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Global credit crunch !,

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   limo
Wednesday, November 19, 2008 07:20 AM 
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I have heard that the 700 billion dollars bail out package to combat recent credit crunch, will be arranged through printing extra currency. This is because American dollar is not backed up by gold and they can afford to print extra dollars in the present scenario. As per standards of currency printing, it is done aginst the quantity of gold we hold, and if we keep on printing currency irrespective of the gold, it leads to inflation and devaluation of our currency.Can someone explain the phenomenon exactly and whether America is on the course of printing extra dollars!
Habib replied on Wednesday, November 19, 2008 08:51 AM 

For last many years Currency had been deliked with Gold reserves, That was basically reason of fall in price of Gold in 1999 to 2001, Still some central bank are having Gold reserves but it is nothing to do with Currency in circulation.
Dollar is starnge currency when Pakistan or India will print currency they face the inflation themselves, as their currency is weighed as compared to Dollar in iinternational Market. But when Dollar devalues all the world have to bear the "Loss", American economy is somehow immune to deficit and they can transfer deficit to all the world. Mostlt to Gulf countries who have fixed peg with Dollar. But there is limit to it if deficit continiues like this then that "Gold statndard" ie Dollar may be replaced by some other currency. Gulf Currency could have been very good alternative but there is no unity in Muslims
Usman replied on Wednesday, November 19, 2008 03:31 PM 

700 billion dollars bail out package won't be raised by printing money. It will be raised by selling debt. USA's debt will increase from 9.5 Trillion to over 10 Trillion. Ofcourse US will have to pay interest on this amount, but it won't be raised by printing money, so this bailout is not infltionary..........as other country would love to buy this debt.

Most of countries have their forign reserve in US $.
arsu replied on Thursday, November 20, 2008 06:39 AM 

It is broadly the State or Central banks that estimate, print and circulate money based upon various statistical models like GDP, inflation, economy, import / export, balance of payment to the world, reserve requirement, and parity of the dollar in the international market. No country simply takes the risk of printing extra currency as it not only increases inflation but effects to your credibility in the international market.You loose trust of your trade partners who don't take it as a positive step for mutual trade.
Actually this bail out package is just an attempt through which US govt is trying to buy these huge debts accumulated as a result of sub prime mortgage so that banks facing severe liquidity problems could breathe a little. America's auto industry, that contributes around 10% of the GDP, is also in the hot waters and asking for a 25 billion dollars package, failing to get it may result in another 3 million jobless thereby further increasing the unemployment rate in the US job market.How hard it is going to hit the American economy is beyond any doubt.
It has to be understood that the survival of this conventional banking system is totally based upon keeping more and more people and economies under debt.In other words present conventional banking system can not afford to see people and nations prospering.World is apparently heading towards the fall of capitalist system which has only promoted exploitation.It is worth noticing that Islamic banks reamained least effected during this crunch time.
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