Thursday, October 08, 2009

Brief Remarks On Paparrazi Journalism And The U.S. Dollar

We just had a constructive post on the dollar and within days a story came out dumbing down the dollar with dumbed down journalism. I don't typically comment on paparazzi-style reports except to acknowledge they exists. Yet I want to comment on these rampant rumors about pricing oil in yuan, rubles, etc and all other sorts of ridiculousness. These types of stories feed a group of society who either want the dollar to collapse or don't understanding anything about markets. Yet somehow many believe they are able to divine the future based on how they feel instead of any reasoned analysis of reality.

The utter stupidity of discussing the yuan as a medium of exchange is apparent only when you realize the currency isn't even convertible. Something the dumbed down corporate journalist reporting this story didn't seem to understand. (Can we please bring back investigative journalism and seasoned reporters which have been hacked from payrolls in the name of profits?) When it comes right down to it, who wants to accumulate foreign currency reserves in a communist country with absolutely no transparency? A country which rules by decree and not consent? Then there is the completely idiotic position held by many that China is a stable currency comparative to the dollar. I suppose none of these savants know China outright devalued its currency by 40% in the mid nineties and then continued to manipulate it for the next decade in order to accumulate their currency reserves. All while the U.S. government did absolutely nothing in response. Now today the Chinese economy is imploding even after pumping an unprecedented amount of money into the economy. Amounts never before seen by a major economy, making their crisis even worse. Are you still sure you want to exchange your dollars for yuan? Ditto with rubles. We were bearish on Russia when every single dollar bear and emerging market bull was giddy. We wrote that Russia could very well be the next crisis and within months it was. Russia has drawn down all of their foreign currency reserves and are a completely insolvent country praying to get out of this without complete collapse of their currency. Rubles anyone? China will soon be in the same position and that is why they want to change the rules to the game. They liked the rules when they were manipulating them. But now that they can't, they don't want to play the game anymore.

China ridiculing the U.S. about how it manages its currency is a little like Stalin ridiculing the world about human rights. Of course, none of this is new to anyone reading this blog. The reality is there is a lot of rational-sounding stupidity being bandied about in the media. The recent ridiculous stories about the dollar fits this bill perfectly. The story re pricing oil in yuan, rubles, etc has to be the dumbest story of the year courtesy of a completely uninformed reporter who supposedly had secret information no one else had access to. The sad state of affairs is that this story got tremendous press in the media and blogosphere by an equally uninformed mob. Listening to the mainstream media is a little like being in the room with a bunch of Chatty Kathys and someone yells fire. The next thing you know the whole room is ablaze. Not with fire but with yammering idiots all repeating the chorus.

Again, there may be a different method of trade in the future. It could be some international clearing house in which countries subscribe to standard rules of trade and currency exchange. It could be country to country trade based on cash settlement of terms negotiated between countries. It could be anything. The concept of reserve currency is outdated on many levels and we could very well see change over time. But one thing I can surely guarantee is it won't be the yuan or the ruble or one world currency subscribed to by religious zealots as proof of some world-ending prophecy.

If you live in nearly any country on earth, dollars are accepted as a medium of exchange. How about yuan and rubles? The dollar is still the undisputed king. Not necessarily because we deserve it but then what does real life have to do with deservedness?
posted by TimingLogic at 11:55 AM