumer binge. USA consumes more food, fuel, clothes, electronic goods etc than half of the world put together. This is when their population is only 6-7% of the total world population.
Let me explain this. US no longer produces stuff like it use to. It buys or imports stuff from say China… It pays china with USD for these imports. China saves these USD’s and uses them to produce more stuff... these are again bought by the Americans… This has been going on for quite some time now… The result of this charade is that countries like Japan, China, Russia, India, and Brazil have combined USD reserves of more than 2-2.5 trillion dollars… If you combine the gulf countries reserves this value exceeds 5 trillion dollars… What is the world doing with these dollars… They are buying Americans assets… like jaguar and land rover bought by TATA. If everyone around has loads of money and they are bidding for the same thing (say oil) the prices will go up… And this is what is happening in the world… Other consequence of this is that all these dollars buy less and less of commodities (like oil)… The real world values of these reserves are falling… i.e. if 2.5 trillion dollars could buy 2 trillion litres of oil yesterday… It would only buy 1.5 trillion litres today… I don’t know if this will happen in the future but I think the dollar as reserve currency of the world will cease to exists… People in the USA are cutting back on spending, they are buying small cars... they are getting foreclosed out of their homes… But the rest of the world is moving along steadily… It’s been said that If US economy goes down it takes the world economy with it…. Not any more… I think the world will ride out this economic downturn on the shoulders of the BRIC (Brazil, Russia, India and China) nation’s economies plus the commodities giants like Australia, Canada …. The world is changing and what we are now seeing is the beginning of transfer of wealth from west to east… I don’t know what the endgame be like… or how far it is…. But I can assure you it won’t be a smooth ride… We might see more wars and conflicts in the future… Coz last time such a transfer of wealth took place (from Europe to USA) it caused two world wars…. But once its complete the world will have no clear leaders.. It will be divided between three power blocks…. North America.. Europe…. And Asia
This is my perspective on what is happening. A perspective made on the basis of regularly following economic news, blog sites over the past one year.
Everyone knows that dollar is the world’s reserve currency. All the commodities, minerals, metals, oil are priced in USD. Money supply in every country is controlled by their respective Reserve banks. Most of the countries maintain a peg with the US dollar i.e. they maintain a constant exchange rate with the dollar. They do this by buying dollars and giving out equivalent local currency.
Over the years USA has been borrowing to sustain its consumer binge. USA consumes more food, fuel, clothes, electronic goods etc than half of the world put together. This is when their population is only 6-7% of the total world population.
Let me explain this. US no longer produces stuff like it use to. It buys or imports stuff from say China… It pays china with USD for these imports. China saves these USD’s and uses them to produce more stuff... these are again bought by the Americans… This has been going on for quite some time now… The result of this charade is that countries like Japan, China, Russia, India, and Brazil have combined USD reserves of more than 2-2.5 trillion dollars… If you combine the gulf countries reserves this value exceeds 5 trillion dollars… What is the world doing with these dollars… They are buying Americans assets… like jaguar and land rover bought by TATA. If everyone around has loads of money and they are bidding for the same thing (say oil) the prices will go up… And this is what is happening in the world… Other consequence of this is that all these dollars buy less and less of commodities (like oil)… The real world values of these reserves are falling… i.e. if 2.5 trillion dollars could buy 2 trillion litres of oil yesterday… It would only buy 1.5 trillion litres today… I don’t know if this will happen in the future but I think the dollar as reserve currency of the world will cease to exists… People in the USA are cutting back on spending, they are buying small cars... they are getting foreclosed out of their homes… But the rest of the world is moving along steadily… It’s been said that If US economy goes down it takes the world economy with it…. Not any more… I think the world will ride out this economic downturn on the shoulders of the BRIC (Brazil, Russia, India and China) nation’s economies plus the commodities giants like Australia, Canada …. The world is changing and what we are now seeing is the beginning of transfer of wealth from west to east… I don’t know what the endgame be like… or how far it is…. But I can assure you it won’t be a smooth ride… We might see more wars and conflicts in the future… Coz last time such a transfer of wealth took place (from Europe to USA) it caused two world wars…. But once its complete the world will have no clear leaders.. It will be divided between three power blocks…. North America.. Europe…. And Asia
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