Re: [OPE] Ken Rogoff wins the funnies prize

From: wpc <>
Date: Fri Oct 09 2009 - 15:41:17 EDT

Jurriaan Bendien wrote:
> Perhaps we should discuss "dollar hegemony" some more.
> (1) Given that there is about $6-7 trillion in global USD reserves
> (depending on how you estimate and value the total), then if you want to get
> rid of much of these dollars (for example because they are inescapably
> depreciating in value), and trade in another currency, who is actually going
> to BUY those dollar claims (the problem of convertibility)?
This is a good point. But in order to produce a decline in the value of
the $ all that is required is for a significant group of holders to try
to change out of dollars. If quantity of dollars attempting to be
converted to EUROs exceeds the attempt to convert in the opposite
direction, the price will fall until some of the EURO holders change
their view due to the fall in the price of the dollar.
> (2) The second problem is, once a big sell-off of USD is set in motion, can
> you prevent this from rapidly lowering the value of the USD, providing a
> disincentive to sell more, and creating a political backlash? (A sudden,
> massive sell-off of the USD would be equal to a "run on the banks").
The effect is more likely to be self accelerating with the dollar being
sold short in the futures market.
> (3) The third problem is: if you succeed in selling off a large chunk of
> USD, can you cope with the global political fall-out of all this?
It is more likely to come about via individual overseas banks, including
state banks, trying to diversify their portfolio. If there is an
anticipate slide, whilst it is true that taken as a whole, overseas
holders of dollars can not shift out of dollars, any one individual
holder has an incentive to shift out before the fall.
> Unfortunately most "Marxists" don't understand this problematic at all.
> Jurriaan
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Received on Fri Oct 9 15:45:14 2009

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