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Death of the Dollar

Pivotfarm's picture




 

We’ve all done it, haven’t we? Chucked something in the wash and turned it on too high, only to see it pop out at the end of the cycle and it ends up the size of your hamster. Well, Obama has been doing the same. Except this time it’s not your winter woollies that he’s shrinking, it’s the greenback.

The US currency is shrinking as a percentage of world currency today according to the International Monetary Fund. It’s still in pole position for the moment, but business transactions are showing that companies around the world are today ready and willing to make the move to do business in other currencies.

The US Dollar has long been the world’s number one denomination in world currency supply. It represents 62% of total holdings in foreign exchange in central banks around the world. But, it is in for a tough race from up-and-coming strong currencies. The Japanese Yen and the Chinese Yuan are both giving the Americans a good run for their money. The Swiss franc is too (surprisingly).  There is $6 trillion in foreign exchange holdings around the world at any given time, on average and the US Dollar represents almost two-thirds of that.

The fact that Brazil and China have also just signed a currency-swap deal worth something to the tune of $30 billion stands as living proof that the dollar may be further on the wane. China will exceed all expectations in the future as the world’s largest economy. The US will be overtaken. The Chinese currency will one day overtake the Dollar too. Has to be!

Although, it’s not quite there for the moment. China is not near being the world’s reserve currency yet. In order to be the world’s reserve currency there would be the need to produce enormous quantities of what the world wants. China has got that one off pat already. Then, countries holding the reserve currency would need to be able to spend that currency elsewhere in other countries or find a place to put it while waiting to do so. World capital markets are currently in dollars (40%), which means that there would be no possibility of using the Chinese currency. But, that’s only a matter of time. Some are predicting this will happen pretty soon.

The Federal Reserve has come in for some strong criticism over the unconventional Quantitative Easing methods that have resulted in 3 trillion spanking new dollars rolling of the printing presses. This has certainly brought about some degree of worry around the world that the dollar is not quite as safe as it might have been thought to be in the past. Is the world worrying that the dollar is not as safe a bet as it used to be in world domination. Are central banks worried that it will shrink in the wash and the colors will run?

Some are predicting that the dollar will shrink rapidly over the next two years and it will lose its top place as the world’s reserve currency by 2015. In the 1950s the dollar was 90% of total foreign currency holdings around the world. The dollar has definitely lost out to other currencies that are stronger. If there is a continued move and the dollar shrinks, then the resulting catastrophe that will ensue will have a spiral effect on the already enormous US budget deficit (over $1 trillion a year on average).

The only reason the Federal Reserve has been in a position to print more money recently is simply because they are in the strong position to be able to do so as the world’s leading reserve currency. If that changes, then the Americans won’t have the possibility of just hitting the button and setting the printing presses rolling. That means the US will be in no other position than to end up having to pay their debt back.

The US economy and the market are starting to show signs of recovery. Signs. It’s not sustained, hope as they might. If the dollar loses its attraction, then it won’t be used as the international reserve currency. Businesses will start using another currency and the dollar will lose out further still.

Some experts are saying that the problems of the dollar are like a time-bomb ready to explode. Ultimately, it will bring about the death of the dollar. As we stand on and watch, huddled around the coffin as it is lowered into the ground, we know it’s all too late. The flowers have been sent and the Stars and Stripes has been played in recognition of loyal service for the nation.

The QE methods are nothing more than aiding and abetting the already problematic situation of the greenback. We might look back in years to come and reminisce over whether it was the right (long-term) solution to use QE, whether printing bucks sent the greenback to an early grave, or whether it just reached the end of its life and croaked peacefully without making too much noise.

But, criticism of and worry over the dollar and its longevity have been hot topics for years now. The US dollar is a fiat currency that can easily lose status, deriving its value from government regulation and law. But, then again, so is the Euro. So, people living in Europe shouldn’t start throwing stones…they live in glass houses too…and that’s before they start.

Originally posted http://www.tothetick.com/death-of-the-dollar

 

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Thu, 05/30/2013 - 19:23 | 3611952 lakecity55
lakecity55's picture

How many "dollarz" are being physically printed vs created as 1s and 0s ?

Thu, 05/30/2013 - 19:03 | 3611890 SILVERGEDDON
SILVERGEDDON's picture

Au contraire, mon frere, silver is the suit I wear.

Thu, 05/30/2013 - 18:43 | 3611829 lasvegaspersona
lasvegaspersona's picture

How does the currency of a net exporter become a reserve currency? Robert Triffin saw that problem in 1960. Short answer...it can't.

A currency that is not of one nation state and one with gold on its balance sheet might work (hello Euro).

Thu, 05/30/2013 - 18:30 | 3611785 orangegeek
orangegeek's picture

Not so sure about the Yen.  The Juan is tied to the USD - so that's an interesting spin.

 

US Dollar is being seen as a safe haven (yes, unpopular comment).

 

http://bullandbearmash.com/chart/spot-dollar-daily-falls-hard-euro-yen-g...

 

Negating the last few days, the US Dollar has been climbing steadily since Feb. and well off its lows in 2011.

Thu, 05/30/2013 - 18:37 | 3611802 Weisshaupt
Weisshaupt's picture

Go Dollar. You suck the least!

 

Thu, 05/30/2013 - 19:13 | 3611914 orangegeek
orangegeek's picture

pretty much the case

Thu, 05/30/2013 - 18:12 | 3611740 A. Magnus
A. Magnus's picture

"See note above re. naval power. It will be a long time before the Chinese catch up on the high seas, or anywhere else militarily, seriously."

Google this: Yakhonts hypersonic anti-ship missile.

China doesn't NEED to catch up if they can sink everything we put in the water...

Fri, 05/31/2013 - 10:07 | 3613392 11b40
11b40's picture

No argument here.  My only point is that they are not even close to catching up.

But, strategically, China has to import huge amounts of raw materials.  Block sea lanes and close ports with air stikes, and their war machine and economy tank together.  We can do both those things from the air.

Not that I think a shooting war with the mainland is on the horizon.  Nope.  It will be a long continuation of proxy wars in key states that happen to have desirable raw materials, currency wars, trade wars, and shifting alliances of convenience that are in store for us.

Thu, 05/30/2013 - 18:06 | 3611717 rsnoble
rsnoble's picture

I'd like to nominate Scooby snacks as the new world currency.  Then we'll finally have a currency you can actually eat.

Thu, 05/30/2013 - 17:58 | 3611693 falak pema
falak pema's picture

like I said; in the year 2030....

Thu, 05/30/2013 - 17:54 | 3611681 Cult of Criminality
Cult of Criminality's picture

11b40

love the way you sugar coated that .+ 1

Thu, 05/30/2013 - 16:46 | 3611496 Uchtdorf
Uchtdorf's picture

The Japanese Yen and the Chinese Yuan are both giving the Americans a good run for their money.

Huh? The Yen? Have you seen a chart lately?

Thu, 05/30/2013 - 15:34 | 3611289 MrBoompi
MrBoompi's picture

Everyone still has to buy oil with dollars.  At least that's what I've heard.  The people who tried to trade oil in other currencies, or gold, haven't faired very well.  Go ask Saddam how it worked out for him.  As long as we have the biggest military, it's going to be hard to fuck us over.  I'm sure it will be much safer to do it very slowly and quietly......

Thu, 05/30/2013 - 15:41 | 3611319 11b40
11b40's picture

Well, in the next few days we just might get to see how it's working out for Russia.  They are in the midst of "fucking us over" as we speak.  

Defensive missles for Syria will throw a giant monkey wrench into the blue print for our plans in the ME.  And here is another thought.  What if they tell Europe that they want to be paid in Rubbles for their gas this winter?  Or Gold?

Thu, 05/30/2013 - 19:13 | 3611916 lakecity55
lakecity55's picture

NATO not to fare well vs. S300s

Looks like the Russkies are the ones trying to keep the Peace this time around.

Thu, 05/30/2013 - 16:50 | 3611517 Uchtdorf
Uchtdorf's picture

I'm not convinced yet that Russia's missiles are not simply part of some larger plan, just like the Soviets conveniently walking out of the UN General Assembly in protest right before the vote on the resolution for the blue helmets to be sent to the Korean Peninsula. What happened? The UN ended up fighting the Russians who were "advising" the N. Koreans. As long as no elites die, what's a little bloodshed among trading partners? It's treason, but none dare declare it so...if you know what I mean.

Thu, 05/30/2013 - 17:58 | 3611657 11b40
11b40's picture

Guess we have to stay tuned to see how the chess game turns out.

 

 

 

Thu, 05/30/2013 - 16:46 | 3611492 OutLookingIn
OutLookingIn's picture

They already get paid in euros and have been for years.

"fuck us over?"

Depends on who is the "fucker" and whom is the "fuckee!" Seems to me that one lives in Washington DC and the other lives on 'Main Street.'

An already large portion of the globes oil trade is in something other than the US dollar. Including arms.

Thu, 05/30/2013 - 17:43 | 3611650 11b40
11b40's picture

Do you have a point?  Are Euros Rubbles?  Are Euros Gold?  Quick...tell me who prints Euros?

Do you understand the signifigance of those missles that just arrived in Syria?

Russia just told America, Europe, and Israel to bugger off regarding Syria...that they would pursue their own interests in the region, and they put their weapons where their mouth is.  If these are deployed, the balance of power just shifted.

Thu, 05/30/2013 - 19:17 | 3611927 lakecity55
lakecity55's picture

Expeciallially if they are manned by Russian Armed Forces personnel.

If the Chosin Ones pop try to hit an S300 site, they will be attacking Russian Forces.

What part of Do Not Mess With Syria does the City not understand?

Thu, 05/30/2013 - 15:24 | 3611260 OutLookingIn
OutLookingIn's picture

The 'canary' in the global financial mine is the "Petrodollar."

 

At the close of WWII the global pertroleum market traded 100% in the US dollar priced per barrell of oil.

That is not the case today, when you see the Chinese RMB, Russian ruble, and Iran's gold bullion, along with others including India, trading for oil using most everything, except the US dollar.

The defacto worlds reserve currency since the end of WWII is now diminishing in it's stature. Historically the life of a world currency has been on average 45 to 55 years. In three years the US dollar will celebrate 60 years in this role. According to the historical record, what is happening to the US dollar is natural and unavoidable.

Thu, 05/30/2013 - 14:28 | 3611105 laomei
laomei's picture

I don't even invoice in USD anymore.  I proudly tell my clients that my prices are staying stable and steady.  It's just their USD that's losing value... 100,000 RMB is 100,000 RMB.  If to them that means $500 more, that's their problem.  I *do* offer discounts for full payment up front though.

 

The best result of this is they dig deep to just pay me a retainer before their USD drops further.  Which I then drop into 5% insured bonds.  What makes it better is that the few resources I actually *need* that are priced in USD, just keep cutting each others throats on price, while USD drops further.  If a client decides to cancel, I gladly refund the retainer... in USD of course, seeing as that's what they sent in the beginning.  It's pretty nice when they give me money for free :)

Thu, 05/30/2013 - 14:04 | 3611006 i_fly_me
i_fly_me's picture

The Euro may be fiat, but it isn't the same as the Dollar.  The Euro was built to survive and in fact benefit from the death of the Dollar.  Europe still shouldn't throw stones ... but for other reasons.

Thu, 05/30/2013 - 13:42 | 3610944 Lost My Shorts
Lost My Shorts's picture

How is it that the Chinese currency is about to become a reserve currency, while the Chinese themselves would prefer gold?  All this China awe is silly.

Knowing what you know about the character and hostile intentions of the Chinese, who would trust their paper?  Sure, they can swap currencies for trade with Brazil (major iron ore supplier) and Russia (major oil supplier and ally of convenience).  But what central bank would want Chinese paper on it's books as reserves?

Thu, 05/30/2013 - 14:50 | 3611172 11b40
11b40's picture

Exactly, LMS.  Step back and give a little thought to Lipstick and Pigs.

Tell me again, what is the RMB backed by?  I know it is valued against a market basket of world currencies, but what, other than Paramount Leader Xi Jinping, is BACKING their currency?  Empty cities?  A huge peasant class, just a few meals away from rebellion?

China has an economy that is about 12 times smaller than the U.S. and a population that is about 4 times as large.  Granted, the trend lines are ugly, but China is dependent on the U.S. and European markets for survival.  All their rapid progress over the past 20 years could go tits up in very short order....and they are not exactly loved in the Far East, either.  Just ask Korea, Japan, or the Phillipines. 

When I see large numbers of people from around the world trying to move their families to China, then I will be worried.  So far, the exodus is still flowing this direction.....both human and monetary.

Who knows what the future holds, and it seems very logical to me that trade should be conducted in a basket of currencies, gold, silver, or whatever Party A and Party B agree to. However, let's see a realistic contender to replace the dollar before we start counting it out.

Thu, 05/30/2013 - 17:02 | 3611555 TrulyStupid
TrulyStupid's picture

You must agree that momentum is in favour of the RMB and even EUR is on a long term appreciation uptrend vs. the USD... both are contenders for new reserve curency of choice status, until such time the USD reverses against them... highly unlikely as the cry from Washington against RMB is ....currency manipulator.. let your currency rise faster against USD.

The shoe is clearly on the other foot...RMB is calling the shots.

Thu, 05/30/2013 - 17:36 | 3611635 11b40
11b40's picture

Maybe.

High-tech firms increasingly build products in U.S.

http://www.washingtonpost.com/business/technology/plan-by-googles-motorola-to-open-tex-factory-signals-shift-as-tech-firms-look-to-add-jobs-in-us/2013/05/29/9e91b0c0-c875-11e2-9245-773c0123c027_story.html?hpid=z1

And here is what happens when so many of your eggs are in one basket.

http://www.marketwatch.com/story/australia-capital-spending-slows-sharply-2013-05-29

See note above re. naval power.  It will be a long time before the Chinese catch up on the high seas, or anywhere else militarily, seriously.

Plus, if we have to be, we can be more self reliant than ANY other major power.  We can feed ourselves rather nicely.  We have abundant water, relatively speaking.  We are lacking in few natural resources -- including energy.  

Betting against America may be popular, but so far it continues to be a fools game, and anyone who somehow believes they will be 'safer' with the RMB is Truly Stupid.



Fri, 05/31/2013 - 09:32 | 3613265 TrulyStupid
TrulyStupid's picture

The trend throughout the world since roughly 2000 shows a growing flight from USD, other countries and trading blocks are makling currency swap and even gold swap arrangements, bypassing the USD... this trend is accelarating... Meanwhile the US continues the bleeding of jobs overseas and the balance of trade is increasingly negative... There is no end to these trends in sight.

The belief that America is the greatestst country, the greatest Navy (as if that is an asset, not a fiscal liabilty) blah. blah blah ... is only a spiel that can be sold at half-time during the super bowl... to the Permanently and Deeply stupid. Try pimping it there.

Fri, 05/31/2013 - 10:00 | 3613370 11b40
11b40's picture

Fine....whatever.  

Place your bets on China for the long term then, but remember how fickle the finger of fate can be.  I will still place my bets on America.

Good luck.

 

Thu, 05/30/2013 - 18:54 | 3611857 Weisshaupt
Weisshaupt's picture

Obama and the Dems  WANT the US to Fail - because that will create a crisis they can solve.  Never let a Crisis go to waste!  He has already managed to do tremendous damage, and has nearly another 4 years in which  to complete the cloward-piven strategy.  Obama will saddle Americans with even more regulations, red tape, taxes and debt, and its not about his power either - its about destorying "American Imperialism",  punishing white people, and persecuing anyone who  believes in liberty. Betting against America, when amerika has a traitor at the helm? Yes, I am. A military is useless when the Commander iin Chief orders it to stand down.  He already did it once in Benghazi. Diplomancy is useless when all you do is bow to the leaders of other nations. Prosperity  is impossible when a government claims ever greater percentages of the production and Self-sufficency is made illegal - be it bans on off-shore drilling, or growing  your own food while trying to meet EPA dust regulations and new "Child labor laws' pereventing you own children from working your farm.

I am fully aware that these problems have been a long time coming, and Obama is just the last in a long line. ..  but last he will be.  The United States will never recover. 

Thu, 05/30/2013 - 16:58 | 3611544 andrewp111
andrewp111's picture

The answer is naval power. The USD is ultimately backed by US military power, as the key oil exporters don't have any choice but to accept dollars. Enemy countries like Iran have to skulk around and barter goods or gold for oil. But China is rapidly building its navy. It is already doing naval exercises off the coast of HI. When China's navy has the USA fully checkmated, the RMB will become a world reserve currency.

Thu, 05/30/2013 - 14:47 | 3611162 TrulyStupid
TrulyStupid's picture

All of them?

Thu, 05/30/2013 - 13:21 | 3610870 Cycle
Cycle's picture

The US economy and the market are starting to show signs of recovery.

I'm not sure that the equity and housing bubbles take 2 and 3 respectively blown by Mr. Bernanke represent  evidence of economic recovery. I'll be convinced of that when the labor participation rate rises from now historic lows.

Thu, 05/30/2013 - 12:50 | 3610788 Mr. Saxby
Mr. Saxby's picture

My "hamster" is quite sizable, thank you.

Thu, 05/30/2013 - 17:32 | 3611629 wee-weed up
wee-weed up's picture

Death of the dollar? What a hoot!

Not as long as it is the cleanest dirty shirt. If you want proof - just look at the miserable euroweenies.

Thu, 05/30/2013 - 13:40 | 3610937 Enslavethechild...
EnslavethechildrenforBen's picture

The Dollar has been dead since 1971. People are just too stupid to get it. Silver 60% off and nobody is buying. People are too stupid to get it.

Thu, 05/30/2013 - 14:50 | 3611174 DaveyJones
DaveyJones's picture

if people we're smarter, they could have never pushed it this far. I debate myself now, now that the bad guys (and their bad situation) get clearer and clearer, whether our problem is stupidity, apathy, entropy or fear. But it's still a problem and it gets worse every day.

Thu, 05/30/2013 - 16:03 | 3611385 InTheLandOfTheBlind
InTheLandOfTheBlind's picture

i think the correct mixture is a splash of stupidity, a pinch of papathy, a shake of entropy, and a copious amount of fear.  And I am a fan of the oxford comma, but not a fan of proper capitalization 

Thu, 05/30/2013 - 17:24 | 3611610 11b40
11b40's picture

Are you a fan of papathy as well?        ;-)

Thu, 05/30/2013 - 14:21 | 3611069 BeetleBailey
BeetleBailey's picture

Fuck that noise! I'm buying like mad. Coins, junk......this is akin to Filene's Basement, with your own pricing gun!

Thu, 05/30/2013 - 13:58 | 3610986 Pladizow
Pladizow's picture

 "....companies around the world are today ready and willing to make the move to do business in other currencies."

True but once the transaction is complete those funds are then converted and held as $ reserves.

As long as this is the case, the $ has nothing to fear.

There is no feasible alternative for capital to park.

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