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competentone competentone is offline
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Originally Posted by MRM View Post
You think a trillion dollars here or there makes that much difference in the world economy? How big do you think the world economy is? The US was fully one half of the world economy as recently as the 80s. It is not any longer. Not because we are smaller, but because the world has grown so much. A billion and a half Chinese with a trillion or so US Dollars doesn't bother me.
I don't think you are understanding what I'm explaining. That trillion U.S. dollars held by the Chinese is currently out of the U.S. economy -- it is not affecting domestic prices.

The current U.S. money supply (M1) is approximately $1.4 trillion. M1 affects prices most since it is the primary "money" used in day-to-day commerce.

If $1.4 trillion of the exported dollars return to the U.S. economy because foreign entities are no longer willing to hold them, the resulting effect would represent an effective doubling of the money supply affecting domestic prices. In the simplest terms, we'd be looking at an approximate 100% inflation rate from such a doubling of the money supply. (The actual practical implications to the economy would be quite different, but would still represent sky-rocketing prices.)

Over the past five years, the dollar has lost around 50% of its value measured against other major currencies. Foreign dollar holders are becoming more and more reluctant to continue to maintain their dollar holdings. The continued actions of the Federal Reserve simply weakens the dollar even more. The dollars are being dumped; you see this in the price of oil and other commodities. All indications are that dollars will continue to be dumped and will enter our domestic economy and create massive amounts of price-inflation.
Old 06-01-2008, 05:57 PM
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