Demise of the dollar?

Magnum27 - 2009-10-06 3:00 PM I agree - Green jobs are a political myth.

Outside of the huge issue of the US dollar's continued errosion - the US needs to invest in ALL forms of energy, and start using the OIL we have.

The only green jobs that are doing anything are ones that are being governmentally subsidized - not the way to go about it, it only leads to more debt.

mr2tony - 2009-10-06 2:50 PM I watch the dollar everyday and can tell you this: The dollar is down 18 percent since reaching a high of 92.63 on Nov. 16, 2005. That said, it reached 89.624 on March 4 of THIS YEAR. Calm yourselves, please.

mr2tony - 2009-10-06 3:50 PM I watch the dollar everyday and can tell you this: The dollar is down 18 percent since reaching a high of 92.63 on Nov. 16, 2005. That said, it reached 89.624 on March 4 of THIS YEAR. Calm yourselves, please.

mr2tony - 2009-10-06 12:50 PM I watch the dollar everyday and can tell you this: The dollar is down 18 percent since reaching a high of 92.63 on Nov. 16, 2005. That said, it reached 89.624 on March 4 of THIS YEAR. Calm yourselves, please.

Tripolar - 2009-10-06 3:37 PM




Dumb question... what is that value in relation to?  89.624 of what?

Force - 2009-10-06 4:37 PM The counter viewpoint...

http://seekingalpha.com/article/165026-is-there-really-a-global-cabal-aiming-to-dump-the-dollar

In brief, this author suggests that it does not follow logically that the oil producers/BRIC countries/Japan would want to do anything to significantly alter the value of their foreign reserves and transacting in a currency other than the dollar (or basket thereof) for oil would necessarily diminish the value of their largest foreign reserves. 

Another point the author makes is that the large dollar denominated reserve holdings (particularly of China) is a function of their economic growth strategies - exporting to the US - and until they stop selling to the US and/or significantly grow their own domestic consumption, they will continue to import dollars and/or will not materially change the make-up of their foreign currency reserves. I believe that the Chinese are in favor a strong (ish) dollar and will continue to hold them and transact in them (it's in their best interests, at least for now).

This author admits that these same players might try to adjust their dollar reserves (to the extent possible without diminishing the value of what remains) by investing in other instruments, e.g. gold, but it's more nibbling around the edges than a wholesale change.

A poster above believes there will be a "run" on the dollar at some point. This may be correct, but I am of the opinion that if anything, the dollar will continue a general slide as a result of the current fiscal policies and that those countries with large US dollar reserves will fight to maintain the dollar's value relative to all other currencies or other liquid instruments - it's in their best interests.

Of course if the Chinese (others) figure out how to be the first "out the door", we could reach a point of a "step-change" in sentiment surrounding the US dollar, then oh, boy....

Tripolar - 2009-10-06 3:23 PM

I have a question pertaining to our national debt.  Is most of it expressed in US dollars?  And if so, if the value of the dollar tanks, doesn't the value of the debt go down as well?

And if that starts to happen, do our lenders have any option to switch the debt to a different currency?  Or is it always stuck to the original currency?

(I'm a neophyte when it comes to economics and money issues...)

mr2tony - 2009-10-06 1:59 PM Yes but a weak dollar makes U.S. supplies more attractive to overseas buyers because they increase their purchasing power. So our exports of commodities and manufactured goods will increase as the dollar weakens. Simple supply and demand economics.

Force - 2009-10-06 4:59 PM

If you start hearing "monetizing the national debt", you might want to perk up your ears and pay close attention. Since our national debt is denominated in USD, we could conceivably pay down the debt by just printing some more money - heck doesn't cost too much to print money - all it takes is some special paper and ink, a few printing presses and plates and off ya go....problem solved.

Pector55 - 2009-10-06 3:10 PM

Absolutely!  We started doing that earlier in the year.  All this dumping of money into the economy is what stirs up all the inflation concerns.  It was at that point where some foreign investors had their ears perk up and demand Inflation adjustable bonds, or TIPS (Treasury Inflation Protection Securities). 

Pector55 - 2009-10-06 3:57 PM

China... gold holdings surge 76% over past 6 years.  Now why would anyone do that?  To hedge oneselves against a large portion of devaluing assets? 

I have read that the U.S. has never had a "Strong dollar" policy so much as China has always retained a "Weak Yen" policy.  By doing this, they could drive exports to the U.S. and experience some serious growth.  However, now that you leeched all their is to pull out of the U.S. economy, you use your wealth to hedge a way to dump those holdings.  You now control a large country.  Just like an oil supply or any other commodity, China is now invincible against the U.S. because should there be any political arguments, China simply says, "well, how about we just stop buying your worthless bonds."  Suddenly, the U.S. which is already on an unsustainable course, has no more money to pay government employees, medicare, social security, our soon to be new healthcare, etc.  Equilibrium is all out of whack at that point. 

The biggest problem in my opinion is political suicide.  It would require massive cuts in military spending, entitlement programs, and a balanced budget amendment.  It would also require cuts in social security, medicare, etc.  I just don't see enough Americans willing to allow this to be fixed.  I see us as teens who don't understand mom and dad's money.  We just know we NEED to be cool at any cost.

Tripolar - 2009-10-06 6:01 PM Would a balanced budget amendment prevent all borrowing?

If it does, I'd be against it.  A modest ability to borrow is often necessary for growth.  The credit crunch of the current recession is hurting businesses a lot, from what I've read, because they aren't able to get loans to fund expansion.

JoshR - 2009-10-06 4:30 PM

I maintain, as I have for awhile that inflation is so far from a concern right now that it is worthless to think about. Deflation is here right now. The CPI has been negative for the last 6 months and that is including some very sketchy data. OER has been holding steady or slightly positive in the CPI, yet every major city in the US is seeing rent prices dropping pretty hard. That sounds fairly contradictory. Personally I think the Case Schiller CPI is a much better gauge of the real price level and if you look at that it currently stands at -6%. Several companies have come out and blamed deflation for losses in their earnings the last quarter, including Kroger, Costco and Walmart. The unemployment rate is still rising, and the BLS revises its unemployment numbers in February because they have been severely under reported due to the birth/death model being atrocious, the deflationary pressures are going to increase even more.

All of this ignores another huge factor. Most people see deflation as merely a decrease in the money supply. I'd argue that for the last 20 years, credit has been in effect part of the money supply. If you look at the credit levels over the last year, credit is shrinking at an incredible rate. So if you count that as part of the money supply, then the total money supply has shrank quite a bit.