Seeking Alpha
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.
-
Instablogged Stocks
Stocks that instabloggers have most recently written about -
Latest Instablog Posts
-
1
Ausmon Resources Limited ("Ausmon") is pleas...
-
2
Iraq says Iranian troops seize oil well near...
-
3
idiot diet
-
4
Year of the Tiger likely to bring many finan...
-
5
Individual Investors Have Jumped Into Anothe...
-
1
-
Top Instabloggers
See all Top Instabloggers » Top StockTalkers »
Dollar's Days of Dominance Dead 14 comments
While it may not constitute the final “nail in the coffin”, India commemorated the 4th of July by joining China and Russia in announcing they were seeking “alternatives” to the U.S. dollar (as “reserve currency”). With yet one more “prop” removed from the gangrenous greenback, this left only the submissive Japanese as the last major holder of U.S. dollars who strongly supports its continued status.
Bloomberg reported Saturday that the economic advisor to Indian Prime Minister Manmohan Singh has publicly and explicitly recommended that India reduce the U.S. dollar component of its currency reserves. “The major part of India reserves [totaling $264 billion] is in U.S. dollars – that is something that's a problem for us,” said Suresh Tendulkar.
These remarks come only one day after China's former Vice Premier, Zeng Peiyan stated, “There should be a system to maintain the stability of the major reserve currencies.”
Several comments need to be made with reference to this remark. First, China commonly uses “voices” of those associated to but not in the government to indirectly reveal its thoughts on issues. Thus the fact that Zeng is a former Vice Premier should not be taken to mean that his remark is not indicative of the position of the Chinese government.
Second, there were two subtleties which should cause Americans (and the Obama regime) serious concern. First, Zeng spoke of “major reserve currencies” - making it explicitly clear that he (and China) no longer consider the dollar the sole “reserve currency” today. The other point to ponder is Zeng's reference of a “system to maintain stability” in currency markets. The U.S. dollar was that system.
There is much more at stake here than economic prestige. As the Obama regime floods the world with trillions of dollars more in U.S. Treasuries, the Federal Reserve has already been forced to buy-up a significant part of those Treasuries (i.e. monetizing debt). Monetizing debt alone guarantees the steady decline of the U.S. dollar versus other currencies (with the exception of the British pound and Japanese yen) because other economies have not been weakened to the point of such desperation.
However, as major economies continue diversification out of the U.S. dollar, even as economic growth in these other countries produces growing budget surpluses once again, few if any of those surpluses will be channeled into U.S. dollars.
The process is already well underway. China alone has engaged in currency swaps and trade agreements which by itself, reduces the demand for U.S. dollars by hundreds of BILLIONS per year. Many other countries are also engaged in similar measures – with varying speeds.
Countries either indifferent or antagonistic to the U.S. (Russia, Iran and Venzuela) come to mind, are already well-advanced in practically eliminating the use of dollar in their foreign trade. However, even many of the U.S.'s “allies” (with the Western-dominated Persian Gulf countries coming to mind) are also well down the path of reducing the U.S. dollar to merely one of their major currency holdings.
Indeed, the combination of rapid, extreme dilution of the U.S. dollar, along with rapidly diminishing demand mean there is no “floor” visible for the dollar – at any price level.
Reinforcing a future of endless declines for the dollar are the U.S.'s totally unsustainable mountains of debt ($57 TRILLION in total public/private debt + another $70+ TRILLION in unfunded liabilities. In comparison, real U.S. GDP is a puny $11.5 trillion/year – not nearly enough to even keep up the payments on the debt (let alone ever actually paying-off a dollar).
The only possible way for the U.S. to delay national default on these debt-mountains is to devalue the U.S. dollar to such an extreme that the real value of all those trillions in debt becomes sustainable. This will obviously necessitate at least a 75% decline in the dollar's grossly-inflated current value – and even then the viability of the U.S. economy is extremely dubious, unless there are huge reductions in spending to accompany the massive devaluation of the dollar.
Keep in mind that due to the success of the U.S.'s relentless propaganda-machine, most other countries are just beginning to comprehend the dynamics of the U.S.'s unsupportable debts. As that awareness grows, the decline of the U.S. dollar is certain to accelerate rapidly.
Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.
This post has 14 comments:
Who will make the US honor its very own constitution and the forefathers that signed it? WE will pay dearly for our blind faith in our leadership. We will pay dearly for falling prey to media manipulation and collective sedation it creates.
John Q Six-pack isn't necessarily at fault. They are however most likely asleep. Our hopes and dreams are not reflected in the pool leading to the Lincoln Memorial. The Values treasured and fought for over generations seem silly and trite to many when compared to the collective brew of the mainstream media. We' re fed images to sooth US, and lies to keep us in our collective sedation. The bill is coming, and we will pay for our indulgences. What, you don't take US Dollars? Well, yes I can do dishes, but...
On Jul 05 11:22 AM rw93003 wrote:
> So Jeff, which currency do you prefer when it comes to your own paycheck?
Firstly, we can understand Indians and Chinese - nobody likes their savings (in this case, in form of currency reserves) depreciate. Hence, they want to go from the dollar to something else.
But at the same time, nobody wants their savings lose their value - hence, the Chinese et all do not want dollar suddenly drop in value.
So, it will be a slow process, with every effort to keep dollar value ... But why cry wolf now - this process of supplementing USD in reserves in some countries began a while ago. Chinese are actually late in that. And they can blame only themselves, making their economy driven by exports and keeping yuan undervalued.
And what to replace dollar with? Not yuan or rupee or rouble - any Chinese, Russian or Indian would laugh ar that. A basket of USD-yen-euro etc. or SDRs? In any of them dollar will have a prominent value, close to half of the value.
Yes, the USD will be losing its value, but slowly. And this has been happening for a long while already.
But in the recent crisis, the dollar did prove the hard currency of choice - when the financial crisis started, the USD soared, not dropped because it is considered the last resort worldwide.
As for the US debt... Yeah, it's huge. But to understand it, think about your mortgage. Just replace your 5-7% interest with much, much lower rate... Yup, it is scary to have such a debt, but as long as the US is going to be one of the most competitive economies, it will definetely survive.
And let me remind you - the US did have even bigger debt after WWII. Well, it still prospered ...
Yes, to do the same now, productivity should go substantially up, new equivalent of Internet and PC should be invented. You are sure that it will not happen?
The answer, if there is one: inflation and dollar depreciation.
Once the US stops honoring its debts, it instantly loses all its credit, built over 300 years of history. It will become impossible for the US to borrow any more money, from foreign government or from private entities. It will probably take another 500 years for the US to rebuilt its credit, if it was possible at all. This would have been a terminal, irreversible decision for the US to stop honoring its debts.
The question to ask is CAN the US continue to honor its debt, in meaningful terms, not in terms of ever depreciating US dollars? It is possible to salvage the US dollar and salvage the US economy if we are willing to swallow the bitter pills, but we are doing exactly the opposite.
Once China is done with its commodity carry trade to rid most of its US dollar reserves, it will let US dollar die. This is going to happen:
seekingalpha.com/artic...
On Jul 05 05:31 AM Ben Gee wrote:
> What will happen if the US stop honoring its debt? Who is going to
> make the US ?
And this dream of yours.. may be you might be in a 7th heaven to say this foolishness India is prejudiced to be ruled by a white skin and you are still dreaming after 60 years of Independence, this manmohan chacha does not even won the elections and he is the PM what an irony controlled by whiteskins.. think with Indian thinking that is imitating developed country does India have its own Character oh.. that is minority appeasment you have even a minority affiars minister...
> Yes, I can do dishes, but... I can also make sure that nothing happens
> to the shipping lanes that you rely on so much... I would hate for
> there to be some unfortunate series of accidents that causes all
> your export-led growth to come to a crawl.
So the US will resort to the same kind of piracy as practiced off of Somalia? Is that what you are saying? I don't see it happening.
I'd expect everyone else in the world to respond as we would if some two-bit slacker country tried to play that game on us: they go with a blockade, manned even by our erstwhile allies. A blockade of air travel would be easy enough. As for shipping, it's only containers and tanker that matter, and it's not like the volumes of shipping are so high it would take much effort to halt. With our nearly 100% dependence on imports for energy, goods and even food, we'd cry uncle pretty damn quick and probably in the form of unconditional surrender. Not pretty how that worked with Germany and Japan. Are you ready for China to be the occupying force? At least I've picked up some Mandarin along the way.
Jingoistic chest-beating and threats isn't going to solve the problem. Somewhere along the line we forgot that nukes really aren't much of a negotiating tool and that you have to have allies and friends. We burned that bridge over the last 8 years. Now we're seeing we have no friends any longer because of our actions.
The problem is us. We created the economic problem. Pushing money around from one bucket to another is not productive economic growth. It's "cost center" expense - every dime of it. We made it worse when we had a choice to do the right thing. We chose not to because we've become lazy, worthless bastards who wouldn't know an honest days work if our lives depended on it - and now they do. We still refuse to see the problem and acknowledge it.
It's only the ideals of our founding fathers and the perhaps vain hope we can recover the reality that is now mostly gone that prevents any rational person from just chucking it all.
I'm not entirely sure we have what it takes to solve the problem. I went to school with the adult children of many of our current leaders. Sadly these aren't the best and brightest America has to offer but they knew how to plan the "game" and keep the oligarchy better than those who knew how to be productive.
It will all end up in lowering lifestyle quality of Americans with depreciating dollars because Masses from China and india are organised well enough to claim their stake.
On Jul 05 12:37 PM Greyowl wrote:
> Dollar's dominance DEAD? Let's get serious...
>
> Firstly, we can understand Indians and Chinese - nobody likes their
> savings (in this case, in form of currency reserves) depreciate.
> Hence, they want to go from the dollar to something else.
>
> But at the same time, nobody wants their savings lose their value
> - hence, the Chinese et all do not want dollar suddenly drop in value.
>
>
> So, it will be a slow process, with every effort to keep dollar value
> ... But why cry wolf now - this process of supplementing USD in reserves
> in some countries began a while ago. Chinese are actually late in
> that. And they can blame only themselves, making their economy driven
> by exports and keeping yuan undervalued.
>
> And what to replace dollar with? Not yuan or rupee or rouble - any
> Chinese, Russian or Indian would laugh ar that. A basket of USD-yen-euro
> etc. or SDRs? In any of them dollar will have a prominent value,
> close to half of the value.
>
> Yes, the USD will be losing its value, but slowly. And this has been
> happening for a long while already.
>
> But in the recent crisis, the dollar did prove the hard currency
> of choice - when the financial crisis started, the USD soared, not
> dropped because it is considered the last resort worldwide.
>
> As for the US debt... Yeah, it's huge. But to understand it, think
> about your mortgage. Just replace your 5-7% interest with much, much
> lower rate... Yup, it is scary to have such a debt, but as long as
> the US is going to be one of the most competitive economies, it will
> definetely survive.
>
> And let me remind you - the US did have even bigger debt after WWII.
> Well, it still prospered ...
>
> Yes, to do the same now, productivity should go substantially up,
> new equivalent of Internet and PC should be invented. You are sure
> that it will not happen?
Latest Followers
StockTalks
-
May 05, 2009
More »Posts by Ticker
Latest Comments
Most Commented
Posts by Themes