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Thanks for your thorough explanations.

santiago: (Correct me if I'm not reading you right. I do that a lot I know.)

No, that was pretty much my understanding of it.

santiago: The only problem with that argument is that it doesn't explain why bankers would want dollars instead of debt assets in the first place.

This is probably a totally naïve and perhaps even non-sensical question, but say somehow it were possible to repay those debts in a pre-agreed range of currencies other than dollars, say euros, yen, swiss francs, and pounds, for example.  So, for example, if a borrower owed $100 million, and the easiest currency they could get their hands on was swiss francs, then the creditor (in this hypothetical world) would have to accept those francs as payment for the debts.

In this scenario (if it makes any sense at all), there would not have been such a huge worldwide demand for dollars to repay debts, right?  There would have been demand for a range of currencies, but not exclusively dollars (because even dollar-based debts could be repaid in those other currencies).  And so, even though people would be scurrying for city walls, it wouldn't be just one city's walls, but five or six cities' walls.  And more than likely, I surmise, we would not have seen the disproportionate rise in the value of the dollar.

This hypothetical (if it follows) would not rebut your point that political pwer represented in currency trumps the social power of the borrower, as you put it, in times of crisis.  But it would rebut the claim that the city walls of the U.S. dollar are (considered) stronger than those of other currencies.

Does that make any sense?

The West won the world not by the superiority of its ideas or values or religion, but rather by its superiority in applying organized violence.

by marco on Wed Sep 2nd, 2009 at 01:24:51 PM EST
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