Tuesday, August 25, 2009

US Dollar Articles

Returned home from work late this evening, found several of these in my in-box (Hat tip FOFOA and Justin) and felt I should share with a wider audience - hope you enjoy.

Why the dollar is doomed - Moneyweek

Snippets: And that's scary. Because what's unfolding now is the same response that followed every bubble under Greenspan's regime and the pattern is clear. Create a bubble. Deny the bubble exists. Then, when it pops, argue that your only responsibility is to clean up the mess. You do this by making money ever cheaper, encouraging careless lending and inflating another bubble.

You might have thought the system had hit breaking point this time. But it seems not. An unfettered financial sector, fuelled by a never-ending supply of free money, seems once again to be our chosen route out of this bust and on to the next bubble.

China has already spent large quantities of recycled dollars on upgrading its infrastructure (the country already has nearly as many miles of motorway as the US does) and cornering the market in various commodities (rare earth metals, for example). In the meantime, it has managed to manoeuvre itself into a position where it holds the fate of its biggest rival's currency in the palm of its hand.

The end of the dollar's status as reserve currency may be a long time coming. But I suspect it will arrive more quickly and with more upheaval, than anyone realises.

As Budget Deficit Grows, So Do Doubts on Dollar - WSJ

Snippets: "There has been a lot of disappointment with the way the U.S. credit crisis was handled," says Claire Dissaux, managing director of global economics and strategy for Millennium Global Investments Ltd., a London investment firm specializing in currencies. "The dollar's loss of influence is a steady and long-term trend."

On Tuesday, the Obama administration added fuel to concerns about the dollar, saying the U.S. will run a cumulative budget deficit of $9 trillion over the next 10 years, $2 trillion more than it had previously projected.

"That's going to be negative for the dollar," says Adam Boyton, a currency analyst at Deutsche Bank AG in New York. President Barack Obama also reappointed Federal Reserve Chairman Ben Bernanke, whose efforts to rescue the economy have won praise, but have also entailed pumping large amounts of freshly created dollars into the financial system.

Now, though, major investors like Berkshire Hathaway Inc. Chairman Warren Buffett and bond investment firm Pimco fear the government's fiscal and monetary stimulus programs could end up fueling inflation in coming years and hammering the dollar.

Investors are also growing more comfortable with the idea of emerging economies like China, Russia and Brazil playing a bigger role in shaping international finance. Some analysts, including Pimco portfolio manager Curtis Mewbourne, say emerging economies have a unique opportunity to use the crisis to reduce their reliance on the U.S. dollar., which tends to account for the lion's share of their foreign-exchange reserves.

IMF adopts irrigation plan during a flood - Asia Times discussion on Reserve currency, IMF, SDR's and gold!

Snippets: Money creation out of nothing by central banks and the IMF could intensify inflationary pressure and accelerate the depreciation of reserve currencies. It could later abort economic recovery. Inflationary episodes following rapid money printing have been numerous, with startling experiences that included the French assignats, the German hyperinflation, and the recent Zimbabwe inflation. The US dollar has already depreciated at an annual rate of 10% relative to gold since 1971.

As in many inflationary episodes of the past, non-reserve central banks would have no choice except to hold gold as a safe asset against reserve currency depreciation. A rush toward gold and other tangible assets could accelerate the depreciation of reserve currencies, and impede world trade.


Willy2 said...

The US is adding a mere $ 9 trillion to its current debt ? The US has currently a budgetdeficit of approx. $ 2 trillion. When the US continues this path of $ 2 trillion a year. The additional debt will be $ 20 trillion, not $ 9 trillion.
How is the US going to cut the budget by half ? Eliminate Social Security, Mediacare or Medicaid ? Or is the US planning to get rid of all its military spending ?

According to pieces of information contained in this article and this article the US planning/preparing for a giant drop of the value of the USD.

I also want to draw the attention of the readers of this blog to this article. It contians a very scary graph concerning the US TIC flows. It seems the money has started to flee the US.

Randy said...

Half the budget deficit - HA!

Can't be done - merely two simple options for this country - inflate or die and I think we all know which one was selected.

Excellent links Willy2 - thanks for sharing

Anonymous said...

"The FDIC is fully backed by the government". When you hear that, is it reassuring or otherwise?

Most importantly, would that prevent you from withdrawing funds if you learned that your bank was in trouble.

The cost of failing banks is yet one more expense we charge on the national credit card (and as we all know... Americans are very comfortable with that).

Years ago, we had the option of electing Ross Perot... who really was the medicine we needed. But then, who among us does the prudent thing when it gets in the way of immediate gratification
(plus it didn't help Perot's campaign that he really did resemble one of those flying monkeys in the wizard of oz).