Add to what b has posted the work of BRIC countries in Russia and you might have a critical mass pushing towards a new currency as an laternative to the dollar.
The basis of any currency is trust. If people trust the currency, then they will use it. I have lived in Lebanon back when 1$ = 3.75 LP and I have seen the Lebanese Pound deteriorate to 1$ = 1500 LP. People stopped trusting the LP and the economy became dollarized. Everything was priced in US$ and people did not want to use the LP.
You can see the same happening on a golbal scale. The lack of trust in the $ in large part due to war and economic mismanagement by the US.
When the $ tumbles, it will be great for the disintegration for the US empire, but it will be horrible for the US public. As it is often said, people pay for empire with their blood and their treasure.

Posted by: ndahi | Jun 22 2009 20:43 utc | 3

When the $ tumbles, it will be great for the disintegration for the US empire, but it will be horrible for the US public
yeah, and i doubt there will be much sympathy for the “US public” when the consequences of our govt/corporate imperial overreach becomes glaringly apparent.
sure, the illusion of our self-professed greatness is crumbling faster and faster, but still not fast enough to counter the forces (increasingly detached from national identity) that exploits our national arrogance and global ignorance.

Posted by: Lizard | Jun 22 2009 21:32 utc | 5

biklett @6-
What will it be mandatory to shop for, cars? Or are we gonna get to choose? ‘Cause if we do, I’d suggest guns and jug wine, or better yet, cars full of guns and jugs of wine! 🙂
Of course the guns won’t be much good for anything except clubbing each other, or maybe using them as building material ’cause there won’t be bullets for them. But at least we could sit back drinking jugs of wine until we forget all that, maybe we’ll die with cirrhosis of the liver, but damn we’ll die happy (or maybe just hung-over?)

Posted by: DavidS | Jun 22 2009 22:10 utc | 7

I thought I might hop in before the jargonistas for a change.
It seems to me that many nations must be worrying about the problems inherent in trading using a reserve currency that is unpredictably unstable. For example I know that in the country I live in, humans (ie workers, small business and large corporate capitalists alike), the industries (chiefly primary production) which generate the most overseas income, are constantly bewailing the fluctuations between the $NZD and $USD.
Whilst their worst fear, the NZD becoming worth more, is at odds with the average citizen who enjoys the drop in the cost of still more high ticket consumables (cars, flat screens and the rest) no one likes the uncertainty that prices rising and falling like a pair of whore’s drawers, generates. Especially when one considers that some things never get cheaper (eg energy) no mater which way the dollar moves, those who have a monopolistic control over their market as the hydrocarbon industry does always find a reason to bump prices.
But back to the point no nation is enjoying the unstable ride of the $USD especially considering that there is nothing to suggest that amerikan economic fundamentals will stabilise at any time in the future. amerikan private and public debt is completely out of control, unpayable really. That should be no surprise to economic historians, since no nation has ever paid back it’s national borrowings, but they generally do try and service those borrowings until some economic catastrophe or war or other such chaotic event renders the loan irrelevant.
Yet amerika has to raise more treasury notes to service the existing ones, large debtors, who are mostly foreign are severely restricted on what they can do with their amerikan funds and are finding it increasingly difficult to recoup their losses with the creative entrepreneurship those who have a stranglehold on another’s economy have learned is smart capitalism from amerikan trading banks.
Everyone is frustrated and really pissed that amerikan policymakers regard them as a captive market. Japan is the stinking corpse in the lounge, a stagnant and seemingly unable to be resuscitated economy providing testimony to the dangers of ‘going along with’ amerika’s economic stewardship while remaining totally dependent on the amerikan economy to fuel its own economy.
But where else are these other economies going to go? “If they pull their money out they’ll lose even more” seems to be the complacent attitude of amerikan economists, bureaucrats and lawmakers who have only paid lip service to foreign creditors concerns.
So perhaps this is a quiet movement away from the USD as a reserve. This change will need to take several years to come to fruition although once alternative economic models show even limited success the process will accelerate as no one wants to be the last rat on a sinking ship. Too fast and not only will the existing ‘investment’ in amerika be 100% endangered instead of the partial losses foreign creditors have resigned themselves too, the entire opportunity to get out from under may be blown.
Parallels with the euro model are instructive because of course it was the euro’s ambitious attempt to move straight into the role of alternative reserve currency which doomed the plans of those seeking that change.
European economic strategists undoubtedly foresaw that amerikan public and private sector focus on short term goals would mean that the USD would lead to instability even bankruptcy and therefore tried to wriggle out from under asap. But by not waiting until some of the destruction had already been wreaked on amerika’s economy, casting amerikan economic credibility further into doubt, the europeans found themselves in a gun fight holding a 3 inch blade. In the late 90’s amerikan economic muscle was still strong enough, it’s influence still pervasive enough for a euro that openly threatened to rival the USD to suffer consequences.
It was too easy really – the english who have always wavered in europe when the situation demands solidarity, were induced to keep a revitalised pound sterling on thereby undermining the euro. Sterling was revitalised with the offer of sole trading rights for some markets (eg insurance). The perfidious english leadership ie the Bliar, leaped at the offer and the euro was irreparably damaged at birth.
So the russians and chinese at the BRIC summit a couple of weeks back will be conscious of the need to trust no one and to avoid putting all eggs into one basket. Both India and Brazil are susceptible to the bribery and arm twisting which had england double-crossing its EU partners.
Hence the Shanghai Cooperation Organization. That provides another platform where Russia and China are the dominant players, where alternative trading mechanisms can be explored, and although fragmenting the alternatives would seem to make outside interference more possible, the ability for saboteurs to inflict and real damage is reduced, while quislings will be exposed, thereby really putting pressure on the supporters of the $USD reserve to patch together attractive baubles for those nations who actively disrupt these alternatives. After all there is a limit as to what can be offered particularly since the amerikan economy is in straightened times.
Who knows if it will work or not, but a movement away from the dollar reserve monopoly must be good for most humans, long and short term.

Posted by: Debs is dead | Jun 22 2009 22:42 utc | 9

ICBMs?
Posted by: ran | Jun 22, 2009 4:19:42 PM |
roger that.
and if you do not think that the usa would hesitate to let loose a phalanx of their ‘negotiaters’ then you have not been paying attention.
one word : IRAQ.

Posted by: DFH | Jun 23 2009 0:24 utc | 11

Lest ya forget…
IMF:Special Drawing Rights (SDRs) …
Also…
Worth reading:

The action by the US Treasury using a section of the Patriot Act against the Banco Delta Asia Bank, however, demonstrated that the US government has the ability to use this data base information against those it wants to target politically, rather than those who have committed any actual illegal acts. Testimony by former US government officials to the US Congress, and documents submitted to the US government by the bank owner and his lawyer, demonstrated that there was never any evidence offered of any illegal acts. Instead the Patriot Act had been used to allow the US government to act against this bank for political objectives. (See“Behind the Blacklisting of Banco Delta Asia: Is the policy aimed at targeting China as well as North Korea?”)
The new positions that the administration has designated to negotiate with North Korea are at a lower administrative level than was Hill’s former position In addition, the Obama administration, by not reappointing Hill to his prior position, has lost the expertise Hill had developed. Hill had effectively countered the sabotage to negotiations presented by Levey’s office during the Bush administration.

What Should be the Role of the UN Regarding the Hostile US Policy toward North Korea?

Posted by: Uncle $cam | Jun 23 2009 0:56 utc | 13

Debs, I agreed with your post. Michael Hudson had a terrific article on CounterPunch last Thursday or Friday I think. One point he makes is that this SCO basket of currencies would hold dollars.
If China were to float their own currency it would rise directly against the dollar, so China can’t do that without sacrificing it’s $2T in USD.
I see a middle road here, as Hudson suggests, that the SCO basket could hold more dollars that you are suggesting in your hypothetical. This should ease the shock and prove a slower more steady course.
Our real challenge is to cut the deficit spending each year. This forces us to continually issue more debt, to a diminishing market of buyers. The deficit coupled with the annual debt burden, exceeding $500B/yr is getting into real money.

Posted by: scott | Jun 23 2009 1:33 utc | 15

This Asia Times piece suggests that the SCO isn’t just about directly setting up the Yuan as a reserve currency.
As i quoted elsewhere:

Chinese economists are now playing with [an] idea: yuan-denominated loans to foreign countries, mainly neighbors. This could be a powerful tool to make the yuan stable against future currency fluctuations….
If neighboring countries accept yuan loans, they would de facto pressure the US to keep the dollar-yuan exchange rate stable, thus helping China in dealing with the US….
The consequences could be huge. A pool of countries accepting these Chinese loans would push China’s yuan to the center stage of world currencies. China’s yuan could de facto become the currency of reference for international trade. This could further push China to fully liberalize its exchange rate, and thus update its backward domestic financial structures.

This could be the beginning of a regional, Central-East Asia trade bloc. With China already competing for oil with the U.S., it may mean the beginning of the end for U.S. oil companies.
And as a few here have pointed out, that leaves the US only one thing: guns. If there’s no longer any oil or money to carry those guns across the ocean, i think they’ll inevitably get pointed at US residents.
Currently, i think the only tools the US has to counter this move are its guns. Thus, the AfPak theater, and Iraq.
And again, as is implied in the above article, these moves will put pressure on China to further liberalize its economy.
I really believe we are seeing the US set itself up for sort of repeat of the Great Depression, with China set to ascend and the US set to fall a long, long way.

Posted by: china_hand2 | Jun 23 2009 2:14 utc | 17

A good friend of mine purchases goods by the shipping container load from PRC on a regular basis. Beginning May-June last year the manufacturers he purchases from started politely requesting settlement be made in Euro’s, preferably, but not necessarily, anything other than USD.
The same request popped up from other manufacturers … he politely declined … new orders were requested for settlement in anything other than USD … so far he still purchases in USD …
At the time when he mentioned it to me and we pondered the significance, didn’t think much of it in isolation … however, if that’s not an isolated request, and I have no way of knowing, then the Russian, Chinese and other low key announcements over the last 12-24 months combined with the SCO and BRIC actions … the modest push and shove at the recent G20 and G20 finance ministers meeting … well all the indicators are the USD could well be in trouble …
If it is so, and a co-odinated dismantling or walk away from the USD picks up steam, the bedrock of the US system and it’s ability to influence and buy and bribe, yet alone fund the Pentagon overt and covert budgets … well if it truly starts, it wouldn’t take long … my understanding is once capital investors lose fundamental faith in a fiat currency they tend to jump ship pretty damn quick … that herd thing …
Is anyone else aware of PRC exporters or manufacturers pushing for settlements in anything otherthan USD …
Finance is not my forte, just some observations …

Posted by: Outraged | Jun 23 2009 2:43 utc | 19

don’t worry debs, i don’t/can’t believe this thread is gonna burn as the iranian ones…
😉
#14, Jim T’s scenario seems quite possible in a country where you can buy ammo as if it were candies.. and i think that hollywood’s recent trend of “end of the world” movies indicates some kind of “get used to it” warn
but before using the guns in the residents, china_hand2, there are the mexicans, also known as the next paks
i can even think of a CubMex, perfect replacement for the far far away AfPak
and finaly, on topic, as Angry As’ad could say: that’s enough of White Man’s Money, let’s have a multicultural currency world, shall we?

Posted by: rudolf | Jun 23 2009 2:51 utc | 21

@china_hand2. What I meant was that if alternatives to the $USD reserve currency provide stability, and allow funds realised in them sufficient flexibility for holders of those funds to use them to generate alternative means of profiting that actually expand the range and power of the holders assets, then those who want to keep the USD attractive are gonna be between a rock and a hard place.
That is they will have to permit at least some of the nations which hold USD more ways and means of generating power and wealth. Cease restrictions on the types and amounts of investment in the amerikan economy, and bribe nations to undermine the alternatives by allowing them a piece of the action in some aspect of the $USD financial and insurance services industries.
I can’t see the banksters and traders allowing too much of their monopoly to be traded away, but the alternative doesn’t look good either. The alternative is concessions in the area where the administration is most vulnerable to voters, allowing much more foreign investment in so called ‘strategic industries’ and pulling back on regulatory controls of that foreign investment.
In other words the remedy is obviously self defeating and/or hugely unpopular with the citizens.
Dragging out the old equaliser will seem more attractive at first glance, but going to war with one’s creditors has to be regarded as an even more fraught strategy since those creditors are needed to finance amerikan wars.
So lots of blustering and double talking before conceding the inevitable. Studying the issues from this angle makes it easier to comprehend why amerika’s pols and policy makers have all gone along with the crank up in imperial conflicts, that Oblamblam’s chief task is to try and put a kinder face on that violence. That this alternative is the only one which a corrupt and moribund political class can conceive may get them out from under without compromising the so-called ‘amerikan lifestyle’.
But this strategy can only buy a limited amount of time, something which will be plain to the assorted “washington think tanks” who develop amerika’s long term strategies. In the end if it comes down to a choice between curtailing what political power the masses have left so they cannot act on their rage at losing their once non-negotiable lifestyles, or curtailing the power of the rich and powerful, only a supreme optimist would back the latter.

Posted by: Debs is dead | Jun 23 2009 11:57 utc | 23

The oligarchy couldn’t care less if the dollar stays strong, they’re diversified and hedged. When they’ve squeezed the US dry they will move on. Goldman Sachs and Carlyle will follow Blackstone east. Nationalistic us & them is for the canaille. Funny how they always fall for it.

Posted by: …—… | Jun 23 2009 14:29 utc | 25

Kick ass links, 99. I read ’em, and had to take a nap.
Looking over them, i’d say that taken together it sounds like China and Russia are setting up an Asian “NATO”.
Russia has much experience with such entities, but China has a much better history of non-intervention and diplomatic reciprocity.
In b’s links today, he also has this link, which leads to this article floated by the Chinese, which calls India out with some provocative words:

India needs to consider whether or not it can afford the consequences of a potential confrontation with China. It should also be asking itself why it hasn’t forged the stable and friendly relationship with China that China enjoys with many of India’s neighbors, like Pakistan, Nepal and Sri Lanka.

Considering this was floated just after the SCO meeting, i find it interesting and provocative.
I suspect that, if push comes to shove, India isn’t going to provoke a conflict against China.
So if the SCO group succeeds in getting the ball moving, in building all those infrastructure links and establishing the financial mechanisms to lubricate regional trade, then India is going to join them, and the Pax Sinica will have officially begun.
I’ll be keeping my eyes on those August talks in August between China and India.

Posted by: china_hand2 | Jun 24 2009 11:06 utc | 27

So that was a good nap, I think.
I agree. W/all of it. Mid-day naps are, in my book, one of the necessities for a complete and contented existence.
I’m not so sure about NATO; while it’s been a force for bad in many instances (Yugoslavia pops up first in my mind), but to some extent it has also been a restraining factor on US actions abroad and served to ameliorate some of the US’s most extreme policies. I do think it’s on its last legs, though, so AFAIC all of that is now moot.
But the SCO is an explicitly different thing than either the Warsaw Pact or NATO; rather than starting with a military alliance, and building on that, the SCO is going about things in exactly the opposite manner: it’s foremost concerned with limiting regional military development, takes a hard-Westphalian approach to state sovreignty, and is instead pushing infrastructure and economic foundations.
It’s sort of a “Marshall Plan”, but without carrying any of the critical baggage that lay behind that agreement (WWII, ravaged infrastructure, fear of communism, etc). It’s like NAFTA, or ASEAN, except without the IMF and WTO working to enforce the submission and exploitation of the weaker participants.
The agreement itself is extremely interesting; back in 2001, when it was first conceived, i remarked to my friends and family that it was a historical milestone that was eventually going to directly challenge — and cataclysmically blow apart — the US hegemony. Then, with 9-11, the invasions of Afghanistan and Iraq, and all that followed, i would see the odd report here and there about “Russia and China agreed to increase and coordinate military cooperation”, and so on.
So long as those two countries agree to participate, the SCO will be unstoppable; which i think explains why the US has so toned down its anti-Russian rhetoric, this last decade or so.

Posted by: china_hand2 | Jun 25 2009 14:36 utc | 29