Saturday, January 29, 2011

Confessions of a consummate dollar hoarder

This post can be taken as part 2 of my post Diary entries of a consummate dollar pegger.

2000 – I am on a mission. The mission is to accumulate as many dollars as I can. The recent financial crisis here in Asia made me realize this. He who has the most dollars is most safe. Funders will leave any country that they think has a shortage of dollars, hence, making the problem worse. The capital flight makes dollars even harder to come by, and makes the country need the dollar even more. I resolve to have enough dollars to pay for my needs. Everything in this world is denominated in US dollars. You need US dollars to pay for everything – oil, diesel, food, precious metals, cotton, all sorts of commodities. Nobody will take my currency because they think it might depreciate. Nobody will take my currency because they think I’m not good for it. But everybody will always take the US dollar because it’s the world’s default currency. They can take it everywhere else too because everybody accepts the US dollar. Hence, I will make myself the biggest holder of the US dollar. I shall never have any shortage of it, and everybody will come to me to borrow it when they need it.

2002 – I am on a roll! I am the world’s biggest net exporter. Everybody pays me in US dollars. I am getting more of it than I know what to do with. But I cannot stop now. It’s like opium- the more dollars I get, the more of it I need. Why? Because I need it to buy the raw materials for my products. I need it to fund my relentless expansion. Most important, I need the jobs that being the world’s biggest exporter creates.

2004 – I now have more dollars than anybody else, except for the Americans themselves. I have more than I will ever need, and yet I get more. Everybody pays in US dollars, and I dare not accept any other currency. And the only way I can continue creating my domestic jobs is to have a continuous export surplus. The only way that will continue is for someone else to continue having a deficit.

For what it’s worth, the Americans are my biggest customers. They spend like there is no tomorrow! They have a deficit, not only with me, but with everybody else in the world it seems. Why do they keep doing that? Don’t they know that having continuously large trade deficits causes their currency value to go down? Why do they keep on consuming? Do they only think of themselves? Why do they not think about my precious dollar hoard? What will happen to its value in the long run? I have to start spending it now before it loses al value. But how do I do that without losing my precious trade surpluses? I don’t want to give Americans the advantage. I want to be the biggest baddest net exporter ever.

And what about the other net exporters to the US? Why do they keep on doing it? Don’t they know that this cannot go on indefinitely? If they all accumulate US dollars, then I get no advantage with my dollar hoardings. If everybody has US dollars, no one will come to borrow it from me. Everybody else will just drive its value down. That means everybody loses. Well, everybody, that is, except…….oh shit!! Everybody loses except for the Americans! They get to consume more than they can afford!

They have this great privilege because theirs is the default currency, so that makes the US dollar their currency, and everybody else’s problem. They get to continue having a trade deficit because everybody needs the US dollar. Everybody thinks they need the US dollar, even though everybody already has too much of it (well, everybody except me!)

2006 – Every one is just going mad! Everybody keeps selling to the Americans for US dollars, and the American just keep printing more of it! They print it to fund their citizen’s borrowings! They print it to fund their government’s borrowings! So they keep on consuming, and buying stuff from everybody. Every American is now indebted up to their eyeballs and yet everybody still keeps selling to them. These foreigners need to stop doing it! Don’t they realize what it’s doing to the value of my own dollar holdings? I also need to stop selling to the Americans, but nobody else is coming up to the plate to replace them as a net deficit trader. I am ready to start accepting someone else’s currency, like the Euro, or the yen. But these Japs! And these Krauts! They also think they have to be net surplus exporters. They shouldn’t do that! Everybody cannot be a net exporter. For every net exporter, there should be a net importer. And that net importer can never be me, so they should step up to the plate and import! Why do they not do it?

2008 - I am now very worried about the value of my dollar holdings. I am still the biggest exporter, and I continue to get US dollars. I no longer need more of them, as I have more than I could ever need. And yet, I don’t want to start spending it. I have to keep exporting, not start buying. What to do? I can foresee the price of all commodities going up in the future. My people are starting to demand more luxuries. And the value of all commodities, still foolishly denominated in US dollars, can now be expected to go up in the future, as the value of the US dollar will likely go down, if the tsunami of dollar printing continues. I have to do something. I will start buying commodities. Everything I can put my hands on. I need to spend some money, but I don’t want to spend it on other people’s work. I will spend it on stuff that will become dearer when the US dollar loses value. I will now buy up all the precious metals I can find – copper, nickel, gold. I’ll buy cotton, I’ll buy oil, all the commodities that will go up with dollar depreciation.

2010 – I now have more US dollars than I’ll ever need, and now I have more precious metals than I’ll ever need! What am I going to do with all this stuff? Americans are no longer spending like they used to. Many of them have lost their jobs (Ha! If they haven’t been so foolish, I would not have managed to snag some of these, and they wouldn’t have managed to bring their economy down to its knees with their silly financial maneouvers!) Now with Americans no longer consuming as much, who is going to buy my precious commodities? They have all gone up in my price because the dollar has been losing value, and also because I have been buying up everything in sight. But now who is the greater fool who will buy this stuff from me?

2012 – Why does no one step up to the plate? These Germans, these Japs, the French and the British – they should all be net consumers by now. Otherwise, why do they still keeping calling themselves the developed economies? They should be buying from me, so I can avoid having to sell more to the Americans, and they should start buying more from the Americans. Americans have not been buying as much, and neither am I inclined to get more of their mickey mouse money. So why does no one care? I have had a talk with all these other nations, and we now trade with each other in our respective currencies. But unless they start buying more from the Americans, the Americans will continue to incur deficits, and continue to destroy the value of my dollar holdings. They have to come and save me!

2014 – Nobody accepts US dollars anymore. All my trading partners accept each other’s currency, but not the American’s currency. My dollar holdings’ value continues to plummet! Do I dare start incurring a trade deficit with the Americans? Unthinkable! And yet Americans continue with their trade deficit. It seems they no longer are interested in making stuff anymore. All they are good at making is more US dollars!

2016 – I use some of my dollars buy up American real estate. That only ends up increasing the value of their real estate, making the Americans feel richer. Now they’re starting to spend again! What? More trade deficits for them? What about my dollar holdings?

2018 – There’s another real estate bust in the US! Now I have a lot of worthless dollars, a lot of worthless metals, and I have a lot of worthless American real estate! These Americans continue to confound me!!!

2020 – The Americans have finally spent themselves into a black hole, and have decided to abandon the dollar. Now they’re issuing an entirely new currency, and all my dollars, accumulated after all those years of hard work and self restraint, they’re all worthless! Damn these people! I curse the day I ever decided to accumulate someone else’s currency. I was no better than if I had accepted seashells for my wares. Woe is me.


The Arthurian said...

An excellent tale, sir.

Rogue Economist said...

Much obliged,my good man.

Greg said...

Loved it!

I think a nice twist would have been for the "dollar hoarder" to come to the conclusion that they could just send each unemployed American a check for 1000 dollars a month to keep them consuming.

Rogue Economist said...

Ah, if only he would realize that!

This is just like if he were to send America billions in foreign aid denominated in his own currency, contingent on it being used to buy more of his wares. But only Americans are ingenious enough to think of something like that. This thinking probably only comes naturally if your currency is the global default.