Do Cryptocurrencies Such as Bitcoin Have a Future? – WSJ – Crappy currencies
Do Cryptocurrencies Such as Bitcoin Have a Future? – WSJ:
This is a good discussion about bitcoin, a cryptocurrency.
At the current exchange rate, $261 US equals about 1 bitcoin, or 1 USD equals .003 BTC.
During the Great Recession all countries worked hard to devalue their own currencies. A great way to stimulate the domestic economy is to reduce the value of the currency such that exports are stimulated. All right, not a great way, especially if every country in the world wants to do the same. So the currency decisions world-wide were a “race to the bottom” to achieve the most worthless currency fastest.
Of course the whole process is a little more complicated than that, the central banks (the US Federal reserve) can make hard decisions quickly, whereas congress, can’t make any reasonable decisions, ever. Decades of federal deficits and trade deficits result in a devaluation of the currency (as the world economy/currencies move to equilibrium) provided you don’t intervene somehow and manipulate the numbers.
China started out with a massive undervalued currency decades ago so that it could grow based on export expansion. Their HUGE savings rate has offset the US low savings rate by subsidizing our Walmart products imported from China. For half a century. At peak times, the yuan has been arguably 40% undervalued against world currencies; however, they have slowly but steadily let the yuan rise. As a result of the persistent trade imbalance, China has ended up with massive amounts of Yankee Dollar$, much of it going to fund the US Federal Debt (US bonds). They have however, been systematically dumping their US Dollars by buying up massive amounts of real estate (mines and factories and homes) around the world.
Japan has had a really strong currency that they finally devalued into submission. They devalued from about 80 yen to the $1US to about 120 today. That’s a 50% devaluation of the currency over about 2 years. So now Japan can export again.
The Russian ruble is in rubble. For lots of reasons, but mainly because their income is mainly from oil and gas which has plummeted. Combine that with embargo types of penalties associated with their invasion(s) of Ukraine. Same problems for all oil export countries (OPEC) like Venezuela.
The Euro is in the toilet for lots o reasons, but now they are cranking up the quantitative easing efforts that the US has exercised so ?well? for the last 6 years. One of the last strong currencies in the world is the Swiss Frank, They finally abandoned all hope of sticking to the Euro and their currency revalued 20% overnight in mid January.
So, with all these crappy currencies out there, how is it that the USD is least crappy of the world currencies. One reason is, that as bad as the Dollar is, it is substantially better than the alternatives. Who wants to do business in the Yuan, or the Euro. There has been talk of a currency block by the BRIC countries: Brazil (with the real dropping), Russia (in rubble), India trying to get its country back on strong footing), and China (where everyone worries about a political uprising if/when their growth really does slow).
The US economy is growing strongly, so that’s one good reason for having a stronger dollar; but only one. The rest have to do with the USD as the best of the worst. It is good to be less crappy than the rest of the world’s currency, but not something to really brag about.
Since the USD is still the worlds choice for purchasing and global transactions, when the USD strengthens it crushes commodity prices. Therefore, the price of oil (in petrodollars) drops. That’s not the main reason, but it helps. Even gold drops.
Gold, the best possible alternative currency is worrisome that it doesn’t blast from $1,200 way past $2,000 per (troy) ounce. Gold is a great hedge to inflation-prone currencies. It seems like it should be harder to manipulate gold than all the other currencies of the world. But no, everyone is dumping their “safe” money into US treasuries where the return does not cover inflation. And, of course, the US stock market where the dividend yield tents to more than cover inflation and still leave room for upward capital appreciation (stock price going up).
No question, there is a bubble built on quantitative easing around the world. No question it will unwind. For those people/institutions who think it will happen gracefully, history has demonstrated that graceful re-balancing of bubbles is rarely the case.
That said, the US economy appears to be far stronger than most people give credit.
Sometime, somewhere, people are going to get tired of having their currencies and their welfare associated with it manipulated. That’s gonna mean a rise of Gold and cyber-currencies as an alternative. Or, maybe everyone will go on believing that all is good in the fairy-tail land of Oz and there is no such thing as a crappy currency? I’ll bet you can’t wait for the Greek drachma to come back when the EU finally gets tired of their fiscal irresponsibility and kicks them to the curb?
