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The Death-Defying Dollar?
Submitted by Leo Kolivakis, publisher of Pension Pulse.
Not
a day goes by where I don't hear or read something on the U.S. dollar's
demise. Today I received an email from Penguin Group promoting Charles
Goyette's new book, The Dollar Meltdown. Mr. Goyette also wrote an article for The Street.com, They're Destroying the Dollar.
Now,
I have not read Mr. Goyette's book, but this isn't the first book
predicting the doom of the U.S. dollar, nor will it be the last. One of
my favorite books on the U.S. dollar was written by Richard Duncan back
in 2003, The Dollar Crisis.
He might have been a little early, but Mr. Duncan described the
economic ills plaguing the U.S. economy and how it will impact the
greenback.
More recently, William Engdahl wrote an article on his site, Collapse of the Greenback? Will the Dollar get an "Arab oil Shock"?:
Ever
since Washington tore up the Bretton Woods treaty in August 1971 and
went onto a “dollar paper reserve system” instead of a dollar backed by
gold, the United States, as the world’s most powerful military power,
has been able to dictate financial terms to the world. Nations like
Japan and later China, dependent on US export markets, would dutifully
invest their trade surplus dollars into US Government debt, in effect
financing wars such as Iraq or Afghanistan they opposed. They saw no
choice. Arab oil producing countries, under US military pressure, were
forced to sell oil only in dollars, a direct prop to the dollar when
the US economy was in terminal decline. That may be rapidly about to
come to an end.
According
to a leaked report from Arab Gulf oil producers, there have been a
series of secret meetings in recent months between the major Arab oil
producers, including Saudi Arabia, and reportedly also Russia, together
with the leading oil consumer countries including two of the three
largest oil import countries?China and Japan.
Their
project is to quietly create the basis to end a 65-year long “iron
rule” of selling oil only in US dollars. As I document in my book, Century of War, following
the 400% oil price shock of 1973, which was deliberately blamed by US
media on “greedy Arab Sheikhs,” the US Treasury made a secret trip to
Riyadh to tell the Saudis in blunt terms that if they wanted US
military defense against potential Israeli attack, that OPEC must
privately agree never to sell oil in currencies other than the US
dollar. That “petrodollar” system allowed the US to run staggering
trade deficits and remain the world reserve currency, the heart of its
ability to dominate and control world financial markets until the
crisis of the sub-prime real estate securitization in August 2007.
The
participants in the project reportedly envision using a basket of
currencies reflecting producer-consumer trade relations, one backed by
gold as a solid backbone. It would not initially be a new currency as
some have surmised, but rather an arrangement that would eliminate the
risks of pricing oil sales in fluctuating and likely depreciating
dollars.
Iran
announced recently that in the future it would sell its oil for euros
not dollars. According to these reports, the basket of currencies would
include a mix of yen, euros, Chinese yuan, gold. Brazil would
reportedly join as both a producer and consumer country.
The
secret plan was first reported by respected Middle East correspondent,
Robert Fisk, in the UK Independent. Fisk claims to have confirmed
existence of the plan from Arab as well as Hong Kong Chinese sources. I
have confirmed from very senior and well-informed Gulf sources that the
talks are in fact real. The oil producing countries have been fed up
for years about having to price their oil in dollars or face US
reprisals.
They are steadily losing as the dollar depreciates against
other currencies and against gold. Following the US declaration of the
War on Terror by the Bush Administration after September 11, 2001 most
leading Arab oil producing countries privately saw US policy as being
aggressively aimed at them. The unjustifiable US invasion and
occupation of Iraq in 2003 merely confirmed that as well as subsequent
US threats against Iran.Initially
various governments involved in the leaked plan have publicly denied
vehemently such a plan. That in no way invalidates that such moves are
afoot. They are well aware that the United States as a wounded tiger
can be far more dangerous. The leak of the plans in the world media,
whether every detail reported by Fisk is true or not, feeds what is an
inevitable decline in the dollar as a reliable reserve currency for
world commerce.
What
is not clear is what the potential response of Germany and France, the
two pivot powers within the EU will be. If they decide to cast their
lot with oil producing and consuming countries, they open their doors
to vast new trade and investment potentials from the countries of
Eurasia. If they cringe from that and decide to remain with the British
Pound and US dollar, they will inevitably sink along as the dollar
Titanic sinks.
With
that decline of the US dollar goes the lessening of the political power
of the United States as sole economic and financial superpower. We face
very turbulent waters ahead and gold not surprisingly is gaining in
this uncertainty.
But
before you rush out to buy gold and convert your U.S. dollars, you
should read Barry Eichengreen's latest article published in the Gulf
Times, the death-defying dollar (hat tip Tom Naylor):
The
blogosphere is abuzz with reports of the dollar’s looming demise. The
greenback has fallen against the euro by nearly 15% since the beginning
of the summer. Central banks have reportedly slowed their accumulation
of dollars in favour of other currencies.
Economists
have no trouble explaining the dollar’s weakness after the fact. With
American households saving more in order to rebuild their retirement
accounts, the country has to export more. A weaker dollar is needed to
make American goods more attractive to foreign consumers.
Moreover,
disenchantment with the sophisticated instruments that American
financial institutions specialise in originating and distributing means
more limited foreign capital flows into the United States. Fewer
foreign purchases of US assets again imply a weaker dollar.
Extrapolating the past into the future, forecasters predict that the
dollar will decline further.
The
first thing to say about this is that one should be sceptical about
economists’ predictions, especially those concerning the near term. Our
models are, to put it bluntly, useless for predicting currency
movements over a few weeks or months.
I
should know. When the sub-prime crisis erupted in early September 2007,
I published an article entitled “Why Now is a Good Time to Sell the
Dollar” in a prominent financial publication. What happened next, of
course, was that the dollar strengthened sharply, as investors,
desperate for liquidity, fled into US Treasury securities. Subsequently
the dollar did decline. But then it shot up again following the failure
of Bear Stearns and the problems with AIG.
Over
periods of several years, our models do better. Over those time
horizons, the emphasis on the need for the US to export more and on the
greater difficulty the economy will have in attracting foreign capital
are on the mark. These factors give good grounds for expecting further
dollar weakness.
The
question is, Weakness against what? Not against the euro, which is
already expensive and is the currency of an economy with banking and
structural problems that are even more serious than those of the US.
Not against the yen, which is the currency of an economy that refuses
to grow.
Thus,
for the dollar to depreciate further, it will have to depreciate
against the currencies of China and other emerging markets. Their
intervention in recent weeks shows a reluctance to let this happen. But
their choice boils down to buying US dollars or buying US goods. The
first option is a losing proposition.
In
the longer run, Opec will shift to pricing petroleum in a basket of
currencies. It sells its oil to the US, Europe, Japan, and emerging
markets alike. It hardly makes sense for it to denominate oil prices in
the currency of only one of its customers. And central banks, when
deciding what to hold as reserves, will surely put somewhat fewer of
their eggs in the dollar basket.
Beyond
this, the dollar isn’t going anywhere. It is not about to be replaced
by the euro or the yen, given that both Europe and Japan have serious
economic problems of their own. The renminbi is coming, but not before
2020, by which time Shanghai will have become a first-class
international financial centre. And, even then, the renminbi will
presumably share the international stage with the dollar, not replace
it.
The
one thing that could precipitate the demise of the dollar would be
reckless economic mismanagement in the US. One popular scenario is
chronic inflation. But this is implausible. Once the episode of zero
interest rates ends, the US Federal Reserve will be anxious to reassert
its commitment to price stability. There may be a temptation to inflate
away debt held by foreigners, but the fact is that the majority of US
debt is held by Americans, who would constitute a strong constituency
opposing the policy.
The
other scenario is that US budget deficits continue to run out of
control. Predictions of outright default are far-fetched. But high
debts will mean high taxes. The combination of loose fiscal policy and
tight monetary policy will mean high interest rates, sluggish
investment, and slow growth. Foreigners – and residents – might well
grow disenchanted with the currency of an economy with these
characteristics.
Mark
Twain, the 19th-century American author and humorist, once responded to
accounts of his ill health by writing that “reports of my death are
greatly exaggerated.” He might have been speaking about the dollar. For
the moment, the patient is stable, external symptoms notwithstanding.
But there will be grounds for worry if he doesn’t commit to a healthier
lifestyle.
I
agree with Barry Eichengreen, reports of the U.S. dollar's demise are
greatly exaggerated. The mighty greenback will come roaring back,
perhaps sooner than you think.
»
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Unfortunately, Math Rules.
No way around the numbers.
If you count all active American debt, it comes to about $55 trillion, give or take a trillion. That includes both private and government debt.
That means that the debt service, even at a small nominal average rate of only 5 percent [5% X $55 trillion], would be $2.75 trillion per year.
That is more physical Dollars than exists on the planet, as you can see:
http://research.stlouisfed.org/fred2/series/BASE
So, there are not enough real Dollars in circulation to service the current outstanding debt in the US.
Now, since the private sector can't borrow or spend much these days, the bankers are forcing the government to create and pass around new money to be used as "interest." Thus, every minute of the day, more and more debt is created just to service the interest on the existing debt.
How much interest is that?
Each Dollar deposit the bankers take in, they loan back out ten times. They earn ten times the stated rate of interest on each dollar. Let's say the average consumer debt pays 15 percent interest. That means the banks make 150 percent on every dollar they lend, each year. And, the interest compounds -- they earn interest on the interest.
The financial sector then pays themselves the enormous leveraged profits that result from this fractional reserve banking. Whenever the financial sector compensation goes through the roof, the economy experiences a complete and total collapse, as you can see from this nifty little chart:
http://i173.photobucket.com/albums/w50/alix2304/charts%20II/financial-earn.jpg
That is the math. It's an inconvenient truth.
The whole world already knows this, but some of our creditors (the other central banks) are pretending they don't until they can reduce their exposure to the Dollar or trade for real US assets.
I suggest doing what they are doing.
Macro smackro - i own gold demoninated Milwaukee street railway bonds from a few years back and I have all the coupons - we just have to revalue debt as we have always done - used to be we had infinite physical resources to plunder so canal or railroad these to market but the debt failed and we are still here, now it is our consuming ability, we can buy a lot more cell phones than we need so that is our new resource - we're set they need us more than we need them; be coy get the best credit terms you can!
Here is the thing; Lehman built uniforms for the army way back when, they were manufactureres, should have stuck to their last.
Excellent article.
I believe the U.S dollar is likely to strengthen in the short term due to good GDP numbers expected to be posted next week, and optimism for a stronger recovery coming into the beginning of next year.
It is natural for the U.S. dollar to be at such a low at this time, due to record interest rate differentials with other currencies and the weak U.S. economy over the last couple of years.
But if my belief that we are in the midst of a worldwide V-shaped recovery takes hold (see the third paragraph at http://invetrics.com/?p=4412 published last August), and the U.S. economy starts growing with markets around the world expanding to sell them products, the U.S. dollar will become stronger than ever!
You heard it here first!
time123
at http://invetrics.com
An old adage was "no one made money betting against America". A newer adage is "America has lost its moral authority". Pick one and you'll know what to do.
At the end Patrick Swayze was starting to look healthier too.
You are dark.
Nice.
I think many are looking at this the wrong way. For me it is not a case of strength or weakness but whether a carry trade makes sense. Since Countries like Australia are begining to ramp up their interest rates it makes sens for a carry trade to start up. The problem with carray trades is that they tend to be rather fitfull with quite large moves in the resultant currencies as a result. Quite often large players like banks will eventually get caught out and make losses resulting in rapidly unwound positions. The real way to look at this is that the differential between interest rates in the US and other parts of the world makes the US dollar more volatile. Eventually this will feed through to diversification away from the dollar and US multinational firms will get in a mess. Dollar demise maybe not and no doubt it will rally at some point, but a very dangerous position to be in, perhaps more so than the dangers of asset depreciation the FED is set to prevent.
My view is that the strength of the dollar is tied directly to the strength of the American people, the integrity of the Constitution, and the legitimacy of the media. Ultimatel the strength of the dollar depends on government making prudent decisions... about everything. But we are squandering our wealth on war and the tools of war and Congress no longer function as a legitimate representative body of the People while the President is unwilling to defend the rule of law. Government is run by big money interests so the decisions they make generally benefit the rich at the expense of everyone else. People are under educated, disinformed, and subjected to a continuous barrage of propaganda. We have no real leaders left in the White House or Congress and true patriotism is dying or already dead. The dollar is sinking as a function of the reality of real life. The strength of the dollar is not about finance, it's about people, their love of freedom, and their commitment to intellectual integrity. --Mark A. Goldman www.gpln.com
Leo,
Nice stuff. Here is some charts analyzing on the dollar and the first post questions the bullish divergence. http://cryptogon.com/?p=11832
I don't think Soros knows anything more about economics than anyone else. He sets currency traps, talks about how it will move, springs it and looks like a genius.
For all I know he reads ZH to get insights. His comments change in later interviews to match my conclusion. (Soros, the next time you quote me, cite me!)
http://www.zerohedge.com/article/attack-iran-or-market-noise-noise-probably#comment-101649
The Chinese peg now looks like a stalemate, giving the view of a dollar bottom weight.
I think the next big crisis is Iceland, basically threatened with extinction if they do not obey the financial overlords. They are the Austria of WWI, once the little guys start throwing off the chains of predatory derivatives like China is when the chain reaction starts and it is over.
So in conclusion, Iceland is the most powerful nation in the world right now, holding it in its hands like an egg. Will its people use this moment in time to cast off the chains of enslavement or use this opportunity to get a velvet pair of handcuffs.
http://money.ninemsn.com.au/article.aspx?id=919700
GS: As long as the renminbi is tied to the dollar, I don't see how the decline in the dollar can go too far.
How long I listen to hear a voice of reason!,
Leo, I have my favorite economists to, but guess what? They are always, and I mean always, wrong, end of story. However, even your pick says that mismanagement would be a problem for the country, guess what? We have had 38 years of gross mismanagement and neglect.
Running deficits of $1T+ for 10 years, assuming rosy growth I might add, is not sound fiscal discipline. The fact of the matter is that your guy is right, inflation does not exist right not and will not exist for some time, there is no money velocity. However, what most Americans do not understand is the devaluation process of the dollar and its impact on their savings. Look at oil last year, that was a result of the dollar hitting all-time lows and we are heading there again. How many Americans know the exchange rate of the CAD/USD or EURO/USD? Not many. My point is that the policy of this administration is devaluation of the currency, why?
Squeeze GDP growth through exports. Look at the trade deficit, it magically shrank, sure we are consuming less, but a lot of the decline was due to a weak currency. Intel, GOOG, AMZN and a host of other earnings all confirm positive FX results and are a story of the weak dollar and international demand versus US demand which means the administration can say, hey we are increasing production! They are trying FDR's devaluation method which temporarily worked, but failed long-term. There is a very big problem with this attempt though, which FDR did not have to deal with, we have nothing backstopping the currency. FDR had gold backing the currency and that gold was price controlled, so it could only be devalued so far, we do not have that luxury. Add a lack of backing of the currency with poor debt management and highly computerized trading and technically bearish long-term charts, IMHO, on the USD and you got serious problems in the USD.
With that said, I think the USD will rally in the short-term, but long-term Washington will not change it's ways. Unless you can convince me that they will; cut spending and fire government employees across the board, raise taxes on everyone to appropriate levels, cut SS, raise SS taxes, cut medicare, raise medicare taxes, dump universal health care, cut military spending, stop deficit spending and basically stop everything they have done for the last 30 years then I see no other direction for the dollar other than down.
What will replace it? Who knows, something will come along like the SDR seems to be the story of the day or perhaps countries will settles debts in their native currencies. Also, I am not advocating the gold standard either, just pointing out past devaluation attempts and why it was different from now. You could be right, but then again so could I. Just because you do not like gold it does not make it an invalid investment. I own it, but I am overweight in silver and palladium based on my own homework, but I also trade currencies, stocks, options and invest abroad, so I am hedged no matter what.
I just think that it would be foolish to think that the USD is the end all be all for currencies. Be bullish or bearish short-term, but on a long-term basis your opinion has to change based on the facts at hand. Right now the facts suggest that being bullish long-term is crazy, but maybe that will change in the future and that is the beauty about opinions, they can change versus beliefs. That is just my opinion and just because I disagree it does not take away from what you wrote, it was interesting.
Amen! Well said!
"Extrapolating the past into the future" is the reason for failure of 99% of prognosticators.
Thank you - i prefer the last twenty minutes into the next twenty years - Oct 19 1987 - market down holy shit.
Thank you - i prefer the last twenty minutes into the next twenty years - Oct 19 1987 - market down holy shit.
Gunther,
No timing problems at all, they are warnings (ie a prediction) of a USD rally.
www.zerohedge.com/forum/market-outlook-0
to GS.....you're writing this from DisneyWorld, right? I live in the SE and I can hear the gov't printing presses from here.
If you are warning since months of a non-existent rally then the cedibility of the warning is lost.
Not all market calls will come true, but being wrong over months is a bad record.
You called "wolf" once too often.
Leo = Bob
***UPDATE***
Gene J. Koprowski of moneynews.com reports, Soros: Dollar Killing Global Recovery:
Will China revalue? I don't see it happening because they'd be risking their export-driven growth. But as fundamentals start improving in the U.S. and deteriorating in Europe and Japan, you might see some form of currency intervention in the not too distant future as countries worry about how the U.S. dollar decline is jeopardizing their economic recovery.
China will re-peg or un-peg their currency eventually......
Simply put, there are will be massively selling of Dollars into any short term bounce, which will mean any bounce will be muted. Does this imply the "Death of the Dollar"? No, but the erosion of faith in the Dollar as a stable store of value is palpable the world over and when faith is lost, it is very hard to turn this around.
In my view, with the benefit of hindsight, we will look back at the current period of Dollar strength as a hiatus in a longer-term trend.
"The question is, Weakness against what? Not against the euro, which is already expensive and is the currency of an economy with banking and structural problems that are even more serious than those of the US."
The Eurozone has banking problems worse that the US? WTF, really, I must be missing something, worse that 105 banks down?
The dollar may be oversold for now and some correction may be in store. But it would be just a correction of the downward path of the dollar that has been going on since 1945. Who won that war? You can't tell by looking at the currency charts.
You say that the only possibility for a sustainind drop in the dollar is economic mismangement here in the US. Ok, but isn't that happening now? Do you think POMO is a good plan? Do you think printing an extra 1.75 trillion is good policy?
POMO will destroy the dollar Leo, and they are not going to stop it anytime soon. I, for one, am convinced that the POMO program was designed to weaken the dollar. It is working and will continue to work. Trust Ben on this one.
Bruce,
I admit that POMO weakened the USD, but that was part of what the Fed wanted in order to loosen financial conditions. After bringing interest rates down to zero, the only other option they had to stimulate the economy was to devalue the currency. The falling USD has helped U.S. exports.
Now, let's say you are right and the USD has a counter-trend rally and then falls back again to new lows. This is a possibility. But a lot hinges on what is going on in Europe too. Do you really think the euro above 150 isn't killing mnay of the smaller European nations?
Of course, U.S. monetary authorities may want to fight the threat of secular deflation by printing as much money as possible, trying to inflate their way out of debt, but there are limits to what they can actually do without jeopordizing the long-term economic health of the nation.
ummm.... uh.... pardon me, sir, but i'd like to point out that the long-term economic prognosis isn't great. and i'd also like to point your esteemed attentions to the fact that dollar credibility will always be a reflection of the long-term economic health of the nation, and/or the global perceptions thereof. furthermore, said perceptions will be viewed relative to alternatives.
it cracks me up to hear that dollar devaluation will help exports- what percentage of the economy does export manufacturing comprise? and by how much will this be offset by shrinkage elsewhere (growing input costs, etc) due to dollar devaluation? so by what percentage will the overall economy 'grow' as a result? a more likely scenario is for consumption to decline because of higher import prices, which negatively impacts GDP.
really, all this country has been manufacturing since china got most favored nation trade status is money. this fact is proven by the endless string of asset bubbles since then. and this fact is driven home when one notices that the recent liquidity tsunami most certainly did not go to building factories and/or increase capacity (only a fool would do that), but again merely goosed financial mkts because that's all that's left.
EVERYWHERE (and i mean EVERYWHERE) people are shouting from rooftops that the dollar is due for a rally. i do not doubt that one bit- eventually. but what remains to be seen is just how high it goes and how sustainable the move is. so the dollar 'rallies' to .77 and that's it? or does the old gal get up for a meaningful song and dance, just like the good ol' days? for all our sakes, i hope she does. but for all your sakes i hope you're hedged if she drops dead in the spotlight.
personally, i could care less what the next move is, i care about the obvious macro trends. my belief has always been to hedge against near-term counter-trend moves whilst being invested in the bigger picture. the bigger picture is that nothing lasts forever, and the longer it goes on by definition the closer the eventual end is- that's the trend here. like chess, victory/the serious money won't be made in the next move, but multiple moves down the road. whomever is obsessed with the more immediate is doomed to the failure of chasing their own tail.
so all we really have is to distill the static and mountains of conflicting information into a bigger picture. my personal opinion is that it's a bit simple to look at the past 100+ years of fed history (consistent dollar devaluation to juice 'growth') and the past 1000 years of fiat currency history (not viable very long-term) and ignore unequivocal history to conclude that it will be different this time.
i agree there are limits to what the fed can do without jeopardizing the economy. what we have seen them do thus far is effectively double-down on furthering the debt/consumption bubble, just as they always have. but so far, as always, this strategy is yielding progressively diminishing returns that are in fact now becoming negative. so what they have ALREADY done has jeopardized quite a bit. now they're just trying to jump-start the frankenstein that nearly killed us- NOT A GOOD IDEA! in our banking system debt = 'growth'. but we all know that debt/thermodynamics kill us in the end. and THAT, dear leo, is what this ONGOING and UNFINISHED crisis is all about.
finally, this strategy has the undesirable characteristic of railroading the fed into following this path until the bitter end. the fact that the fed WANTS dollar devaluation, and even NEEDS it, is made obvious by the fact that this is the easiest and most usual path to take. i'd wager that 90%+ of americans are completely unaware of this invisible tax, so the fed stands a chance at maintaining credibility while blaming 'speculators' and 'foreigners' for inflation and 'illegal immigrants' and 'welfare mothers' for skyrocketing taxes.
because of the quirks of globalization currencies are the front lines and whomever is 'undervalued' wins in the near-term at the expense of long-term stability. the chinese said a few months ago that they can't raise rates until the U$A raises rates, so they're stuck. as the dollar drops foreign CB's are scrambling to maintain the status quo. this is why gold has been rising in all currencies. however, all this does is buy time. by the time global CB's stop sacrificing their currencies either globalization/the global economic order will have changed fairly drastically or will subsequently change drastically as a result of currency(s) volatility. my point is that how much EU nations are hurt by the euro @ 150 should/must become irrelevant due to future changes in the current global economic imbalances that caused this mess to begin with.
this will be a major shift, folks. and major shifts don't come easily nor are their trajectories predictable. so to say 'dollar up!' and alternatives 'silly' is to ignore the magnitude of just what the hell is really happening and what the implications COULD be. there are ominous developments in every single category and their interactions can amplify chain reactions of unpredictable results.
if you want to invest in a myopic, short-term viewpoint be my guest. but a quick study of the history of the sunset of empires may be in order- the 'health of the nation' points to the fact that we are clearly at a tipping point (if i may be so cliche). history has not been kind to the currency of said empires because they all did what we're doing now. history has been much kinder to precious metals, but i digress. clearly, the stakes are extremely high and we are attempting to what's never been done before (in a very high-tech and heavily-armed world of 100% fiat currencies). to maintain situational awareness is to keep that fact front and center.
nothing would please me more to see disaster averted, the fed execute their strategy perfectly (even though this has never been done, anywhere, ever, because the conditions and perceptions and dogmas are ever-changing and imperfect) and to see wake up one day to find that the real 'pax americana' lies ahead of us rather than behind us.
anyway, thank you, leo, for the lessons- not in economics but in human nature.
good luck!
Nailed it. Kudos.
ah
sanity
soothing
Marvin knows his rabbit holes.
"Of course, U.S. monetary authorities may want to fight the threat of secular deflation by printing as much money as possible, trying to inflate their way out of debt, but there are limits to what they can actually do without jeopordizing the long-term economic health of the nation"
There are limits to what they can actually do [in that regard] without jeapordizing the value of the USD...TD, we need a new dollar contrarian on this site who has better arguments (if, indeed, there exit any valid better arguments other than a temporary flight-to-liquidity bear trend rally).
Euro can't go up anymore. Period. Have you been to France recently? Crappy Soviet-style shoes, by the millions, sit in windows for 45 euros. That is $70 US. You can get the same shoes made in China for $15. That is just the beginning. A 40 minute Limo ride from Paris to Charles de Gaulle Airport is 225 euros. That is over $350. A 40 minute limo ride from downtown DC to Dulles Airport is $85.
Leo I think you are spot on the DXY will be at 100 by next October - just enough time to bolster the results of the multi-nationals and instill confidence in American voters. The first half of 2010 will see massive economic and finanical manipulation to ensure the majorities are maintained - devaluation will come in January 2011 because "We need to do everything we can to ensure that they can keep taking those risks, acting on those dreams, and building the enterprises that fuel our economy and make us who we are.”
leo what do you not understand about a $100 trillion dollar black hole? the dollar has to devaluate substantially unless you want to be taxed at 80% for the rest of your life.
barry eichelberger understands about a 20% of the issue. do a little reading about interest rate swaps and foreign CBs USD bond issues being converted into their own currencies. once you understand the details between the swaps and the bond issues you will understand why the fed cant raise rates. the usd is the new carry trade vehicle...sorry but you and barry for that matter do not see the whole picture................do you honestly believe in the value of fiat currencies?????
aurum,
You mind providing us "ignorant fools" some links to back up your assertions. Because the way i see it, you're huffing and puffing smoke my way, and I don't like second-hand smoke. I know all about foreign interest rate swaps and foreign CBs USD bond issues being converte into their own currencies. So what? Nothing new there. But I also know that the current financial arrangement is unsustainable. If China doesn't revalue the yuan, you'll see Japan, Europe, Brazil and others buying U.S. dollars to support their economies.
if you now all about it then why do you need the links for it? IRS are the biggest time bomb right now period.
if you understand the concept then you would understand why the fed has its hands tied. you dont get it. and yes the current situation is not sustainable re the dollar or any fiat currency being a reserve currency....and please explain your theory that if china doesnt revalue its currency blah blah blah?????? i am wasting my time here...dont worry about it
aurum,
The Fed has its hands tied because it knows if it raises rates too fast, before employment is on a sure path to recovery, then they risk killing the recovery. You think the Fed is basing monetary policy solely on what is going on in the swaps market? Come on, that's Hollywood fantasy, makes for a nice salatious story but is not rooted in facts. Read my latest comment on the Chinese disconnect and we can chat some more there.
one of the troubling aspects about this quack economist is his obsession with price stability....we should know that prices fluctuation for varied reasons - it could be technology, ebb and tide of fads, competitive circumstances, and last but not least currency debasement....
prices should be established by the market - not a small group of crusty old men in 3000 dollar suits deciding how to manipulate currency....
if you do have such a centralized politburo system the central planners should be more concerned with currency integrity...of course i am hard pressed to know what currency integrity is in a fiat/debt based system....but obesession with prices is entirely misplaced...
for an alternate view on the dollar here is an audio link to louise yamada
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2009/10/23_...
at around 23:00 min there is discussion of the dollar....she thinks it could hit 60 as a low by one measure and lower by another....
yamada is no slouch as a technical analyst and certainly worthy of consideration.....now 60 may not be the death of the dollar but it is still a dour position....
every dominating bear market will have bullish moments so i would not consider any up trend as significant....
neither the fundamentals nor the technicals speak of a strong dollar....a strong dollar over the next few years simply does not make walking around sense....
+1
One would surely be foolish to dismiss Louise Yamada offhand.
At 60, I may consider a real bounce taking place. We'll see.
"Once the episode of zero interest rates ends..."
ROFLMAO!!! That statement alone invalidates the entire post.
I have been warning of a USD rally for several months.
USD bullish warnings continue.
MORE:
http://www.zerohedge.com/forum/market-outlook-0
supercycle,
your method has severe timing problems.
every dog has its day; everyone his 15 seconds
of fame.
O.K.nobody can tell the future,but we have to look at what brought the dollar down So there was a huge trade deficit,and naturally more supply than demand brings down any asset based on that fundemental. Now we have half of that trade deficit. But the problem is thatt the increase in deficit might be enoug or more of an offsett for that decrease,which will again keep the pressure on the dollar.And if the latest count by the wfc report about gold,that foreign buyers bought only 50 bil,and compare that to the debt issued last year,there might just not be enough incentive for anybody from pushing the dollar more to the downside.And as far as the fed coming to the rescue,I think that actually they are more worried about keeping the dow 10000 image than dxy at 75 image.
Yea the dollar will be fine! Raising the debt ceiling another trillion funnybucks doesnt matter, or the FED putting the brakes on buying bonds, or try another 'reverse repo' fire drill like lasts weeks massive flop. Nevermind the utterly collapsed 72% borrow and consume U.S. economic model. Everythings fine, and we have such capable leadership too. I really see no cause for economic concern at all.
Great post LEO
It was a contest to see who could devalue their dollar,yen,euro,ect first. Ben won and the losers are whining. The threats and the secret meetings are nothing new. The last one to raise interest rates wins. I totally disagree with this policy. Reality is what it is.
Barry Eichengreen is one of the sharpest economists around. He has written many papers and books on currency crises. I trust his judgment and I am getting sick and tired by herd mentality telling me the U.S. dollar is doomed. Nonsense, just like those who were telling me the stock market will retest its March lows. Things don't go down (or up) forever. And before I forget, gold is not half as great as most of you think.
So, what do we need you for, Leo? To tell us that Barry Eichengreen is a smarty pants and knows the future....thanks for that.
"gold is not half as great as most of you think."
Hmmm... so, show me all the other non-commodity asset classes that have been 4-baggers this decade.
Are you a linear projectionist? Hmmm... Then there is a 100% probability that you will eventually be wrong.