Thursday, 13 May 2010

The hollow dollar

At the moment both the pound and the euro are low against the dollar, and the feeling is that they will go down still further. But the dollar itself looks very shaky, with trillions of dollars of public and private debt, so how can it be seen as a refuge? What makes it different is that it is still the international currency. China and the Gulf states and the other holders of dollars don't dare sell them as that would bring down the price of their remaining dollars.

The only way out of this global mess is the creation of a true world currency governed by an international body answerable to an assembly with fair representation of the nations, based not on their wealth but on the size of their populations. Keynes proposed something like this in 1944 but the American government blocked him, preferring a dollar hegemony that would guarantee them economic domination.

While waiting for an international currency and if you can't stand the stress of speculation, for your personal needs I believe it is best buy durable and portable things of lasting value, with the lowest possible transaction costs. Unless you plan to live in one, a house is a bad placement as prices go up and down and the transaction costs are high. Antique jewellery is probably the best bet (but insure it properly!); it has already proved its worth by lasting. It is an ancient answer, but there is no new thing under the sun.

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