Guess who is paying for the finance rescue package?

If you think the US taxpayers that will be footing the bill, you are duped again.

US Government does not have the ability to raise 1 trillion dollars to resolve the financial crisis; whoever politician that tries to raise that amount of tax is committing political suicide. So they will do something that is much less painful: issue debts.

So who will be buying those debts? A large portion will come from China, Japan, the oil nations and … Singapore! Yes, we will be footing the bill.

Amazing isn’t it?

Remember the 1997 Asian financial crisis?


Remember Indonesia? How it was brought to its knees by IMF (International Monetary Fund)? Yes, that thing that really did Indonesia in was the drying up of credit in their economic system, causing massive collapse of its economy. Why did that happen? Because the IMF insisted that Indonesia went on a harsh austerity fiscal plan before money would be released to them.

Back to 2008. This time round the drying up of credit is in USA. Can we expect IMF and anyone to tell the US that they have to go for an austerity drive? No, instead the US Government intends to spend its way out of trouble.

Tails I win, heads you lose.

Why isn’t US punished for its excesses?


One word: Reserved currency.

What is so great about being a reserved currency? When you are Indonesia Government and you need money, you borrow money, often denominated in reserve currency such as USD. So if your currency crash, your economy gets walloped.

When you are US Government and you need money, you PRINT money (Actually you issue debt). If USD crash, the buyer of your debt suffers, not you.

Wow! So why do we want to even support USD as a reserve currency? The main reason in my opinion is because currently we lack a real contender that that can challenge USD. Because of that, even if many people realize the USD is sick, they still hold onto USD based assets because they cannot effectively change it to something else.

We need another reserve currency

What we need is another reserve currency that can challenge the hegemony of the USD. And China’s RMB seems to be the best contender for that in the long term.

Unfortunately in the short term China is fraught with problems. It is a non-democratic regime, corruption is rife and its financial system is not strong enough to be completely liberalized.

Still, China should act fast and start to establish itself as a reserve currency. Of course to do that, RMB must be legal tender outside of China. That is a giant step for China as it needs to put its house in order before that can happen. But the benefits are enormous as it can raise debts and use the money it raised to develop its economy. It also can trade and buy raw material in RMB rather than to rely on USD.

And if USA needs more money, well it can borrow money from China in RMB instead of issuing USD treasury bills. That is a world of difference.

Until then we are all at the mercy of US excesses. And when the great devaluation of USD finally comes, we will all be the poorer for it.