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Nadeem: Personal Thoughts on Gold and a Gold Standard :: The Market Oracle :: Financial Markets Analysis & Forecasting Free Website
What interests me is Clive’s logical argument. The flaw in his logic – from my perspective - devolves to fundamentals. What is at stake here is the entire world’ financial infrastructure.

The Chinese, for example, are sitting on no less that $1 trillion of the US’s IOU’s. (This is $1 trillion of the 65% of roughly $6 trillion total world reserves – or roughly 25% of total US dollars in the reserves of all the world’s central banks added together).

It’s a very easy statement to make that “foreigners can be expected to turn away from dollar investments in droves”.

Unfortunately, the fact is that there is no alternative to the dollar at present; and this also begs the question as to who will “buy” the Chinese Dollars if the Chinese decide to dump them? As I said, US Dollars account for roughly 65% of all world currency reserves. If 100% of the “free element” of the entire non-dollar element of the world central bank reserves were applied to buying the dollars that China alone wished to sell, there would be barely sufficient non dollar currencies to buy China’s dollars. (Bear in mind that some of the $2 trillion non dollar assets are sitting in hands which are friendly to the USA – including the USA itself; and some of these non dollar reserves are made up of gold – which, I’m sure you will agree – no one in his right mind at Central Bank level will now spend to buy US dollars.)