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Originally Posted by Astrocreep  If its easier to spend in america wont more people abroad want to use the US as a resource for cheap goods like we do in china? Isnt that a plus? I honestly dont see a downside like some of you doom and gloomers do. Does anyone here feel financially repressed by today's economy? |
The problem is that the Chinese currency (rmb) is tied to the US dollar and does not float freely. So no matter how low we go, the RMB stays relatively the same to Europeans, Canadians, etc and so its always going to be cheaper to get stuff done there due to labor markets. The US is no longer a real manufacturing base anyways, we have become more of a technological base (which India and China are eyeing) and a consumer (spending) economy.
Currency de-valuation is tied intimately with inflation, because eventually the goods and services we buy from foreign countries have to increase in price as they won't sell stuff at a loss. So inflation will begin to rise.
As inflation gets higher and higher very bad things happen. To take the extreme, look at Zimbabwe where inflation is 4000%+ a year. Prices on items double every week (in the black market, the government has tried to "fix" prices in the open market which means almost all goods have been driven to the black market).
For a less extreme example, look at Argentina a few years ago. It got to the point where they had too much debt and the interest payments per year were unpayable. So they defaulted on their debts. Almost immediately all foreign investment pulled out and their currency went into a free-fall. Millions lost their jobs, real estate market crashed, etc. It took 3-4 years to recover but its more or less back to where it was before the crash.
I'm not saying we are near Argentina, but the effects of a worldwide loss of confidence in the US dollar will be pretty brutal to not just us but everyone in the world. Sadly its already begin, and a few more things will just hasten the collapse. The middle east repricing petrodollars into petroeuros, China selling off its treasury reserves, further housing market collapses in the US, etc all could lead to a unwillingness by the world economic market to purchase US treasuries.
