Indeed, that is probably the only big reason why the US Dollar is not declining even faster.
The Chinese, Japanese, Saudis etc, are stuck with loads of USD. While the IMF reports that they are gradually reducing their holdings, nobody wants to do so quickly lest it triggers a collapse in the value of the USD.
Yet, everybody (other than some Americans) knows that the future will be one in which the USD is not dominant. The big, big problem is how to get to there from here without chaos in the interim.
The Chinese seem to be parlaying their holdings of USD into purchases of mineral rights and mining companies all over the globe, thus gradually trading their depreciating dollar assets for strategic ones. I'm not sure what the other countries are doing.
But until the Chinese and others have substantially reduced their USD holdings, they would obviously not want a significant depreciation of the Dollar.
Fortunately, the US government does not want a collapse in the value of the USD either. The Fed can actually engineer one whenever they wish by printing money to make up the US government's deficits. But once they do that, global confidence in the US Dollar as a store of value will collapse.
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On the Gaybutton board, I noted in a recent post that by the late 1990s, the average price of a drink in a Soi Twilight bar was 200 baht. Today, 10 - 11 years later it is 250 baht.
Let's look at how much it costs a European, a Chinese, a Japanese and an American.
In 1999:
1 USD bought 0.84 Euros
1 USD bought 8.28 Yuan
1 USD bought 112 Yen
1 USD bought 37.5 Baht
(all figures roughly averaged for the year)
As of 8 October 2010:
1 USD buys 0.72 Euros
1 USD buys 6.67 Yuan
1 USD buys 82 Yen
1 USD buys 30 Baht
Therefore the drink in a Soi Twilight bar, which was 200 baht in 1999, cost the tourist 11 years ago
4.48 Euros
44.1 Yuan
597 Yen
5.33 USD.
Today, that same drink costs 250 baht, which translates to these prices for the present-day tourist:
6.00 Euros
55.6 Yuan
683 Yen
8.33 USD
In other words, the drink has, over 11 years, increased in price by:
25 % for the Thai customer
34 % for the European customer
26 % for the Chinese customer
14 % for the Japanese customer, and
56 % for the US customer.
For the non-American customer, the drink price increasing 14 - 34 percent represents an inflation rate of about 1.3 to 3.2 percent per annum, which is not extraordinary.
The outlier and, unfortunately, the one who is hurting, is the US tourist. From his perspective, everything outside the USA is getting significantly more expensive.
That said, there will be ups and downs. The US Dollar will recover somewhat over the next few months or years, though the long term trend, I'm afraid, almost surely points down.
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