This article will relate to quite a few articles I have been reading on the past few days relating to finance, world finance and how the United States plays into that and how things could be quite difficult for the USA in the not-too-distant future.
The world’s reserve currency is the US Dollar. It has been since pretty soon after I was born or not long after. It used to be the British pound, but changed at that time to the dollar. There’s a couple of things that we touched on in previous blog pieces, but they’re worthy of repeating. Let’s take China and the USA. China, although it’s a totally different political system and population size, its economy is rapidly approaching that of the USA. In the not too distant future China will overtake the US economy as the world’s largest economy and this is inevitable due to its growing population. In China, banks are only allowed to loan up to 75% of its assets, where in the US that percentage is 900% (and people also save a lot more in China than they do in the US). That’s one of the reasons that the financial institutions in the states are deathly afraid of a run on the banks, or many people taking all of their money out. The reality is, is that 10% of the people actually getting their money would be a lucky figure. The money simply is not there.
There’s another number that is climbing daily which is worthy of note, and that is the size of the US total government debt, which now stands at an astronomical 59.6 trillion dollars, that equates to over $748,000.00 per US family. That is a mind-boggling amount of money, which will have to be paid or dealt with in one way or another. As a note point here the US Debt Clock is a good reference point http://www.usdebtclock.org/ The way that the US is able to continue operating is because they keep on printing money, as they hold the world’s reserve currency. Typically the amount of money kept in circulation used to depend on gold reserves held by the country. Nobody really knows how much gold is being held at Fort Knox (where the US holds its gold reserves), but there are many numbers thrown around in estimation. Obviously the reserves do have a slight bearing on the US dollar, but not in the way that we would expect – at least not anymore.
Sometime back in the early 1970’s, the US changed its focus on what the dollar was backed by, and instead of being backed by gold, it became backed by oil. All purchases of oil in the world are purchased with US dollars. Just say you’re a country that wants to buy oil (and most do), you would have to buy US dollars first. Basically to refocus what I’m saying here, the US is able to carry on with the immense amount of debt that is has at a Federal level, by printing more money, which doesn’t have anything behind it, in essence forging money (as it is created out of thin air).
The likely consequence of all of this is that the dollar will lose its position as the world’s reserve currency and that will have quite dramatic consequences in the US as they won’t be able to simply keep on printing money to finance the debt. When I realized that the US currency is dependent on oil, now you start to see quite clearly why the energy companies are so deeply engrained in the US government, and also why the US has taken either direct or indirect action in the countries that hold oil reserves. To add to this, in 2000 Saddam Hussein decided that he wasn’t going to sell his oil in dollars anymore, but in Euros. Not long after that, the US invaded Iraq in the pretense that they had some sort of linkage to 911 and held weapons of mass destruction, both of which proved to be lies. To round off this piece, one of the biggest threats that the US faces is the loss of its reserve currency status, and that could well happen, as it happened to Britain with the pound, and if that happens, the US will not be a pleasant place to be, to say the very least…