[quote]vroom wrote:
Wow, you mean there is no ability to conduct currency exchanges? That’s news to me.[/quote]
Currency exchange is not the point. Countries all over the world (especially ones that are growing and import a lot of oil) are encouraged to hold U.S. government securities for the simple reason that they are readily convertible to the currency that they buy their oil with. China is a perfect example. The U.S. cannot sell securities (and fund its deficit) if other countries aren’t willing to buy them. Countries like China only do so on a massive scale because they need oil so bad. Holding an assload of euros or other currency would be stupid for such a country because they would have to convert it before they could buy oil. Once they can buy oil in euros, they won’t have the inducement to hold U.S. dollars like they do now. That means that fewer countries around the world will be willing to buy U.S. securities. When that happens, it will be very difficult for our government to pay the bills and finance its debt because foreign nations won’t want to buy our debt.
We think we have so many friends and allies around the world because so many other nations are willing to trade with us and buy up our currency. Wait until the rest of the world can buy and sell their oil in euros and we’ll all get a wide-eyed look at how many friends around the world we really have. I think a lot of people in this country will be shocked when our economy is left to flap in the breeze. There will be a glut of dollars on the market as other countries start to unload them and convert to euros. When that happens, the value of the dollar will fall like a
stone. Like I said, currency exchange is moot in this context.