Is the Dollar Dead in the Long Run?

Probably. Of course the market knows about America’s troubles and some of them are priced in. Currency traders would also remind me that currencies are priced relatively to each other: we speak of yen per dollar, or dollars per euro. So if you are bearish on the dollar you can’t just prove that the dollar is weak. You need to show why it is weaker than the alternatives as well.

Before doing that I will concede the obvious: other countries also have troubles. We are in a recession, and so is just about everyone else. Our Federal Reserve is printing ridiculous amounts of money, but other central banks are too. Our government runs a large fiscal deficit, but again, other countries do too. Our banking system is weak, but the Brits and the Eurozone have nothing to write home about here either.

So if other countries are hurting too, why should the dollar stay weak? I have four reasons, but they boil down to one. We are no longer acting as if we can carry the burden that goes with the privilege of owning the world’s reserve currency.

First, we are unique in the large current account deficit we run. That is, we import more than we export, we have been doing this in size, and we will seemingly continue to do so until other countries stop taking our dollars in exchange for goods. We were lucky earlier this year in that a lower oil price reduced our oil import bill, but oil’s price has doubled off the bottom since then. So, even though Americans buy less imported “stuff” than we used to, we can’t consider the problem solved. As long as we import more goods than we export, we have to make up the difference by selling dollar denominated securities –usually Treasury bonds– to foreigners. So in this way America continues to increase the supply of Treasury IOUs without regard to the world’s demand for them.

Which leads us to reason number two: there is a large overhang of dollars held reluctantly in foreign portfolios. This site’s readers know that, but the point is, portfolio overhang is unique to the dollar, as opposed to other currencies. There is no other currency held in such size by people who would likely dump it if they had their druthers.

Plenty of people try to tell us that this overhang is “not a problem.” They say that the world is used to running on dollars. Governments, banks and corporations are used to doing dollar based transactions, they tell us. Moreover, no other currency can match the deep and liquid market that Treasurys afford. Even though the Eurozone is a huge economic bloc, Eurobonds issued by Italy, for example, are not the same as Danish or German government bonds. So everyone agrees that a complete transition to a new currency regime would take time, but is that truly a reason for doing nothing? It may be that today the dollar is the best place to park wealth, but sooner or later the countries with wealthy central banks will find a way to put their money where they want to. If we don’t make the dollar more attractive, foreigners will eventually take their money elsewhere. It’s that simple.

Our press also lulls itself into complacency regarding large dollar holders such as the Chinese. It would be hard for China to sell in size, dollar bulls say. The market couldn’t absorb that selling, the dollar would crash, and the Chinese would themselves wipe out the value of their own dollar holdings, bulls argue.

On the other hand, others worry that China may reduce its dollar buying going forward. Therefore these days when the Treasury holds an auction to sell more Treasury debt, traders await the results with bated breath to see how easily the market absorbed the supply — and how many foreigners bought. Furthermore the WSJ reports that the Treasury recently rejiggered its statistics so as to make foreign buying look heavier than it really is (h/t, Trader Mark). Treasury now reports some customers of primary dealers as “indirect” bidders, the closely watched category that also includes international purchasers. What a disgrace, that America is so dependent on other countries, and that we lie about it to ourselves rather than face the problem.

As an aside, China is seemingly having a grand old time showing us who controls the dollar’s trade in the currency markets. On June 26 officials at the People’s Bank of China said that they wanted a new, supranational currency to replace the dollar as reserve currency, Bloomberg reported. Dollar Index futures, which trade based on a weighted average of major tradable currencies, gapped down 55 basis points — a considerable move — to open at 80.12 on the CME the following morning. On the 28th Central Bank governor Zhou Xioachuan said that his country’s reserve policy remains “stable.” The dollar index shot up enough to close the gap of the previous day during overnight trade, though it gave up most of those gains before the Chicago open. Are the Chinese placing trades so as to profit from the statements they make thereafter? I have no idea but the prospect must tempt them.

Third on my list of problems unique to the dollar is this: America’s strategic rivals act as if they see an opportunity to weaken us by attacking the dollar’s privileged status. Russia’s Vladimir Putin has made noises about replacing the dollar for years. If Russia can take the dollar down, that would make it harder for the US to finance its 800 or foreign military bases, and give Russia freer rein in Eastern Europe, South Asia, and the Middle East. Similarly, China has never liked the military power that the US projects into the Pacific. So on this score some of China’s geopolitical objectives may coincide with Russia’s.

Also on our list of geopolitical considerations: in yet another chapter in the troubled history of Iran-US relations, Iran quit accepting dollars for oil in 2007. Might other oil exporters follow suit? Or might they simply accept other currencies in addition to dollars when they sell oil? The latter policy would reduce demand for dollars while still allowing us to pay for imported oil in dollars. There have always been countries that want to see America humbled but I don’t think these attacks on the dollar would have got traction if our rivals were not holding large stacks of dollars they might like to sell if they could. No other major power is in debt to its rivals like we are.

My fourth reason for ongoing dollar weakness: we don’t have a strategy for maintaining the dollar. We just keep hoping that China and our other trading partners will continue to do what suits us. That’s irrational. Other countries that hold dollars will act in their own interest. We should figure out what that is likely to be and prepare accordingly.

Instead, the Fed and the Treasury focus on economic stimulus and bailing out weak banks. The US keeps spending and printing money as if it grew on trees. Nor does President Obama talk about retooling our stance as importer from the world. And so the situation drifts. Sooner or later our government will learn what every trader knows: Hope is not a strategy.

Disclosure: Long FXY, may buy UDN on pullbacks.

Comments

[Ray Winter:]

The Dollar will continue to be the world's foremost trading currency until such time as there is a creditable alternative.

As soon as another currency shows itself to have the support of the world's traders, or important trading nations get together to create a new one, that would signal the end of the U.S. Dollars reign.

Jun 30 08:14 AM

[fireball:]

the 3rd problem sounds like "the art of war" carried to near perfection.

Jun 30 08:39 AM

[DWStein:]

"sooner or later" is a hard argument to take on. According to Keynes, no one will actually live long enough to see if the argument was right.

The problem with focusing on the dollar as a starting point for US economic policy, is exchange rates are a symptom, not a cause. In the lead-up to the recent financial conflagration, the dollar was weak because prevailing economic conditions. Large US demand for finished goods and commodities caused USD to flow overseas... when the sh*t hit the fan, people panicked and bought treasuries (USD)... as fear subsided, the dollar came back down...

So, now what? Well, I think your view of the economy should inform your USD view and not vice versa.

Jun 30 08:39 AM

[jayminho:]

dollar is far from dead, it is, of course, not as strong as before.
and by the way, china wont just "dump 2trillion accumalated during decades, overnight" this is stupid. its more than clear that , yes, they are "exchanging" their positions for commodities, building gold stock piles, investing in oil (petrobras royalty oil) and so on.. but.. no.. they wont dump the dollar over night, what is pretty good, so, it gives plenty of time for US to come out with a strategy.. hope they have one.. or.. will just keep the bad habits, consuming, consuming, consuming and borrowing, ohh boy, then.. they will overdose, and leave a f.up country to their kids.

Jun 30 08:45 AM

[Jonathan Be...:]

Reader DW Stein assumes that my analysis starts from the USD rather than the economy. It may have to look that way in a short article. However, I mention the deeper causal factors: the current account deficit, caused by "our stance as importer from the world" (last paragraph). As to my view of the current economy: I see continued US weakness, as explained in the editorials on theinsightfultrader.com. And as long as the world expects US demand to fuel growth in our trading partners, and our economy remains weak, that weakness will be one of our few exports.

Regarding my allusion to Keynes: things move much faster than they did in Keynes's time and I don't care to be on the wrong side of the bigger forces, though that means I occasionally have to stop out and reposition.

Jun 30 09:08 AM

[CaptainJJack:]

I agree.

It took 30 years for Europe to come together on the Euro, and even then it is just barely a European currency. What's more, the European central bank has very little appetite for taking on the whole world. They simply won't print that many Euros.

That leaves gold, but again, gold's greatest strength -- it is in short supply -- is also its greatest weakness: as a reserve currency, its liquidity is very poor.

The reason China holds so much US debt is due to their seller financing programs: they are willing to accept US dollars in order to sell us their goods. The recent drop off in dollar accumulation says more about US consumers than it does about China's view of holding dollars.

As far as I can see, the only way the dollar ends its reign as world currency is if the US stops it by restricting it, somehow. The world would then be forced to some less appealing alternative, and world trade would probably suffer, as it did when there was a gold standard.

Finally, both Russia and, especially, China are figuring out that it is expensive for them to talk down the dollar.

China is pursuing a smarter alternative using the new dollars to buy and hold commodities as a dollar hedge, but they are learning the limits to that strategy, as well.

At the end of the day, the only way China gets paid is by using those excess dollars to buy US goods or by investing in other US assets.

This is NOT to say that the current massive dollar printing by the Fed is not a huge potential problem. The excess world dollar liquidity helped to fund the last US asset bubble, and I expect that we will see other bubbles (Gold?, Oil?, Treasuries?) in the future.

But, I am not sure this means inflation returns soon. If we don't have wage inflation, especially in a service economy, I don't see how we get overall inflation, and it is really hard to see labor driving a hard bargain in the foreseeable future.

The people I know are happy just to have a job, and some of them have taken significant wage cuts. The prospect of wage pressure seems very remote, to me.

We will see pockets of inflation in commodities, but if we learned anything about the last oil bubble, if people can't afford $4/gallon, they quit driving. The also quit buying other things to pay for the driving they have to do.

Paradoxically, this could lead to deflation, as economies, reeling from commodity bubbles, contract like we've seen recently.


On Jun 30 08:14 AM Ray Winter wrote:

> The Dollar will continue to be the world's foremost trading currency
> until such time as there is a creditable alternative.
>
> As soon as another currency shows itself to have the support of the
> world's traders, or important trading nations get together to create
> a new one, that would signal the end of the U.S. Dollars reign.

Jun 30 09:09 AM

[the.bighouse:]

One thing the Founding Fathers fortunately built into our system of government is flexibility, politically, socially and economically which gives us the ability to change course in times of political, social or economic emergency. Though the USA's abilitty to change course may seem slow at times, it is far faster and more a part of our system than most (if not all) societies and governments on the planet. This coupled with the size of our central economy is a built in strategy thanks again to those who came before us in the USA. You say that Hope is not a strategy. But having a built in fail-safe strategy thanks to our forefathers just might be our saving grace the strategy you fail to see.
So Mr Bernstein tell the world and Chinese not to count us out too soon and don't underestimate the ability of change in the good olde US of A. Fortunately, NOTHING is set in stone in the USA...except perhaps the ability to change our political, economic or social course more quickly than China or most other countries. Just ask the Japanese who thought they owned America in the late 1980s or the Iranians who are trying to change their political system.

Jun 30 09:11 AM

[Gem Hudson:]

If spending a budget deficit 24 billion more than the world eight largest economic is not bad enough, the paper on the California junk bond is worth more than the principle of the loan. Governor Schwarzenegger said. We can only spend the money that we have and he would have to spend less than what they got to pay down the debt. They would cut-cut deeper not to balance the budget and cut more because of the lostt of income taxes or to spend more with what they got is to go I.O.U. bankrupcy just over the 24 billion.

Jun 30 09:16 AM

[TradingHelp...:]

"The dollar is still the world's reserve currency".

Today it is. What other potential benchmarks are there? Gold? Maybe. The Euro? Gold help us. Yen? No way. Sterling? That's ridiculous.

The challenge isn't picking holes in the dollar. It's finding a credible and suitable alternative.

Jun 30 09:23 AM

[User 353732:]

1. Individual Investors, sympathetic to your analysis, want to know if it is actionable within the next 10 yrs, the outer limit of the investment horzon for almost all
2. The issue is not the either the dollar OR something else(over the nxt 10 yrs) but the dollar AND someting else
3. In my view the dollar will go thru a 2 stage process of demotion. First the dollar moves from sole to primary reserve currency and second, from primary to first among equals
4. In stage One, 2 or 3 alternative and tentative currencies will be tried , probably based on globally critical economic resources(eg Energy, bandwidth, iron ore). Markets, not governments,
will propose, intoduce and test these currencies in the next 10 years
5. I suggest, for discussion, that 3 preconditions must be satisfied before Stage Two of the dollar demotion occurs.
(i) the US share of the global economy declines to about a quarter
(ii) there must be some very small coaltition of non -US economic actors who can command about a third of global output and agree to back an alternative reserve currency.
(iii) Japan and Germany move much closer to the Global South economically and also conclude that the US cannot be a consistent strategic partner in trade , geo-strategy and missile defence

Jun 30 10:26 AM

[nobby73:]

I don't know exactly when it happens, but when we see the US Dollar and Treasuries falling on the back of bad US economic data, we'll know it's starting...

Jun 30 10:33 AM

[jimboy:]

A lot of commenters are taking comfort from the seeming impregnability of the dollar's reserve currency status but in a way this privilege is more of a curse because the US govt abuses it to run up deficits and inflate the money supply to an extent that will prove ruinous in the end. To put it more bluntly: the US is being given more rope to hang itself.

Jun 30 11:53 AM

[morph366:]

Re 353732
You make some very good points - esp regarding the idea that there needs to be a basis in resources for a replacement global reserve currency.
I would add to your conditions (even though I didn't really understand what your (iii) entails) that there needs to be a very liquid market for bonds trading in the alternative global currency.
If this was to develop - and I think it could in the next 10 years) then there is no reason why the US dollar would need to be relied upon by the largest creditor nations.
It would also provide exactly the kind of incentive for the US economy to deal with its debt crisis.

Jun 30 12:07 PM

[Perry B:]

Very good article, gave me some room to think. Not that I am happpy with my thoughts on America's future. Overwhelming debt cripples a Nation. It is just a matter of time before we as a nation under the rule of a very corrupt self serving government. Realize. What the world is trying to tell us. That is; We are not special we are retarded. The politically correct drunken, drug and sex addicts we send to Washington, (because of our own apathetic anti depressent intake) will be so hung over when they figure out they can no longer fool or bribe the world with thier corrupt ways. That our fate is anyones guess. Our government in the drunken state they are in. Do not realize they are little more than unwitting pawns, to the nations who are going for the power they deserve. Unfortunately as constituants of these power drunk individuals. We as American citizens will bear the brunt of the suffering. In this rapidly changing global economy. Hopefully a nation that is truly worthy of Freedom will emerge out of this mess and whoever that is; will control the currency. It should be interesting. Even though America under it's present course will be sucking more wind than a sail full of holes.

Jun 30 12:32 PM

[JJJ:]

With all the comments on the financial networks and on this site, it appears to me that the USD is a much larger bubble then both tech stocks and the real estate market. It seems like everyone is comming up with excuses as to why the Dollar will NEVER collapse, simply by stating that it is the worlds "reserve currency" is very much like stating internet stocks are fairily priced even though they don't show earnings and real estate always goes up even though the only buyers in the market have to leverage up on sub prime debt to afford a starter home. Our goverment is in the exact same situation. We are insolvent and are on life support thanks to our neverending supply of treasury issuances. We are currently financing our programs with adjustable rate debt and we currently can't afford the "teaser" rates on 2 year treasuries. If we are running huge deficits now, what will happen when rates double or even triple not to mention when the largest problems such as social security and medicare start to appear. Would you continue to lend money to a bankupt business just to make it's payrolls? The fact that treasury prices are so high right now shows all signs of a bubble and one that the FED cannot continue to inflate. It seems mind boggling to me that people will continue to own anything, espeically low interest, taxable treasury bonds denominated in a fiat currency backed by nothing. There is so much talk about how China can't do anything else besides buy treasuries with it's USD holdings and that the USD is the largest world currency which is so large that it is the only place where large amounts of money can flow, and that is EXACTLY the reason that the dollar will collapse. Once people and governments start purchasing assets such as gold mines, oil fields with that massive supply of worthless dollars, the world will rush to get rid of the USD. This trend has already started and the mad dash to the exits will likely occur at a time people least expect. The world will go back to a reserve currency, one backed by gold(since it's the easiest to back) but there will be massive inflation to deal with in the meantime. All fiat currency's go to their true value, 0. (history has a tendency to repeat itself).

Jun 30 12:52 PM

[hksche2000:]

The US is the ultimate "TOO LARGE TO FAIL BANK" and the rest of the world knows it.
China's economic, social and political problems might topple the regime, if their main customer didn't buy their goods any more. You don't bite the hand that feeds you.
Europe and the rest of the world, with few exceptions, would suffer in different ways and degrees, but all would suffer more in most cases even than we would. "Atomic" economic warfare isn't something many big countries are tempted to try out. No models are available to predict any one of the all horrific potential outcomes.
However, "conventional" economic warfare may be tampered with by some for political et al influence along the lines of talking down the dollar or proposing alternative reserve currencies (China, Russia, Middle East etc) and therein may lie the real risk for US.

Saving and growing ourselves out of our spendthrift old ways is possible, though, and may even have started just ever so sudly. If anybody can do it, we are the most flexible and best equipped as a Nation to get it done.

Jun 30 01:38 PM

[popey:]

I suggest that as soon as the "growth fallacy" is embraced by the market, the the USD is toast. The fallacy = the ridiculous assertion that US economy can grow its way out of debt acceleration. As soon as real interest rates start turning negative (soon), and debt acceleration continues in a tepid growth environment (over near to medium term), the fallacy will be exposed and the treasury market will collapse with the USD.

Jun 30 01:48 PM

[kohalakid:]

"Is The Dollar Dead in the Long Run?"....

I'd say if the dollar is down 95% in the last 100 years, then the question has already been answered.

Stop the insane entitlement spending!!!!

Jun 30 02:05 PM

[RiskAverseA...:]

Dude, we are NOT in recession. To believe our nation's present collapse in world trade (at a rate that's faster than occurred during the Great Depression) is merely the mark of "recession" is clinically insane. Therefore, how does one take seriously subsequent analysis when the premise is easily shown to be delusional?

Jun 30 03:27 PM

[DONE_SONZ:]

Our Founding fathers also had a gold standard which we changed.Fiat currencies is the main reason why we are in this mess in the first place.Once again.
www.kwaves.com/fiat.htm

On Jun 30 09:11 AM the.bighouse wrote:

> One thing the Founding Fathers fortunately built into our system
> of government is flexibility, politically, socially and economically
> which gives us the ability to change course in times of political,
> social or economic emergency. Though the USA's abilitty to change
> course may seem slow at times, it is far faster and more a part of
> our system than most (if not all) societies and governments on the
> planet. This coupled with the size of our central economy is a built
> in strategy thanks again to those who came before us in the USA.
> You say that Hope is not a strategy. But having a built in fail-safe
> strategy thanks to our forefathers just might be our saving grace
> the strategy you fail to see.
> So Mr Bernstein tell the world and Chinese not to count us out too
> soon and don't underestimate the ability of change in the good olde
> US of A. Fortunately, NOTHING is set in stone in the USA...except
> perhaps the ability to change our political, economic or social course
> more quickly than China or most other countries. Just ask the Japanese
> who thought they owned America in the late 1980s or the Iranians
> who are trying to change their political system.

Jun 30 04:01 PM

[The Recusant:]

Dead? No, just very, very ill. Since the dollar is still 2/3 of the world's cash reserves is will serve the purpose of being the international monetary currency for a long while. China, Russia, and the rest of the countries to follow, will slowly divest themselves of their dollar reserves and replace the reserves with other currencies and gold, the age-old and now de facto standard. The dollar will still be the king but worth less and less as the quantity of dollars grows with the stimulus packages and spending. It may take years, but its days are likely numbered. Gold and Sterling, may see a rise in price and be the "backing" of the new currency that comes along to replace the dollar. For some insight into the near economic future, try reading "Financial Armageddon" by Michael Panzner or his newer "When Giants Fall", out earlier this year.

Jun 30 04:14 PM

[jimboy:]

Why would sterling be part of the replacement? The UK is in a similar mess to the US but with more debt if anything. The economy is small and shrinking in relative terms, so I can't really see the old pound doing anything but decline like it has done for almost a century.


On Jun 30 04:14 PM The Recusant wrote:

> Dead? No, just very, very ill. Since the dollar is still 2/3 of the
> world's cash reserves is will serve the purpose of being the international
> monetary currency for a long while. China, Russia, and the rest of
> the countries to follow, will slowly divest themselves of their dollar
> reserves and replace the reserves with other currencies and gold,
> the age-old and now de facto standard. The dollar will still be the
> king but worth less and less as the quantity of dollars grows with
> the stimulus packages and spending. It may take years, but its days
> are likely numbered. Gold and Sterling, may see a rise in price and
> be the "backing" of the new currency that comes along to replace
> the dollar. For some insight into the near economic future, try reading
> "Financial Armageddon" by Michael Panzner or his newer "When Giants
> Fall", out earlier this year.

Jun 30 04:36 PM

[The Recusant:]

Jimboy: sorry, my editing mistake, that should have read "silver" not Sterling. You're quite right that the Pound will see a serious decline in value also.

Jun 30 04:41 PM

[the.bighouse:]

DONE_SONZ: Good point on the Gold...However the concept is the ability to change when other economies because of politics and a lack of resources cant. The founding father's also had an agricultural economy and never thought of an industrial society which is now morphing into a technical economy. Changing from Farms to Detroit and to Silicon Valley they never understood but perhaps Hamilton did anticipate. You buy the Gold, I'll buy Tech!

Jun 30 05:01 PM

[Living4Divi...:]

Jonathan - excellent post - very balanced. I especially like what you said:
"Currency traders would also remind me that currencies are priced relatively to each other: we speak of yen per dollar, or dollars per euro. So if you are bearish on the dollar you can’t just prove that the dollar is weak. You need to show why it is weaker than the alternatives as well."

The above is 100% true and I am glad you pointed out the other side of the argument. Of course the Yen and the Euro and the Sterling all face their own problems.

That having been said, other currencies being "less weak" does not make them safe havens. A slightly less weaker currency is STILL a weak currency.

For investors, the final solution is to hold non-currency assets.

Jun 30 06:37 PM

[Bad Dog:]

One thing China could do with its USD is to buy US assets. There are a lot of good deals out there now, and China might very well start buying. That could be good for the US economy but would make nationalist Americans rather nervous. But, if it started to reflate the US markets, that could be a good thing.


On Jun 30 01:38 PM hksche2000 wrote:

> The US is the ultimate "TOO LARGE TO FAIL BANK" and the rest of
> the world knows it.
> China's economic, social and political problems might topple the
> regime, if their main customer didn't buy their goods any more.
> You don't bite the hand that feeds you.
> Europe and the rest of the world, with few exceptions, would suffer
> in different ways and degrees, but all would suffer more in most
> cases even than we would. "Atomic" economic warfare isn't something
> many big countries are tempted to try out. No models are available
> to predict any one of the all horrific potential outcomes.
> However, "conventional" economic warfare may be tampered with by
> some for political et al influence along the lines of talking down
> the dollar or proposing alternative reserve currencies (China, Russia,
> Middle East etc) and therein may lie the real risk for US.
>
> Saving and growing ourselves out of our spendthrift old ways is possible,
> though, and may even have started just ever so sudly. If anybody
> can do it, we are the most flexible and best equipped as a Nation
> to get it done.

Jun 30 07:02 PM

[derryl:]

Bad Dog wrote, "One thing China could do with its USD is to buy US assets. There are a lot of good deals out there now, and China might very well start buying."

The US, Australia and Canada are 3 countries I know of who have blocked Chinese attempts to buy large industrial assets as being contrary to their national interests. China is trying to convert its dollars into assets and is succeeding except for in Western countries. Meanwhile US oligarchs roam the world buying politicians with freely created US$ then snapping up their national assets for a song, like the post-communists were doing in Russia before Putin stifled them.

This is about empire, not 'free' global trade. Countries like China and Venezuela who restrict foreign capital flows are practicing national self preservation against the chorus of 'open markets' that the oligarchs preach but don't practice. Even as an American citizen, if you are not among the oligarch class you are just another peon to be pillaged.

That said, the dollar is nowhere near dead. Rome devolved from a Republic to an Empire in 63 BC when Julius Caesar defied the Senate and effectively became Rome's first absolute ruler. But the sheer scale and breadth of Rome's power and influence was enough to keep the empire intact for nearly 500 more years. Life moves faster today, of course, and I don't think US hegemony and the supremacy of the US$ will last another 500 years. But unseating the US is going to be a very long process. There will be giddy heights and near death experiences during this process so there will be plenty of upside and downside to trade along the way. But keep your forex sights short term because I think volatility is here to stay. Our grandchildren will be having this same debate about 'when' the US$ will decline.

Jun 30 08:27 PM

[msgtb:]

What ever the next world reserve currency it must have gold or something of value in its make up. It is clear that Fiat currency is only good for starting fires with. The Chinese have recommended a basket of currencies plus 10 to 20 percent GOLD. If you don't have anything of value in the currency no one will respect it. We should never have gone off the gold standard. Fiat currency is good for governments but not for the common man. It is a tool to keep people from becoming well off and dependent on governments. Money should be hard cold cash nothing like a sack of gold coins in the winter to warm a man's heart.

Good luck and good trading


Dave

Jul 01 12:34 AM

[Responsibility:]

Trade deficit is the key problem that should be discussed and addressed. The U.S. dollar has become what it is because of favorable U.S. trades. When U.S. trading conditions become unfavorable, there will be consequences, including the U.S. dollar. Work on how to improve trade, instead of how to profit with every opportunity in the market.

Jul 01 01:35 AM

[Mr. Ed, Jr.:]

If the dollar is to be replaced as the reserve currency, it will take at least 15 to 20 years or more, barring a "black swan" type event. It can't just be "changed", but has to be more gradual, or evolutionary.

It is even more difficult at this time for other nations to risk their economies on another currency. Sort of "The devil you know..." kind of situation. But recent currency deals by China (and their interesting announcement of increased gold purchases) with Brazil and Argentina tell us that they are doing what they always do-- planning far ahead. The world is starting to develope a Plan B.

What we may see in a few years, especially if our government continues down the road of reckless spending, is a slightly diminished role for the dollar and some sort of "currency basket" having a smaller secondary position, as China and Russia have been pushing for.

There is time for the US to get its financial house in order. But, as Jim Rogers points out, the West comprises the world's biggest debtor nations, and the biggest creditors are the Asian nations. If history is to be our guide, that does not bode well for the US.

Jul 01 04:01 AM

[User 432266:]

eurusd won't go much above 1.5000

1. Massive forgein protfolios held in US and in USD, including SWF sovergen wealth funds........ They cannot afford to let USD lose its value.

2. There is currently no alternative to USD as the reserve currency

3. EURUSD at 1.6000 in 20008 was height of carry trade, (ECB even rasing while fed was dropping), + cobimed with a huge oil spike at the time equated to huge USD weakness

4. SNB have already intervened to stop CHF from strengthing too much

5. BoJ will start to intervene below 90

6. Political pressure regarding a strong EUR will be rife in europe if EURUSD goes to 5000 - 6000 range

7. There is a lot of bad bank debt in europe which has not been fully scrutized to date

8. ECB are pumping more liquiduty into the system than the Fed

9. USD index 40 year chart

michaelhaupt.com/blog/...

We are at an interesting stage now, it could contniue the multi-year bul bear cycle or could break into compltete new range.......

1. The stability of oil and other commodities
2. Global inflation
3. Solving the Fed policy dilema, (support USD vs support economy)
4. Relieving the ECB
5. Re-instill global confidence in US asset markets
6. Control inflation and the USD peg in the Gulf states
7. Protect China's and other Sovergein Wealth funds existing investment in the US

Are all reasons why the world would not want the USD to collapse.


Excuse all the numbers


Just watch out for USD strength in H2.......... I would call 1.5000 ball park medium term top for EURUSD

Jul 01 12:30 PM