KERRY WARNS of DOLLAR COLLAPSE - USD Will Cease To Be World Reserve Currency if Iran Deal Rejected

 
There are few truisms about the world economy, but for decades, one has been the role of the United States dollar as the world’s reserve currency. It’s a core principle of American economic policy. After all, who wouldn’t want their currency to be the one that foreign banks and governments want to hold in reserve?

Washington may lose the support of the EU in Ukraine, should the States refuses to implement the nuclear deal with Iran. This may also collapse the US dollar as a reserve currency, Secretary of State John Kerry said in New York as he was promoting the deal with Iran.

But new research reveals that what was once a privilege is now a burden, undermining job growth, pumping up budget and trade deficits and inflating financial bubbles. To get the American economy on track, the government needs to drop its commitment to maintaining the dollar’s reserve-currency status.

It is widely recognized that various countries, including China, Singapore and South Korea, suppress the value of their currency relative to the dollar to boost their exports to the United States and reduce its exports to them. They buy lots of dollars, which increases the dollar’s value relative to their own currencies, thus making their exports to us cheaper and our exports to them more expensive.

In 2013, America’s trade deficit was about $475 billion. Its deficit with China alone was $318 billion. dollar as the world’s most prominent reserve currency.

This means that Americans alone do not determine their rates of savings and consumption. Think of an open, global economy as having one huge, aggregated amount of income that must all be consumed, saved or invested. That means individual countries must adjust to one another. If trade-surplus countries suppress their own consumption and use their excess savings to accumulate dollars, trade-deficit countries must absorb those excess savings to finance their excess consumption or investment.
Note that as long as the dollar is the reserve currency, America’s trade deficit can worsen even when we’re not directly in on the trade. Suppose South Korea runs a surplus with Brazil. By storing its surplus export revenues in Treasury bonds, South Korea nudges up the relative value of the dollar against our competitors’ currencies, and our trade deficit increases, even though the original transaction had nothing to do with the United States. economist Michael Pettis and, notably, by the former Federal Reserve chairman Ben S Bernanke. recovery from the Great Recession, is insufficient domestic demand in America’s own labor market. exports wages

Dethroning “king dollar” would be easier than people think. America could, for example, enforce rules to prevent other countries from accumulating too much of our currency avoid exporting jobs. Japan’s intervention to hold down the value of the yen when central banks in Asia and Latin America started buying Japanese debt.

people demanded dollars, interest rates - i.e., what America would pay people to hold its debt - might rise, especially if stronger domestic manufacturers demanded more investment. negative relationship between interest rates and trade deficits higher debt.”

Others worry that higher import prices would increase inflation. artificially cheap exports and large trade deficits: weakened manufacturing, wage stagnation (even with low inflation) and deficits and bubbles to offset the imbalanced trade.







The Financial Armageddon Economic Collapse Blog tracks trends and forecasts , futurists , visionaries , free investigative journalists , researchers , Whistelblowers , truthers and many more