Will US Dollar become Japanese Banana Money?

[Hishercar]

UK and US printing money 'out of thin air' to fight credit crunch

 

New worry is hyper-inflation

 

BACK in 1991, when a group of us launched Money Mind (a TV programme still telecast on Channel NewsAsia), I was allowed to film De La Rue Currency's ultra-secretive banknote manufacturing facilities in Singapore.

 

By Zhen Ming

 

20 March 2009

BACK in 1991, when a group of us launched Money Mind (a TV programme still telecast on Channel NewsAsia), I was allowed to film De La Rue Currency's ultra-secretive banknote manufacturing facilities in Singapore.

 

De La Rue Currency - the world's largest commercial currency printer, involved in the production of more than 150 currencies - closed its Singapore factory in 2002 after finding it difficult to cope with rising costs.

 

During my visit, I saw the firm's banknote design and production facilities.

A line of 300 Singaporeans were inspecting sheet after sheet of freshly printed $2 banknotes to spot errors (none on that day).

 

These days, however, most of the money that flows around an economy is created electronically rather than printed physically.

 

Quantitative easing

 

And as the world's ailing financial systems continue to remain immobile, central banks everywhere are introducing what's known as 'quantitative easing' (QE) - the modern equivalent of printing more money - as a desperate measure of last resort.

 

Under QE, a central bank creates new money literally 'out of thin air', which it then uses to buy what are essentially IOUs from ordinary banks.

 

The banks, in turn, use this money to create even more new money in a process known as deposit multiplication, where the amount of money (or loans) in circulation is further increased to stimulate additional spending.

 

The impact of QE is not very different from dropping paper money from a helicopter - as Mr Ben Bernanke himself once described this policy before he became chairman of the US Federal Reserve (Fed).

 

This idea (first mooted by US economist Milton Friedman) won Mr Bernanke the nickname 'helicopter Ben'.

 

The Fed is effectively practising QE - except, for ideological reasons, the Fed prefers to call it 'credit easing' instead.

 

To date, total QE assets held by the Fed stand at US$1.9 trillion ($2.9 trillion) - 2.4 times the size of the stimulus package sponsored by US President Barack Obama.

 

The US, not unlike the UK, has just signalled that it will continue to print more new money (that is, embark on further QE) in order to re-inflate its flagging (or deflating) economy. The Fed is scheduled to issue its statement on QE later today.

 

Mr Bernanke's view is that if the Fed provides liquidity, credit will flow and lower the price of loans, feeding pent-up demand for homes, cars, credit-card borrowing and capital expenditures by business in the depths of the worst recession in living memory.

 

Will QE work?

 

But will QE work? Or will triple-A sovereign borrowers like the US and the UK risk destroying their solvency, as they use QE to rescue over-indebted private sectors?

 

This possibility of a botched-up QE programme could be nightmarish for surplus countries like China, Japan and Singapore.

 

These countries currently hoard mountains of foreign reserves denominated in Western currencies like the US dollar and the British pound.

 

These hard-earned reserves actually stand the risk of dramatically losing their value in real terms because QE, if mismanaged, could trigger runaway inflation or hyper-inflation.

 

In some extreme examples of old-fashioned money printing, the results were disastrous. Think of the Reichsmarks in Germany after World War I, Japanese banana money in colonial Malaya during World War II, Russian roubles after the fall of communism, and the current hyper-inflation in Zimbabwe.

 

That's why Chinese Premier Wen Jiabao is 'worried' about the safety of China's US$1 trillion investment in US government IOUs.

 

Singapore should be too.

 

 

[Windchoco]

This has been going on for v long liao... every year US gov budget is in "deficit" 1.. I think bcos too many businesses around the world is trading and doing business in USD, along with the commodities like oil which is also traded in USD, helps USD to have a certain value there... right?

[Sunlight]

i have been asking this question when the US government first mention rescue package last year; where is the money coming from? the US is empty long time ago.

[Sabian]

i have been asking this question when the US government first mention rescue package last year; where is the money coming from? the US is empty long time ago.

 

photocopy lor...

 

as long as u & i & everyone else do not ask too many questions, life goes on until the inevitable happens.

[Sunlight]

photocopy lor...

 

as long as u & i & everyone else do not ask too many questions, life goes on until the inevitable happens.

wah lau!!! then better look for safer form of saving than cash, be it USD or SGD or EURO, in milo tin. anyone have suggestion?

[Vega]

i have been asking this question when the US government first mention rescue package last year; where is the money coming from? the US is empty long time ago.

 

This link will tell u how much US is in debt now!!

US debt

 

how many trillion is this?

[Try_conti]

US$11+ trillion .....

[Newbie_driver]

they are living in dreamland........... maybe one day somebody will wake them up, then they will see the real world.......

[Stary]

wah lau!!! then better look for safer form of saving than cash, be it USD or SGD or EURO, in milo tin. anyone have suggestion?

 

if you are worried, can always buy gold.

 

Gold is real money.

 

Currencies are only fiat money.

 

[Vega]

they are living in dreamland........... maybe one day somebody will wake them up, then they will see the real world.......

 

i think now US is partly own by China and partly own by Middle East!!

[Roborovskii]

China and other emerging nations back Russia's call for a discussion on how to replace the dollar as the world's primary reserve currency

 

U.N. panel says world should ditch dollar

[Hishercar]

gives the words "open market" a whole new meaning

 

[Drive_carcar]

Bro, it's really a question of between the devil and the deep blue sea. Which is the lesser of both evils?

 

A total standstill of the world's economy? Or Hyper-inflation?

 

The question is equivalent to a hook or a fade for golfers. As an analogy imagine you are at the 18th tee of Pebble Beach, the deep blue sea on the left, hook your ball left and you are screwed, because there's no way you can find your ball back. On your right is the devil.... and you can still bargain with the devil, so playing a fade is a much better option.

 

My take for now is, inflation is the least of their worries at this point of time. Further, while US don't have a lot of "real" money (whatever that means), they are a rich country. US is probably the biggest agricultural producing country, and they are also rich in natural resources. And when you have so much of primary produce, the last thing you want is for the world to slip into depression which will seriously undermind commodity prices, and consequences wealth.

 

Do you know why the Banana money end up worthless? It's not because of the over-supply per se. It's primarily because the empire has broken down, with Japanese surrendering to the Allies. When they have lost power, their currency also become totally worthless.

 

 

 

[Jubilong]

i think now US is partly own by China and partly own by Middle East!!

 

I do agree and I happen to be in a posting war on youtube comments with this american dickhead who stills thinks that usa is no.1. try usa vs china sanda

 

That guy nick is imthetruthh literally breaking up to mean i m the truth.. hey if you guys bo liao like me slam this a-----e.

 

 

[Saag]

you work so hard for S$3-4k/m, US every second can print out this amount & spend it like king by americans.....

This is the world we are living in past 30 yrs....

This is how most americans enjoy their life....

[Zyrofillica]

the banana money was issued in most of the countries in SEA that japan had conquered. it lost all of its value only after japan surrendered. there was hyper inflation of this currency only because the notes were easy to forge and the Japanese simply printed more whenever they needed it. And as the war dragged on and their economy got increasingly disrupted by the allies, printing loads of money was the only way to support their finances.

[Hishercar]

was the banana currency exchangeable for eg US dollar etc during that time

 

thanks

[Panorama]

the banana money was issued in most of the countries in SEA that japan had conquered. it lost all of its value only after japan surrendered. there was hyper inflation of this currency only because the notes were easy to forge and the Japanese simply printed more whenever they needed it. And as the war dragged on and their economy got increasingly disrupted by the allies, printing loads of money was the only way to support their finances.

 

Did the Japanese currency in Japan (not the banana motif type?) also became worthless after their defeat?

 

How did the Allies helped to allevate the sufferings of the people in the colonies when the banana money suddenly/gradually became worthless?