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Last Updated on: 21st November 2013, 10:46 pm
Americans don’t have a clue. We’ve enjoyed the benefits of having the world’s reserve currency for the past century, and we don’t have any idea what life will be like without it.
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Most Americans didn’t know we had it in the first place, or what it means.
You see, the primary benefit of the US dollar being the world’s reserve currency is that we can buy foreign imports very cheaply.
As Americans, we don’t have to exchange our currency into another currency to actually buy things brought in from other countries.
Here's what that means…
Let's say you're from England and you want to buy oil from Russia. You can't just pay for your oil in British Pounds, because the oil is priced in dollars as are all commodities.
So you have to buy dollars first, and then buy your oil.
This is partly why a gallon of gas in England is $7.75, more than double the average price of gas here in the states.
And so, the value of the Pound is of great importance to the British government. In order to maintain the value of its currency, the British must produce at least as much as they consume from around the world — otherwise the value of its currency will begin to fall, causing prices to rise and its standard of living to decline.
But here in America…
We've been able to consume as much as we want without worrying about acquiring the money to pay for it, because our dollars are accepted everywhere around the world. In short, for decades now, we haven't had to produce anything or export anything to get all the dollars we needed to buy all the goods our country wants.
In the end, if all you need is dollars to buy things, then just make more dollars. And if you live in the country where dollars are produced, then you’re on easy street.
All we have to do is borrow and print more money, and then send it back overseas for something that we want.
It’s amazing how easy it is… China loans us money, and we also print a lot of money out of thin air. We take that money, inject it into our economy, and then Americans buy more cheap stuff that the Chinese make.
In fact, it could be argued that the dollar America’s most successful export!
Our Biggest Advantage Is About to Disappear
Just two years ago, the US was the only country in the world that didn’t have to pay for its imports in a foreign currency.
Now countries like China and Russia are quickly changing this landscape by accepting each other’s currency because of concerns over the US dollar, and are actively looking to do deals with other countries as well.
In the 1970s, America was the world's largest creditor. But by the mid-1980s we'd become a debtor to the world. By the late 1990s we became the world's largest debtor. And now we’re the largest debtor in the history of the world.
With all of these debts piling up, we've had to begin repaying our debts by printing trillions of new dollars.
With the latest round of “quantitative easing,” the Fed has been printing $85 billion a month. That's over a trillion dollars a year.
As our creditors figure out that this is not good for the viability of the dollar, we are beginning to have very, very big problems.
Our creditors could either completely stop accepting dollars in repayment… or greatly discount the value of these new dollars. And if we keep printing money and racking up debts like we have been, this will become reality.
Then prices of our imports will skyrocket, and conversely our standard of living will plummet.
Oh well, it was a great ride while it lasted… (What you can do about it,)