4th of July ready readers are looking at this:
Dollar Gains as China Says ‘Not Aware’ of Reserve Currency TalkJuly 2 (Bloomberg) -- The dollar strengthened after a Chinese Foreign Ministry official said he hoped the greenback would remain stable and was “not aware” of a plan to discuss a new reserve currency at next week’s Group of Eight meeting“We hope that as the main reserve currency the exchange rate of the U.S. dollar will be stable,” China’s Vice Foreign Minister He Yafei told reporters in Beijing. “This international financial crisis has fully exposed the weaknesses and loopholes in the international monetary system.”
Of course they are. China needs for the US dollar to remain as stable as possible right now. They are not ready for US markets to crumble, for the US consumer to stop consuming. Unfortunately both of those things happened and now China (and everyone else) has to deal with it. The real trick will be to see how long can China, Bernake (as long as he has a job), Geither, and the ECB can convince the world that the Emperor still has really cool looking threads.
The problem with *ANY* fiat currency (even one backed with Nukes and Latte's) is that once the lumpenmasses lose faith in it, then the game is up. The problem right now is even though people have lost faith in the greenback they have lost even more faith in *every* other currency more! The real test will come when China has another Tiananmen episode and those 50 million unemployed Chinese don't meekly go back to their hovels. I still see China and the BRICS ascendant, not through their stellar performance, buty due to the US living beyond its means for too long. Because of that, you will see periods where China looks weak (and is weak), but ultimately the US's structural deficit spending will become the dominant issue.
The only way out of this dilemma, is both Dems and Reps reign in their profligate spending and all Americans champion cuts in their favorite programs. In other words, never!
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