Mohamed El-Erian Says We Can Not Assume The Dollar Will Retain Its Reserve Currency Status

Tyler Durden's picture

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Bam_Man's picture

So that's why Mo gets paid the big bucks. What a genius. I never would have suspected.

B9K9's picture

Late last year, I repeatedly pledged to eat an FRN if Bernanke actually went ahead and attempted to fully implement his QE thesis aka helicopter drop.

The reason for my confidence that Ben would be physically prevented from initiating such a disastrous policy was quite simple:

  1. The US is a global empire that utilizes its military advantage to control key resources and maintain critical trading relationships which in turn provide a positive feedback loop that supports our international hegemony; and
  2. The US $dollar, as both a store of value & the global reserve currency, is the absolute linchpin in enabling the MIC (DoD, CIA, NSA, et al) to finance & fund all overseas & domestic operations and development programs (read: contractor R&D) necessary  to provide our "national security".

There is no way in fucking hell that Ben or anyone else for that matter is going to be allowed to single-handily destroy this nation's ability to dominate our level of resource consumption habits that deliver the life-styles to which we have become accustomed.

Sure, I have no quarrel with those who counter that this is in fact unsustainable; granted. My point is that the loss of the reserve status will not be performed by one person, but rather will be externally imposed only after a really, long bloody fight.

QE was fun while it lasted - perhaps some got out in time. Our reality has never really deviated from our date with deflation.

schoolsout's picture

So, you're going on record that QE is over?

DoChenRollingBearing's picture

I always read your replies carefully B9K9, one of the sharpest here at ZH.

I am not sure I agree, but you argue with good & clear logic.  Not to mention to take a stand.

tmosley's picture

You make the flawed assumption that the people in charge have a firm grasp on what is going on.

Sadly, they drank their own kool-aid long ago.  QE will not end.  The dollar will die.  There is simply no stopping this train.  Not without a wholesale slaughter of the political class in this country.'s picture

And there was much rejoicing.

Bob Sponge's picture

I agree. In addition, the secret owners of the Fed are likely not American in majority if at all. So, I doubt they give a fuck about America and America is likely disposable to them. BTW, I enjoy your posts (and B9K9's).

sporb's picture

I think you are correct in your first statement, but then I see that you put your tinfoil hat on.

These people are more powerful than you and your cohort are. If they want the USD they will have it. After all, the current economic power in China stems from exactly the same source - from "printing money".

Remember: It hasn't been a "market" for a long time now - but your cohort doesn't want to hear that, and such deaf-blindness can't help their investment strategies... just sayin'

tmosley's picture

No, power does not come from printing.  Printing is merely the means by which they steal power.  It is the manufacturing base that creates power.  With a manufacturing base, a nation becomes great.  When that power is misappropriated by the government, it damages the manufacturing base.  If you damage it faster than it can repair itself, it goes into terminal decline.  

That is where we are now.

I have no idea who you are talking about when you say "your cohort".  I don't have a cohort.  It's just me.  If it is deaf-blindness to watch reality, and ignore the falsehood presented as truth by those thieves who steal from all who trust them, then the blind shall rule in the land of the comatose.

Oracle of Kypseli's picture

There is so much chatter about the Chinese Yuan as the new reserve currency and I am wondering if this is just another way, the Fed is trying to de peg it so that the US debt becomes somewhat manageable.

I am afraid that Ben's and Tim's (!) tactics are not working. The dollar will die before any other single currency takes over as it carries a lot of responsibility. Most likely a basket of currencies with a dose of Silver and Gold will eventually be the choice as it will be more equitable or at least appear to be equitable.

Meanwhile, Ben has no option but keep printing, extending pretending and praying for a miracle. (Miracle is defined by scientists as one in a trillion.) But Ben is aproaching quadrillion


trav7777's picture

if so, then massive, cascading bankruptcy will end the USD

robertocarlos's picture

No, there is some guy out there (probably a bum on the street) and he has a fiver in his pocket together with no debt. He probably winds up owning the whole USA. 

trav7777's picture

yes, the deflationist argument.  Those with a few scraps of paper with the right ink will end up owning everything.

See, such an outcome is improbable simply because it is so inherently ridiculous.  B9 is correct that the system will deflate, but the effects of it will not be as deflationists predict.

Also against the notion that Ben will *not* do QE3 are the japs who are STILL QEing even 20 years later.  QE *can* and *will* continue until ultimate faith in the currency is lost.  Such a discontinuity will happen rapidly and beyond the power of the paper pushers to abey it.

Clockwork Orange's picture

And, after 20+ years, not a day too late, Moody's downgrades 'em.  Words escape.

equity_momo's picture

Why has the Yen been so strong in this period of Japanese QE? Honest question - i understand Mrs Watanabe's attitudes but it doesnt explain how a country like Japan , dying a slow death , can maintain a currency which has such relative strength to other fiat currencies.   

our system perversely looks as debt as money.  Ultimately , that debt is going to be defaulted on - not through inflation (because that policy prescription quickly leads to hyperinflation and an inflation policy when we are at this stage of the cycle is suicide) but through outright default.  There is so much debt in the World (in dollars) that once that deb is defaulted , dollars are literally vapourized. Bernanke cant print fast enough. And if he tries , commodity prices will quickly put him back into his box. The only outcome i see is asset prices collapse , granted , we can melt  up in certain classes before that happens.   Which brings me full circle to precious metals being the only tangible, portable (that is very important) asset that comes through the worm hole in 1 piece.  It becomes a hedge to inflation or deflation.    If i had more confidence in our "masters" i would balance my gold holdings with dollars , still the only fiat paper that matters.

I guess the defining question is , at what oil price can the global economy function with a growth at all costs mandate? I believe we are and have been for several years in structual decline and DE-globalization , its just not obvious. Corporates are hording cash and not looking to grow organically because they know this. We are literally at the end of the road. Printing money is a futile gesture.


cranky-old-geezer's picture

No trav, massive money printing to keep TBTF out of bankrupcy will end the USD.

Snake's picture


Regarding inflation vs. deflation ... the El-Erian talks of

"stagflation", no?  If (I'm asking) I have inflation in, say,

food, and deflation in clothing or houses, doesn't all all even

out in a stagflation scenario?  It seems to me (I said it before,

I am not an economist by any means) the discussion inflation/deflation

is, like many a tech. chart, a remnant of the past.  This time IS 

different, no?  


Clockwork Orange's picture

Biflation, yes.  And the answer to the question is 'it depends'.  If you own zero assets, and all your necessities go up, you have inflation.  If you own a home, you've got deflation that simply makes your necessities inflation hurt even more.  If you own assets such as USO, PSLV, PHYS, POT, FXA, FXC, etc. your answer depends only on the scale of those assets vs. your food and home.  

I doubt food and commodities are going too far south for long.  There's too much demand and too little supply, generally.  And oil going south?  Forget it.  Homes, big-ticket items ... stocks that focus on them?  Oh,oh.

slackrabbit's picture

Again, as my previous posts, many including the Baernak assume a 'closed system'. This thinking is like Gaddafi talking from his 'car' and his 'podium' in front a battered building - it reeks of maddnes and refusal to accept that there are too Black Swan that can throw your plan arwy.

At Zero Hedge we have all complanined about the sheer maniplulation and BS of the market. With rebellions and food riots going on, what will eastern leaders do? Whats about the German and Irish elections this year? The floods in Austrailia and the earthquake in New Zealand....add all those freaks of nature together and ask yourself the Economics 101 question:

How long do give the US dollar to last as the worlds reserve currency?  

That decision may not be chosen or enacted, but simply forced on world leaders by the market, becuase you or I no longer trust it or because you have people starving, or it may simply be propaganda fatique. Like the rebellions in the Middle East, poeple may just  give up on it, and no amount pleading will change anyone's minds. 

George the baby crusher's picture

but rather will be externally imposed only after a really, long bloody fight.


You hit the nail on the head there.  Now only question, are Americans willing to die for the banksters? 

Raging Debate's picture

The game isn't over yet but I'll take the contrarian bet. B9K9, before we start I must say I do like your insights in general.

China will become the world's reserve currency between 2013-2015. Ben Bernanke is a powerful Chairman but he serves the interests of the banking community at large. The U.S.A. as a nation wasn't going to change to fund the real problem - demographics.  Here is my name:

  Jason C. Rines

 Here is my cell phone: 603-953-3388

 Here is my email:

 If China is the reserve between 2013-2015 you chew your FRN on video and publish here on Zero Hedge. If I am wrong (meaning China becomes reserve but outside range provided) I will chew the FRN on the video.

May as well have some fun out of really crazy situation! The crazy part is the miscalculations of the 1990's and endorsing American banker-sponsored Fascism again (solved by fighting other more violent Fascists in WWII and 60 M lives).

What is tragic is we are now like China, State Run Capitalist or what was known as Fascism in the 1930's. Hope we at least return to fair market (I know, I know hasn't been that way for a long time but U.S.A. was close) after the temporary bloodbath.

cranky-old-geezer's picture

"Our reality has never really deviated from our date with hyperinflation."

Fixed it.

You're welcome.

sgt_doom's picture neither!

I mean, the IMF has been pushing Special Drawing Rights (SDR) for how long now???

And the World Bankster, Zoellick, keeps harping on spreading the reserve currency status to China, and those BRIC nations, and.....

Geez, one guesses they just have to trot out a member of The Select, Big Mo, to give the official word on the subject.

Raging Debate's picture

Exactly Sgt. Doom. Not even really "secret" on SDR's just visit BIS and IMF sites on a regular basis. The first banker sponsored global government was the League of Nations. Decentralization occurs alongside debt saturation. The question in my mind is after the next big world war will the people have woken up enough to not permit YET ANOTHER REPEAT?!? If they do, then really I will lose all hope in mankind (at least evolving fast enough to bother worth being alive on this rock).

There are also now world leadership sites that have links to debate areas too. That at least is an improvement over Greenspan stating in 2004 how debate about CB model is off limits to the public.

If the overlords want to continue to rule, they must consider healthy manners of decentralization meaning evolving their model but I am glad they are figuring out that political union without monetary union may leave their own kids hair glowing. Perhaps only 20% die in the coming conflaguration of decentralization CB, Boom/Bust style? That is where I feel it is still worth educating, he who saves one saves the world...   

equity_momo's picture

20%? youre wildly bullish.

Whilst we debate inflation v deflation , we have statistical evidence that the World is unable to increase oil production for the past 5 years despite oil trading at 10 dollars in 1999 and now 110 dollars in 2011 (and 40 in 2005)

Whilst we lurch from "financial" crisis to financial crisis , the elephant in the room is how do we support a global population of 7 bil into a globalzied agenda with declining oil production. You have seen the charts of oil production v  population v money supply.   The logical conclusion is we cannot sustain this.   Debt becomes irrelevant , it will be outright defaulted. Millions will die by hook or by crook. Dont shoot the messenger - im just joining the dots. If someone gets a completely different picture to the dots , please enlighten me , im not deaf to a more positive conclusion if its rationale. 

without an exponentially growing population , consuming more and more , the whole economic model we have collapses.

jus_lite_reading's picture

Word on the street is both the Euro and US dollar will implode simultaneously in ~2 weeks. I am really worried tens of millions of people in this country and the EU will go hungry very soon. Global famine.

SilverIsKing's picture

Word on the street?

Which street would that be?

TeamAmerica's picture

The word on the street is "STOP".   Perhaps you were looking at it upside-down.

trollin4sukrz's picture

If Not US Dollars then what? A basket of fiat? That should work wonders in reinforcing consumer confidence.

Dr. Richard Head's picture

Who the F had the balls to junk you?  Pussies.

tmosley's picture

There is one particularly dumb bastard floating around.  He'll probably see my reply and make a drive by comment having to do with abortions or some stupid thing.

Dr. Richard Head's picture

When I junk someone I always let make sure to part a retort to their stupidity (which is the reason for the junk).  Drive by junkings are for paper holders.

AldoHux_IV's picture

Agreed, the solution brought up by the IMF and being championed by Christine Lagarde and the other elit-ards ain't a solution.  I would suggest that it isn't the system inasmuch as it is the people who are running the system.  Start by dissolving those who continue to wreak economic havoc and you begin to create change in the right direction.  First place would be to start with dissolving the fed and issuing our own currency.  Coincidently, by dissolving the fed we would be able to destroy so much US debt that it would be almost like a reset button which would help with the fiscal situation.  Nuke the fed and you inevitably nuke the debt and huge chunk of our fiscal woes.  Then the next step would be to get the right people in congress who can actually recommend sound ways to spend our tax dollars so it doesn't hurt those who need and rely on it the most-- redistribute the wealth and opportunity to the people, but don't make them atrophied in being able to be self-sufficient. Just a suggestion for when the fiscal debate takes a turn for the worse or just becomes a rhetorical masturbatory debate.

tony bonn's picture

anyone considering "animal spirit "s as a valid element of economic theory is a tard...i suppose he believes in the 5 elements of the universe's composition...

InconvenientCounterParty's picture

Actually, there are just three elements. Rock, paper and scissors. Don't be the last one to own rock.

MarketTruth's picture

And what do the world's cental bank FIAT printers hold as reserve when their own paper product fails.... physical GOLD!


Got Gold?

DoChenRollingBearing's picture

Got mine.

Prepare: diversify and be agile!

UninterestedObserver's picture

No shit sherlock - looks like pimpco is fucked

Dr. Engali's picture

They are questioning legitimacy of the Libya's data? What about the legitimacy of our data?

Snake's picture

"... reality is made of language" (Jacques Lacan).

UninterestedObserver's picture

On Pimco's strategy and how to react to unrest as an investor:

"Last week, Friday in particular, when the crisis started impacting countries like Bahrain, we recognize that things were morphing.


Trnaslation - we got blindsided by the fucking proles and are feverishly trying to get Benny to buy all of our bonds

SwingForce's picture

Whatever, Mo, who's currency does the world want instead? Gimme a break....

Dr. Richard Head's picture

I think the push of PM prices is voicing the want for money over currency. 

AZSovreign's picture

Why does there need to be a world currency anyways? Is it just to make things easier for global transactions?

UninterestedObserver's picture

Paper money makes it easier for the strippers too