Dollar Concerns Are Real

Gold surged 8% Thursday (as is the norm, the far smaller market that is silver surged by even more and was up by 13.3%) as the shock Federal Reserve announcement led to concerns regarding the dollar and the inflationary implications of massive money printing and debasement of the currency.

The dollar has fallen sharply against all currencies and particularly against the finite commodity and currency of gold which cannot be debased. In just two days the dollar has fallen from below 1.30 (EUR/USD) to over 1.37 (EUR/USD) despite concerns regarding the European economy.

Concerns about the dollar are justified and real. This is likely no short term weakness in the dollar indeed the dollar’s status as the reserve currency of the world is increasingly coming into question in an increasingly multipolar world.

Next week’s G20 Summit will hear calls for a new global reserve currency. China and other emerging nations back Russia’s call for a discussion on how to replace the dollar as the world’s primary reserve currency, a senior Russian government source said on Thursday. Russia has proposed the creation of a new reserve currency, to be issued by international financial institutions.

And this idea is not just coming from US competitors or potential adversaries.

A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies adding to pressure on the dollar.

Former Head of Currency Research at JP Morgan Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket.

Persaud, chairman of consultants Intelligence Capital said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

This is of great importance and has profound implications for the current international monetary system and for the dollar. With central banks and sovereign wealth funds likely to be diversifying out of dollars and into other currencies, into a possible new global currency and into gold, gold is likely to remain in a bull market for the foreseeable future.

Comments

[yellowhoard:]

Wow. That totally caught me off gaurd. So, what you're saying is that our liberal government, that has always pined for a powerful UN, has driven our economy into the ditch. So, the only way we can survive the crises is to give huge power over our country to the UN and it's new SUPER FIAT CURRENCY.

Knock me over with a feather.

Mar 21 05:09 PM

[little lin:]

omg

Mar 21 05:38 PM

[Speedspirit:]

The plan already signed by former Govt leaders is to form the American euro, Asian euro, and kiss the dollar good by. The question is why did Bush sign an agreement a few years ago with Canada and Mexico when things seemed all so prosperous. Where did he keep that crystal ball?

Mar 21 05:52 PM

[Montreal:]

Are you prepare for 10 old USD for 1 AMERO?

This will make every one feel bad.

Mar 21 06:19 PM

[Vox Rationalis:]

Here we go again.

"Gold surged 8% Thursday..."

Does it matter that you cherry-picked this datapoint, using neither the open nor close, but rather the daily low and high? I mean, is your argument hurt so badly by using the daily increase of 3.3%?

"...concerns regarding the dollar and the inflationary implications of massive money printing and debasement of the currency."

What qualifies as "massive money printing"? And again with the "debasement of the currency" stuff. What exactly does it mean?

"In just two days the dollar has fallen from below 1.30 (EUR/USD) to over 1.37 (EUR/USD) despite concerns regarding the European economy."

Right. Which puts the dollar about 20% higher than it was for most of last summer. Looks like the fear of inflation is still massively outweighed by the relative prospects of the U.S. and others.

"Concerns about the dollar are justified and real. This is likely no short term weakness in the dollar..."

Argument, please. Support your claims.

"China and other emerging nations back Russia’s call for a discussion on how to replace the dollar as the world’s primary reserve currency, a senior Russian government source said on Thursday. Russia has proposed the creation of a new reserve currency, to be issued by international financial institutions."

Do you think this is based on economics rather than politics?

"A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency..."

When you directly use somebody else's work, you should indicate it as such and provide a citation. What you've done here is called plagiarism, and should not be tolerated by Seeking Alpha. (www.reuters.com/articl...)

"This is of great importance and has profound implications for the current international monetary system and for the dollar. With central banks and sovereign wealth funds likely to be diversifying out of dollars and into other currencies, into a possible new global currency and into gold, gold is likely to remain in a bull market for the foreseeable future."

Pretty sneaky how you just sort of slipped gold into this. Neither you nor the article you plagiarized provide any support for the notion that IF central banks are moving away from the dollar that any of the movement would be into gold. They ALREADY hold gold - why would its weighting in their portfolios increase if the dollar's importance is shifted to another currency or currencies?

Mar 21 06:53 PM

[billcpc:]

Nine weeks and the liberals are the masters of the universe. Wow. Who could have known? Of course the past 8 years have nothing to do with it. And of course Reagan and deregulation had nothing to do with it. Had to have been Clinton and Carter's fault or maybe Truman or Roosevelt. It could not be that the rest of the world has lost confidence in our economic leadership.

Mar 21 07:50 PM

[svosavvy:]

We all know inflation is the way out of the ditch, as far as what the rest of the world will do to the dollar nobody knows.

Look, all I can say is don't get your lung cancer info from cigarette companies. Don't get your health information from chef boyardee and don't get your currency info from gold peddlers. No offense meant, "It is hard to get a man to understand something if his living depends on him not understanding it.” Upton Sinclair

Mar 21 09:54 PM

[conceptwizard:]

By Gideon Rachman
Financial Times
December 8 2008

I have never believed that there is a secret United Nations plot to take over the US. I have never seen black helicopters hovering in the sky above Montana. But, for the first time in my life, I think the formation of some sort of world government is plausible.

A “world government” would involve much more than co-operation between nations. It would be an entity with state-like characteristics, backed by a body of laws. The European Union has already set up a continental government for 27 countries, which could be a model. The EU has a supreme court, a currency, thousands of pages of law, a large civil service and the ability to deploy military force.

So could the European model go global? There are three reasons for thinking that it might.

First, it is increasingly clear that the most difficult issues facing national governments are international in nature: there is global warming, a global financial crisis and a “global war on terror”.

Second, it could be done. The transport and communications revolutions have shrunk the world so that, as Geoffrey Blainey, an eminent Australian historian has written: “For the first time in human history, world government of some sort is now possible.” Mr. Blainey foresees an attempt to form a world government at some point in the next two centuries, which is an unusually long time horizon for the average newspaper column.

But – the third point – a change in the political atmosphere suggests that “global governance” could come much sooner than that. The financial crisis and climate change are pushing national governments towards global solutions, even in countries such as China and the US that are traditionally fierce guardians of national sovereignty.

Barack Obama, America’s president-in-waiting, does not share the Bush administration’s disdain for international agreements and treaties. [Excuse me, didn't Bush sign the 2005 Security and Prosperity Partnership with Canada and Mexico.] In his book, The Audacity of Hope, he argued that: “When the world’s sole superpower willingly restrains its power and abides by internationally agreed-upon standards of conduct, it sends a message that these are rules worth following.” The importance that Mr. Obama attaches to the UN is shown by the fact that he has appointed Susan Rice, one of his closest aides [and a Council on Foreign Relations member since 1992 and member of The Trilateral Commission since 2005], as America’s ambassador to the UN, and given her a seat in the cabinet.

A taste of the ideas doing the rounds in Obama circles is offered by a recent report from the Managing Global Insecurity project, whose small US advisory group includes John Podesta, the man heading Mr. Obama’s transition team and Strobe Talbott, the president of the Brookings Institution [and member of both the CFR and The Trilateral Commission], from which Ms Rice has just emerged.

The MGI report argues for the creation of a UN high commissioner for counter-terrorist activity, a legally binding climate-change agreement negotiated under the auspices of the UN and the creation of a 50,000-strong UN peacekeeping force. Once countries had pledged troops to this reserve army, the UN would have first call upon them.

These are the kind of ideas that get people reaching for their rifles in America’s talk-radio heartland. Aware of the political sensitivity of its ideas, the MGI report opts for soothing language. It emphasizes the need for American leadership and uses the term, “responsible sovereignty” – when calling for international co-operation – rather than the more radical-sounding phrase favored in Europe, “shared sovereignty”. It also talks about “global governance” rather than world government.

But some European thinkers think that they recognize what is going on. Jacques Attali, an adviser to President Nicolas Sarkozy of France, argues that: “Global governance is just a euphemism for global government.” As far as he is concerned, some form of global government cannot come too soon. Mr Attali believes that the “core of the international financial crisis is that we have global financial markets and no global rule of law”.

So, it seems, everything is in place. For the first time since homo sapiens began to doodle on cave walls, there is an argument, an opportunity and a means to make serious steps towards a world government.

But let us not get carried away. While it seems feasible that some sort of world government might emerge over the next century, any push for “global governance” in the here and now will be a painful, slow process.

There are good and bad reasons for this. The bad reason is a lack of will and determination on the part of national, political leaders who – while they might like to talk about “a planet in peril” – are ultimately still much more focused on their next election, at home.

But this “problem” also hints at a more welcome reason why making progress on global governance will be slow sledding. Even in the EU – the heartland of law-based international government – the idea remains unpopular. The EU has suffered a series of humiliating defeats in referendums, when plans for “ever closer union” have been referred to the voters. In general, the Union has progressed fastest when far-reaching deals have been agreed by technocrats and politicians – and then pushed through without direct reference to the voters. International governance tends to be effective, only when it is anti-democratic.

The world’s most pressing political problems may indeed be international in nature, but the average citizen’s political identity remains stubbornly local. Until somebody cracks this problem, that plan for world government may have to stay locked away in a safe at the UN.

back to news list

Mar 21 10:23 PM

[zanardm:]

Another currency for America?

An alternative to another world reserve currency, or in addition, would be to introduce a competitive currency for our debased D.C. dollar.
Is the Fed just debasing the currency? Is it time for dual currencies here in America? Perhaps a Fed Reserve West in the heartland, with a N.A. dollar (North American dollar), with tight bank management controls, good IT team, and transparency and accountability, especially when temptation (creating money) is at the door or window. Start the 2 currencies at par. Then let all Americans decide what currency they prefer in transactions, both personal and for business accounting. A more limited supply increases the value of any commodity, including a currency; hence protecting the value of a currency. There is too much money out there idling already; more geenbacks by the Fed is not the solution; too much debt is the problem. Debt city or deleveraging city (D.C.) what's the call - America?

Mar 22 01:09 AM

[zanardm:]

Europe has dual currencies; why not America? Let the currencies compete to see which one is perceived to be best managed and most valuable. Like any commodity, a more limited supply (i.e. monetary conservative) fosters enhanced value. In other words, let the market place decide. Of course, the portraits would be the same; and at the top of N.A. dollar, one would have Federal Reserve West note.

Mar 22 03:52 AM

[Michael Hoeft:]

He may be a Gold Bug, but he is right...I think the Yen will outperform the USD especially as we move forward. This Fed meeting/report feels a lot like the Plaza Accord.

Mar 22 06:25 AM

[DONE_SONZ:]

It should be backed by gold or it will be a basket of worthless paper.Gold is king.

Mar 22 09:04 AM

[MGA_1:]

Sounds awful, but how else can this round of super inflation be stopped? Basically, if the rest of the world follows the US they will end up in an inflationary spiral.

A world gold backed reserve currency would at least be monetarily stable.

The other option is for gold backing of the dollar which isn't gonna happen for a long time. I've thrown the idea by friends and they all scoff. One basically said "Yea, who wants to be impoverished"

Mar 22 10:09 AM

[Asbytec:]

WOW! If we're gonna pull Mexico into the north American union, well, there goes our dollar. LOL What does Mexico have to offer a strong currency? A huge auto industry?

Okay, again, what will the UN choose to replace the dollar as the world reserve currency? The Yuan, that devalued fiat currency under the control of a communist regime? The Euro? The euro and the EZ cannot support being the world currency on so many fronts: demographics, trade imbalances, and more.

Ain't gonna happen. Look, the dollar is both the savior and the whipping boy of this global economy. It's gonna stay that was into the foreseeable future.

Mar 22 10:26 AM

[ed233:]

Mr Obyrne may have a conflict of interest but you have to admit that he has a point here. There is obviously much concern over the amount of dollars that Mr. Obama is printing to bolster the economy. Some think that you cannot necessarily buy your way out of economic problems. Some believe it is necessary to create a new economic platform where real supply and demand fundamentals should be at work rather than treating this economy as if it was a hedge fund based on leverage.

Mar 22 02:16 PM

[PROXIMO:]

Excellent comment aka B.S.---I was shocked when I read your plagiarism comment, I figured no way in hell, but when I read the Reuters link you provided, it nearly knocked me out of my seat. I am surprised you caught it. Don't know if it was intentional or accidental, but not sure that it matters. If an article is posted in a public forum, there is no place for that.


On Mar 21 06:53 PM Vox Rationalis (aka BS Detector) wrote:

> Here we go again.
>
> "Gold surged 8% Thursday..."
>
> Does it matter that you cherry-picked this datapoint, using neither
> the open nor close, but rather the daily low and high? I mean, is
> your argument hurt so badly by using the daily increase of 3.3%?
>
>
> "...concerns regarding the dollar and the inflationary implications
> of massive money printing and debasement of the currency."
>
> What qualifies as "massive money printing"? And again with the "debasement
> of the currency" stuff. What exactly does it mean?
>
> "In just two days the dollar has fallen from below 1.30 (EUR/USD)
> to over 1.37 (EUR/USD) despite concerns regarding the European economy."
>
>
> Right. Which puts the dollar about 20% higher than it was for most
> of last summer. Looks like the fear of inflation is still massively
> outweighed by the relative prospects of the U.S. and others. <br/>
>
> "Concerns about the dollar are justified and real. This is likely
> no short term weakness in the dollar..."
>
> Argument, please. Support your claims.
>
> "China and other emerging nations back Russia’s call for a discussion
> on how to replace the dollar as the world’s primary reserve currency,
> a senior Russian government source said on Thursday. Russia has proposed
> the creation of a new reserve currency, to be issued by international
> financial institutions."
>
> Do you think this is based on economics rather than politics? <br/>
>
> "A U.N. panel will next week recommend that the world ditch the dollar
> as its reserve currency..."
>
> When you directly use somebody else's work, you should indicate it
> as such and provide a citation. What you've done here is called
> plagiarism, and should not be tolerated by Seeking Alpha. (www.reuters.com/articl...)
>
>
> "This is of great importance and has profound implications for the
> current international monetary system and for the dollar. With central
> banks and sovereign wealth funds likely to be diversifying out of
> dollars and into other currencies, into a possible new global currency
> and into gold, gold is likely to remain in a bull market for the
> foreseeable future."
>
> Pretty sneaky how you just sort of slipped gold into this. Neither
> you nor the article you plagiarized provide any support for the notion
> that IF central banks are moving away from the dollar that any of
> the movement would be into gold. They ALREADY hold gold - why would
> its weighting in their portfolios increase if the dollar's importance
> is shifted to another currency or currencies?

Mar 25 01:26 AM

[Morrison Bo...:]

In a globalized world, currency fluctuations are no longer tolerable.
Everyone who uses money is concerned about monetary stability. However, instead of an SDR-based currency as proposed by China and the UN Financial Task Force, which would be difficult to initiate and maintain and which would be incomprehensible to the people of the world; we should move to a Single Global Currency to be managed by a Global Central Bank within a Global Monetary Union. This next global currency will not be the responsibility of just one country. Such a global currency would be used by all the world's 6.6 billion people. What is needed now is international recognition of those goals, and research and planning to achieve them.
The success of the euro shows that monetary union is the best way to ensure monetary stability. The primary problem with the euro and currencies of other monetary unions is that they still must co-exist within the international multi-currency system itself where the value of those common currencies must still fluctuate in value against each other.
If 16 countries can use the same currency, why not 192?
In addition to eliminating currency risk, the use of a Single Global
Currency would eliminate the current foreign exchange trading expense of $400 billion annually, eliminate current account imbalances, eliminate the need for foreign exchange reserves (now totalling more than $3 trillion); and bring other benefits worth trillions.
The Single Global Currency Assn. (singleglobalcurrency.... promotes the implementation of a Single Global Currency by 2024, the 80th anniversary of the 1944 conference. That’s only 15 years away.
The world is moving toward a Single Global Currency through the creation and expansion and merger of regional monetary unions. Another route is through international monetary conferences proposals and agreements, such as were seen at Bretton Woods.
The challenge now is to reach that goal planfully, as soon as possible with as little cost and as few crises as possible.
See the book, "The Single Global Currency - Common Cents for the World."
Morrison Bonpasse
Single Global Currency Assn.
Newcastle, Maine, United States

Mar 25 01:26 PM