Beyond Money

An article in The Financial Times reports that Brazil and China are working toward an agreement that will enable the use of their own currencies in trade transactions rather than the US dollar. This will be a major step that will encourage other countries to do likewise, thus reducing the longstanding dependence upon the US dollar as the international payment medium. As foreign dollar holdings stop increasing or are reduced, the US government will have a harder time selling its bonds. The buyer of last resort, of course is the Federal Reserve.  As the Fed and the banking system monetize ever greater amounts of US government debt, the purchasing power of the dollar will drop precipitously.

The only thing that has supported the value of the dollar thus far has been the “great recession” in which the business sector is starved for credit and ordinary people are starved for cash; that and the abiding myth that the dollar will always be “as good as gold.” — t.h.g.

Tags: Brazil, China, dollar, dollar decline, Fed, foreign trade, purchasing power

This entry was posted on May 22, 2009 at 10:58 pm and is filed under Finance and Economics, Global Economy, The Political Money System. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.