Glamor Economics

Chapter 171

Chapter 21 Section 7 Banknotes Increased, Wealth Shrunk——The Dollar Bubble

Brazilian Marcelinho scored a hat-trick in Hertha Berlin's win against Wolfsburg while also taking his tally to eight.No one can doubt Marcelinho's ability, but it is only limited to the court.Once off the pitch, Marcelinho was ignorant.

On August 2002, 8, Marcelinho reached a consensus with Hertha Berlin to extend his contract until 13, but Marcelinho insisted that the club should pay his salary in US dollars.At that time, the US dollar was slightly more expensive than the euro, about 2007 US dollar to 1 euros. More importantly, in Marcelinho's view, the US dollar, which was similar to a hard currency, would only appreciate rather than depreciate.

When renewing the contract, the club agreed to his "strict requirements" and wrote this into the contract.But after two years, it was too late for Marcelinho even if he wanted to cry, because the dollar had depreciated significantly. The exchange rate on November 11 clearly stated: 30 US dollar to 1 euros.Marcelinho's annual salary is 0 million U.S. dollars, which is only 75 million euros.In other words, Marcelinho's ignorance caused him to reduce his income by 180 euros at least in 135.What's even more ridiculous is that if the dollar falls all the way, his income will decrease every year until 2004, which is written in black and white in the contract.

Perhaps it was the heavy blow to personal wealth that made Marcelinho put all his energy on the court. When a reporter asked about this, Marcelinho said to him: "I hope to be able to play in this season. Scored 20 goals."

Each of Marcelinho's goals will get cheaper and cheaper if the dollar keeps falling.Marcelinho's choice of the dollar over the euro caused a loss of wealth, so this is the lie of the exchange rate.When the United States implemented the gold standard system, every dollar banknote had corresponding gold behind it.The dollar cannot be printed indiscriminately, and the rate of inflation is relatively slow.Since the United States abolished the gold standard, the dollar has lost its real support behind it.So what happens to a dollar that is not backed by real wealth?The dollar becomes a promise, and the psychological level of believing that promise.Without gold to refer to, the dollars that people receive from selling their real wealth are actually a piece of paper with numbers printed on it.Since then, Americans have had the most convenient way to obtain wealth in human history-printing money.As long as people believe that the United States can repay the money, and believe that the United States is capable of repaying the money, people are still willing to hand over their real wealth to the United States and earn "green paper."To put it simply, the green paper is an IOU or IOU issued by the US government.

As a result, the U.S. economy dominated by financial capital has a "paper-to-paper" cycle: the Federal Reserve issues paper money to pay for the huge trade deficit-the surplus countries then use the dollars they get to buy other types of paper issued by the U.S., government bonds or companies Stocks - U.S. dollars flow back into the U.S. capital market.It is this paper-to-paper cycle that supports the false prosperity of the US capital market.The frenzied printing of money by the United States has led to more and more US treasury bonds held by various countries, and the dollar will become less and less valuable, and the depreciation of the dollar has become an irreversible trend.

"The U.S. dollar has depreciated, and we have to consider possible losses." In October 2009, at the Hong Kong Import Exhibition Area of ​​the Canton Fair, several bosses of Nihua (Hong Kong) Food Co., Ltd. were discussing how to deal with the depreciation of the U.S. dollar at that time.

Marketing Manager Zhuang Xinbao said: "The company is an enterprise with annual sales of 6000 million Malaysian Ringgits (1.2 million Hong Kong dollars). At the beginning of March 2009, the exchange rate of the US dollar to the Malaysian ringgit was 3. The loss caused by the exchange rate change reached 3.7259 million ringgits, which is about 10 million Hong Kong dollars."

"If the dollar continues to depreciate, or the yuan appreciates like last year, we may lose money this year," said Chen Zhiguang, head of Minteng (Guangzhou) Industrial Co., Ltd., which produces plastic toys.

Due to the continuous depreciation of the US dollar, the wealth of business operators has shrunk severely, causing a series of adverse consequences to their investment and exports.Foreign investors now hold more than $10 trillion in U.S. fixed-income assets.If the dollar fell 10%, they would lose $1 trillion, the balance of the entire subprime mortgage market.

The continuous depreciation of the dollar has also evaporated social wealth.Some scholars said: "Looking at the data provided today, how many billions of funds have been evaporated from the US stock market from the beginning of the year to now? What is the concept of 8.5 trillion US dollars? This is the sum of China's GDP in 2005, 2006, and 2007."

If the United States continues to print money for its own benefit, the dollar will continue to depreciate, and the wealth of those who own dollar assets and sovereign countries will shrink greatly.

[links to related words]

The Bretton Woods system The formation of the Bretton Woods system temporarily ended the chaos in the monetary and financial fields before the war and maintained the normal operation of the post-war world monetary system.An important feature of the Bretton Woods system is that the United States was established as a reserve currency country.The United States distributed a large amount of dollars to the world through gifts, credits, and purchases of foreign goods and labor services, which objectively played a role in expanding the purchasing power of the world.

(End of this chapter)