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Thursday, April 9, 2009

The Demise of the Dollar

China has rapidly accelerated its monetary situation. Asia as a whole holds the foreign reserves ransom while the Euro, not even a decade old, continues to strengthen. Critical analysis now illustrates a number of fatal cracks in the tax cut plan: the tax cuts were too long-term to effect an immediate and necessary economic and dollar push; national debt continued to escalate out of control; and Social Security and Medicare costs increased. The war has contributed unheard-of debt. The only reason, according to many economists, that the U.S. has any global monetary power is the fact that so much of the foreign reserves are still heavy with U.S. greenbacks; in this lies dollar value.

The GW Bush trade deficit is driven by an imbalance of cheap imports to expensive exports, in which the current administration prefers to blame on Asia’s undervalued currencies, specifically the Japanese yen (JPY) and the Chinese Yuan. The Yuan, the unit of Chinese currency, has affected American workers, whether they know it or not.
China holds one of the biggest chunks of dollar denominated currency second only to Japan.

The U.S. has challenged the Chinese government’s strategy which seeks to keep its own currency undervalued, a benefit to their growth. And up until 2005, the Chinese Yuan was pegged, or fixed, to the U.S. dollar, a design that both former and current Treasury Secretaries Hank Snow and Henry Paulson, respectively, vigorously railed against. An undervalued Yuan is stronger internationally than the strong dollar. China as a key attribute in the dollar’s tumble is pure speculation. Financial power and international leverage may best describe the Chinese foreign reserves, then and now.

As of the close of 2006, most financial reports were identifying the total value in circulation of the euro to be rapidly gaining, if not overtaking, the dollar denominations. The economics of England run similar to the U.S.’s in war and general national debt, the trade deficit is substantial, consumers are in personal debt up to their eyeballs, and the housing market went bust well before the U.S.’s. Economically this all adds up to a weak currency.

China & Japan has vigorously stockpiled dollar denominated currencies in its foreign reserve since the Asian financial crisis of the 90s as their best defense to any further economic tremors was to fatten federal reserves full to the rim with U.S. dollars. Regardless of the size of Asian reserves, the yen poses little challenge to the value of the U.S. dollar.

Whether in response to direct U.S. government maneuvers or as a result of inevitable economic maturation, the dollar has been shaken by financial globalization. Excerpts from Forex Blog

Johnny 'Silver Bear' comments that the Federal Reserve has kept the printing presses rolling too liberally for too long and he continues: "The Fed has lost control of the dollar. Their mindless creation of credit has insured a mind-boggling meltdown of the entire financial system. This is not a good thing for anyone, anywhere. The dollar is the world's reserve currency. Seventy-five percent of all dollars in existence are in foreign hands. Whatever their value was when those foreigners got them, that value is evaporating right before their eyes. It's like buying ice by the pound and watching it melt away before you have time to use it."
Read more at Is The Demise Of The Dollar Coming And Will It Usher Opportunities For New Forms Of Economic Transactions?

We are rather concerned about the U.S. dollar as it has been in the interest of other countries to have a strong dollar to export to U.S. consumers. The dollar nearly halved between October 2000 and the spring of 2007 versus the euro; it has since rebounded a bit, but make no mistake about it: the U.S. dollar has been in a long-term downward trend. We all rely on cash for liquidity, but are concerned about purchasing power. While we are told that equities outperform in the long run, the deflationary forces in the equity markets, and the threat of a depression, has many looking for ways to avoid systemic risk affecting equity markets. While there are deflationary forces, there is also the threat of inflation because of the governments' efforts to restart the economy; as a result, investors do not want interest and credit risk, either. Is physical gold the only answer? Possibly, but even the staunchest gold bugs rarely ever invest all their net worth in gold, if for no other reason than it is impractical. The principal motivation to invest in other currencies is to diversify based on concerns that the U.S. dollar's purchasing power may not hold up and that - on a relative basis - it may hold up better in other currencies. We have long promoted baskets of currencies to mitigate the risks associated with the policies of any one country's monetary policies. The Euro - Are There Any Hard Currencies Left?

Japan's finance minister said Thursday Feb 26, 2009 that a stable dollar was in the interests of Asia's largest economy but downplayed the chances of Tokyo intervening to prop up the currency. "The US dollar is in fact the world's base currency now and there's nothing to replace it," Kaoru Yosano said in parliament. The dollar dipped against the euro on Thursday as investors fretted once more over the plight of the troubled U.S. banking sector, analysts said.The euro also gained ground despite consumer and business confidence slump in the European Commission's economic sentiment indicator for the 16 countries sharing the euro fell to 65.4 points in February, a drop of 1.8 points from January's figures, the lowest level since the survey began in January 1985. Dollar dips against euro on US bank concerns

The Demise of the Dollar...and Why It's Great For Your Investments by Wiggin, Addison
"The good news is that hidden investment opportunities are waiting behind the weakening dollar. In The Demise of the Dollar ... and Why It's Great for Your Investments Wiggin offers advice to readers looking to capitalize on this reality; specifically, he encourages investing in precious metals, tangible resources, and some select foreign markets." Link1 --- Link2

The Demise of the Dollar...
By Addison Wiggin, Chuck (FRW) Butler Preview Link

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