There is a lot of talk by people who know that there is a coming collapse in the derivatives market. What a lot of folks aren't talking about is the range of options that a collapse can bring.
It could be a house of cards that falls down and leaves nothing. A true worldwide collapse. I think this is unlikely.
It could be a complete devaluation of the Dollar and the start of a reboot of the American financial system. "Nuevo Dollores" so to speak.
Or it could just be another "too big to fail" moment and some behind the scenes deals are made and the public gets screwed.
Or it could be much ado about nothing. After all, this is imaginary money we are talking about. The court system may handle this in the normal fashion of broken contracts and bankruptcy. I mean, 78 Trillion dollars doesn't exist, so it makes sense that as one company folds under and that debt falls into bankruptcy protection that the whole exposure on the derivatives market will be more of a controlled implosion than a sudden crisis.
So what will it really mean? Well I think there is a high likelihood that the dollar will lose a lot of international confidence and suffer as a result. I also think that people who have their money in the stock market will be somewhat insulated as the market increases in value to the same rate that the dollar declines. I think that commodities will be insulated simply because they are commodities.
Subscribe to:
Post Comments (Atom)
3 comments:
I have thought about this a lot. Not sure, though it is possible, about a collapse parse but the dollar losing it's premier status (though the Euro already got that going) will likely continue. Think of the British pound or any other currency which for awhile enjoyed special status. More than now it will strengthen and weaken based on actual numbers not hope and dreams.
I agree that unless a weakening dollar tanks the economy, stocks should be fine. Of course commodities are commodities.
If the dollar is no longer the worlds reserve currency which a collapse would certainly bring we are screwed. Don't know about other commodities but oil isn't just priced in dollars, other countries have to buy oil with dollars. That's why every country has to have dollars in their reserves. The most straight forward way to get dollars is to sell goods to us. Don't know how bad having the world choosing a basket of currencies instead or whatever would be but it would have all kinds of unforeseen consequences.
I'm with Robert Kiyosaki (the "Rich Dad, Poor Dad" guy). The chances of the dollar surviving intact is essentially zero. The BRIC countries (BRIC block? - Brazil Russia India China) are trying to create a basket of their currencies plus some amount of commodities to be the new world's reserve currency. Russia and China agreed to trade with each other in their own currencies and not use dollars at all. China is divesting itself of dollars by buying incredible amounts of stuff - not just metals, but metal mines.
Actually, the early signs of the dollar collapse are everywhere, and include the commodity bull market we're in. Yes, there is some speculation, and some supply vs. demand dyanamics to it, but much of the increase of gold from $250 in Y2K to $1700 today is the slow-motion collapse of the dollar.
As Adobe Walls said, there will be many unexpected consequences to this.
Post a Comment