Sunday, January 25, 2009

US Dollar: Imminent Collapse?

The forces that have allowed the US dollar to remain strong seem to be coming to an end, and it could be any time that it collapses under the weight of its inherent weakness.

A number of dollar experts, including Peter Schiff and Jim Rogers, agree with the sentiment that the US currency has nowhere to go but down.

Forced liquidation and deleveraging have kept the currency artificially high, but now those positions are unwinding, and so they won't prop up the US dollar any longer.

This will have a significant impact on dollar related investment vehicles like US Treasuries and bonds.

With the Federal Reserve running the money printing presses non stop to pay off its promises, there's nowhere for the US currency to go but down. Inflation is just around the corner, and it's a matter of when, not if, it comes.

Commodities have already started to rise, especially the metals, as gold and silver enjoyed a big jump recently, and that will continue throughout 2009. Some think platinum prices will also rise in 2009, even though the demand from the auto industry has slowed.

As far as the future of the US dollar, it's going to plummet in value in the near term for sure, while some are even beginning to think the unthinkable, that there will emerge an alternative currency the world favors, just as the pound was dropped for the US dollar long ago.

China is even beginning to experiment internally with using its own currency for transactions within its more successful economic regions, rather than the US dollar. We know the reason that experiment is going on, as the China currency could sometime emerge as the favorite to use in global transactions.

Any investment connected to the US dollar will suffer going ahead, and the dollar will not continue to retain its strength or go up over the long term. It will of course have its small seasons of upward movement, but overall the chart will go down.

This will get even worse because of the US government interfering in the free market and bailing out tons of poorly managed companies and sectors, all in the name that they're "too big to fail." Too bad, as the economy always cleans and flushes out the poorly run companies and emerges stronger than in the past.

That won't happen now as taxpayer money will be used to support the badly run companies and allow them to last in the face of the quality companies that would have taken over the bad.

In the short run, the US dollar will remain the currency of choice, but I don't see how going ahead, and the failed big government policies that are destroying the dollar, will allow the currency to remain as its been. It won't happen right away, but it will happen unless we get people in the government that understand monetary policy.

The future of the US dollar is bleak, and it will buy less and less going forward.

For the Treasury bond, the reason it's in a bubble and will collapse, is nations are starting to cut back on buying it, and speculators have entered the market giving it the illusion of strength. In reality, the US government will be the final holder of the bonds, and nobody will be there to buy them. Then what will they do?

The US dollar is heading for a fall, get out of them while you still can.

Tuesday, January 20, 2009

U.S. Dollar Collapse 2009 | The Perfect Storm?

The idea of the U.S. dollar collapsing in the way it's being thought of today, would have been unheard of in times past. Sure, we've had times of steep inflation where it was dollar was devalued, but nothing like the perfect storm approaching us now.

We have everything from the many variables connected to the economy, foreign governments eyeing the dollar suspiciously for the first time, low interest rates, U.S. Treasury bonds about to burst, China slowly moving out of U.S. dollars (selling bonds), out of control government bailouts, more government bailouts, increased socialization of American economy, and finally, the misguided idea of the dollar printing presses running day and night to provide the money to deal with all of this.

This doesn't include the bloated budgets needed to handle the ongoing policies of FDR - which President Barack Obama foolishly has asserted he's going to continue and expand - like social security and medicare, which will skyrocket even more on a yearly basis as baby boomers swarm into their retirement years.

We have to understand the U.S. dollar can collapse in a number of ways, and it's not always obvious that it has, especially with its ultimate enemy: inflation. But there's no way inflation isn't going to come, as the promises and misguided policies of politicians hoping to hold on to their government positions, ensures the printing presses will continue to run, and also ensures the dollar will buy much less. This is the type of collapse that hides what's really happening and the cause, as most people don't understand the direct correlation between printing hoards of money and the consequential devaluing of the dollar ... or any currency for that matter.

The reason America's been able to get away with pushing the limits with this has primarily been the acquisition of U.S. Treasury bonds by China. China is now abandoning that strategy and moving its money elsewhere. That means with China no longer financing the U.S. economy, America will have to look for financing elsewhere. Where would that be, as no other country is going to buy up an asset like the U.S. dollar when it could be on the verge of collapse.

There is no other recourse for the Federal Reserve (in their minds) but to keep the printing presses running. It doesn't occur to government leaders that they have no power in these affairs, and the real answer should be to downsize government, along with its unrealistic programs it offers citizens to buy their votes and generate dependence upon them.

One unfortunate side effect of this is people could remain in the dark if they don't understand that printing money will weaken the dollar and push the prices of goods and services up. If they don't understand this, we'll be doomed to repeat the fiasco again and again, as we continue to follow the same strategies and make the same mistakes.

China Using Yuan instead of Dollars in Transactions

China has already said it will allow its yuan to be used internally for settlement in some of its riches provinces:

"China will allow the yuan to be used for settlement between Guangdong Province and the Yangtze River Delta, China's two economic powerhouses, and the special administrative regions of Hong Kong and Macau, according to the central bank.

"Meanwhile, exporters in the Guangxi Zhuang Autonomous Region and Yunnan Province in southwestern China will be allowed to use the yuan to settle trade payments with members of the Association of Southeast Asian Nations.

"Those moves are expected to facilitate overseas trade, as Chinese exporters might face losses if they continue to be paid in US dollars..."

Putting the inevitable inflation scenario aside (which will happen, it's only a matter of degree) we could have a more robust slaughter of the dollar, based on the other numerous factors we've mentioned above.

If China decided to take drasic measures and sell a lot of their Treasurys, that would put tremendous downward pressure on the value of the dollar, while there's also the real possibility of OPEC, and others, deciding to get out of US securities as well, again, making America's only choice to print more money to pay off its debts and faulty social programs.

Another important part of the economic puzzle is that China has obviously been the primary provider of inexpensive goods to American consumers. So even though the U.S. has pressured China to increase the value of the yuan, the result would be higher prices of goods for Americans, which would end up causing even more pain. A perfect storm ending with the collapse of the U.S dollar?

Many financial and economic experts have told government officials they needed to stay out of the economy and just let things run their course. Past experience has shown that government interference makes things worse, not better, for the economy.

So will the U.S dollar collapse in 2009? It's a very real possibility. We have a perfect storm of variables that could together bring the dollar down to emerging markets status.

Friday, January 16, 2009

Foreign Investment in Long-term U.S. Treasury Bonds Falls in November - It's Only the Beginning

We've been talking a lot lately of the crisis with the U.S. dollar and how it's probably already starting to happen, even though there's been some temporary strength in the greenback.

A government report confirms it was the experience in November, as demand for long-term Treasury bonds from investors outside the U.S. fell, along with corporate and agency debt.

While many "experts" are saying it's the decline of risk aversion, I think that's totally wrong. That falsely assumed there was risk aversion involved in the first place for their to be a decline. There wasn't, as the Treasury report said.

What serious international investor, whether it's an individual, fund or country, doesn't know what's going to happen to the U.S. dollar going ahead? They know what all this misguided stimulus debt is going to do to the value of the dollar.

Here it is for you in simple terms:

The government wants to spend money it doesn't have

They can't get foreigners to pay for that money

The Federal reserve announces it'll buy up U.S. Treasury bonds

Speculators swarm like sharks around a bleeding body

Speculators buy Treasurys knowing Fed will buy them back

Fed is holding Treasurys with no one to sell them to

Fed prints more money to pay for further debt

The U.S. dollar plummets in value and inflation rears its ugly head

This is what's ahead for the U.S. dollar and Americans. Why do you think foreign investors are no longer buying the U.S. dollar? They know what's going to happen to it, and haven't been viewing it as a place of safety as some have wrongly asserted.

Speculators have been buying up the dollar and keeping it where it's been because they then resell it to the government, which said it was buying it. Some analysts assumed it was people buying to hold the bonds, when in reality they were only buying to resell to make a quick profit.

That gave the illusion of a market for the dollar, when in fact it was something entirely different.

If you aren't sure about that, just ask yourself the question of why foreigners are cutting their investment in Treasurys. This is just the beginning of fleeing from the dollar, it's going to get much worse.

U.S. dollars are not the place to be at this time, investors need to be moving out of them.

Thursday, January 15, 2009

What is it with the U.S. Dollar Continuing to Climb?

The idea is being floated around that the U.S. Treasury bond is being considered the safest place to park your money during the economic turmoil, but I think that isn't the case at all. I'll get to that in a minute.

How the theory goes is people must sell assets in order to purchase the U.S. Treasury bond, and in so doing, pushing the value of the U.S. dollar up.

My own thinking in relationship to forced liguidation, is there could be companies still selling assets to raise cash just to survive, and that could still be playing out. We haven't heard much about that lately. That would offer some support to the dollar temporarily as well.

As far as the idea that the U.S. Treasury bond is being acquired because it's a haven for investors, I think that is completely wrong.

What happened is the Federal Reserve announced not too long ago it would buy up U.S. Treasury bonds, which brought up happy flags to those in the know. In response to that announcement, speculators ran into the market to buy them up, counting on the Fed to end up holding the bag.

Peter Schiff gives his take on this very idea here. I think he's right. Most people aren't buying U.S Treasurys now in order to hold them till maturity, they're buying them to sell back to Uncle Sam.

Some people may get burned believing the talking points of those that don't understand the underlying reason for the U.S. dollar holding its strength.

This has probably become a giant ponzi scheme with the U.S. government ending up holding the final batch of U.S. Treasury bonds that no one else is willing to buy. That will make things interesting.

Wednesday, January 14, 2009

U.S. Dollar Up As Investor Safety Options Narrow

The U.S. dollar was up against the majority of major currencies today, as options for places of safety for investors narrow.

At this time the market is ignoring the weak underlying fundamentals of the U.S. dollar, and are focused on other things like the emerging euro-zone sovereign credit issues, along with the interest rate cuts of other nations' currencies, which influence those looking for safety.

Only the Japanese yen, Swiss franc, South Korean won and British pound gained against the greenback today.

Even though interest rate cuts of other currencies have helped shore up the dollar, it's not certain that those will continue, as some officials of the ECB rate-setting Governing Council want to slow rate cuts down.

As far as sovereign credit ratings go, credit ratings from a number of countries are under pressure, and their debt could be downgraded. That's already happened to Greece, as Standard & Poor's dropped them a level, saying the finances of the country are weak.

Other countries that could follow soon are Spain, Portugal and Ireland, according to the S&P. Ratings for the U.S. remain AAA for now.

Sunday, January 11, 2009

Will China's Currency Experiment be Final Nail in U.S. Dollar's Coffin?

In a bid to protect their export business, China is implementing an experimental program concerning their currency to see if it will work better than the failing U.S. dollar. If it's successful, the program, along with other pressures on the dollar, could spell the end of the greenback as we know it.

Shanghai Daily reports how the program will be implemented:

"China will allow the yuan to be used for settlement between Guangdong Province and the Yangtze River Delta, China's two economic powerhouses, and the special administrative regions of Hong Kong and Macau, according to the central bank.

"Meanwhile, exporters in the Guangxi Zhuang Autonomous Region and Yunnan Province in southwestern China will be allowed to use the yuan to settle trade payments with members of the Association of Southeast Asian Nations.

"Those moves are expected to facilitate overseas trade, as Chinese exporters might face losses if they continue to be paid in US dollars..."

With every move by the U.S. government and Federal Reserve the wrong one, and as they continually interfere with U.S economy through socialist expansion programs, the greenback has little chance of surviving as a viable currency.

Combine that with this move by China, and the conclusion is there will probably be a paradigm shift in the global currency market in the not-too-distant future, with the U.S. dollar simply another weak currency in the market, if it survives at all.

Saturday, January 10, 2009

Peter Schiff: U.S. Bond Market Bubble about to Burst

Peter Schiff puts forth an excellent argument on not only why the U.S. Treasury bond market is in a bubble, but why that U.S Treasury bond bubble is about to burst. When will the bond bubble burst? We of course can't tell, but the conditions are set for it to happen in the not too distant future.

The underlying cause is the current buyers of US Treasury bonds are primarily speculators. What has brought that about?

According to a recent Federal Reserve announcement, the Fed says it's committed to buying long term Treasury Bonds. What that tells you is other people or governments are getting out of the U.S. dollar and looking at other places to put their money. If that wasn't the case, the Fed wouldn't have made that announcement, as it would have been meaningless if money was flowing in to buy up U.S. debt.

In response to that announcement, speculators are now the ones buying the bonds for the purpose of selling them to the announced spending spree of the Fed. No one is in the market for holding US bonds until maturity now; at least no one that understands even a little bit of what's really going on.

To buy those bonds the Fed will have to print more money to make the acquisitions. Consequently, the more the Fed buys, the less the bonds will be worth. The reason is the more the Federal Reserve prints money, the more the dollar drops and collapses in value.

U.S. Treasury bonds are now a ponzi scheme, because the thing underpinning the success of the US bonds is the dependence on people to continue buying them. If people, funds and countries stop buying bonds, as they are now starting to do, eventually the last buyer comes in and the seller is left with no options but to hold them.

So when people stop loaning money through buying these bonds, the bubble will burst. Schiff believes the bubble is already here, and it's not that far away until the pain comes.

Schiff adds that the Obama stimulus package is a disaster, and will only make things much worse, as the same principle involving the upcoming bond bubble bursting will come about from the continuing debasing of the U.S. dollar by the endless printing of money.

So the illusion that the U.S. dollar is a haven for investors is already starting to burst and collapse, and the bond market bubble about to burst. The collapse of U.S. Treasury bonds isn't going to happen overnight, it'll be gradual and subtle, and we'll have to watch things closely so we're not lulled into thinking they're safe and will hold their value. They definitely aren't going to hold their value in the ongoing U.S Treasury fund bubble.

While it's quite possible the air could come out of bonds very quickly, in all likelihood, it'll be a slow, deflating process rather than a quick burst of the US bond market.

The U.S. dollar is no place to be at this time, and the house and senate are about to pass over $800 billion more in bailouts which will continue to deflate the U.S. dollar and U.S. Treasury bonds.

The bond bubble will burst and will collapse along with the U.S. dollar. If I was invested in the dollar, I would get out of it as quickly as I could, as once things start to collapse and slide, it'll be like a slow avalanche continually building up momentum until it overtakes anyone on the mountain. Investing in the U.S. Treasury bond market and U.S. dollar are that mountain, and if you continue to ride it you'll find yourself and your money suddenly covered with the snow of a weak dollar and stuck with a bond you thought would be of value in the years ahead.

There's no doubt there's an ongoing bubble in the U.S. Treasury funds market, and nothing will change the disaster about to happen to those holding the bonds in the end. It looks like for the most part it'll be the U.S. government who has foolishly announced it'll buy up the bonds. That has released the plethora of speculators buying Treasuries so they can then resale them to the government at a profit. Don't get caught up in that game.

One final and big piece of the Treasury bond collapse is it's also similar to the forced liquidation which drove down the prices of some commodities like gold, which obviously is the investment of choice in times like these.

Because bonds are one of the easiest to unload investments, being so liquid, we'll start to see, and have already seen, some countries slowing down their investment in the bond, and probably will start to unload them to get access to more cash. When that happens, it's hard to tell how devasted the collapsing bond market will become.

As Peter Schiff says, the US Treasury bond market is in a bubble which is about to burst, don't get caught holding bonds or U.S. dollars when it happens. We don't know when the U.S. bond market will collapse, but we know the conditions are ripe for it to happen. It's not a question of whether the Treasury bonds will collapse, it's only a question of when and how quickly they'll collapse.

Thursday, January 8, 2009

Peter Schiff on Coming Collapse of U.S. Dollar

In talking about the current global economic crisis, Peter Schiff says if you think things are bad now, wait until the misguided policies of Barack Obama are implemented, which will cause the U.S. dollar to crash.

Schiff says Obama hasn't a clue as to the cause of the problem, and so will continue on and exasperate it, by putting into effect the huge domestic spending program which focuses on public works.

Essentially, what Obama is doing is asking the world to finance his programs on behalf of the American worker and consumer.

As Schiff says, the government has no wealth, it can only take money from the private sector and redistribute it to those they choose.

How this weakens the U.S. dollar, is somebody has to pay for that money. With foreign governments experiencing getting burned from the reckless spending of American consumers, which was encouraged by lenders who thought the party would go on and on, they won't be willing to continue to finance the silly policies of the American goverment, or the undisciplined habits of its consumers.

The solution to that, from the government's perspective, will be to print more money, which will put enormous downward pressure on the value of the U.S. dollar, as well as produce significant inflationary trends.

This in turn will cause trading partners to quit exporting goods to the country, as they won't want to trade in U.S. dollars, which will increasingly weaken.

American consumers will also stop buying, as the dollar won't buy much anymore. In response, Obama could foolishly attempt to put price controls in place, which will create shortages, along with a thriving black market in goods. That would also create an alternative form of currency or currencies.

Schiff's advice is to get out of anything related to the U.S. dollar.

For one of the best video presentations on the origin of the fall of the global economy, watch Peter Schiff being interviewed below.

Wednesday, January 7, 2009

Loss Of Confidence in U.S. Dollar Will Generate Huge Crisis

Ron Paul talking about the challenges we'll face when confidence in the U.S. dollar becomes a larger issue. The crisis at that time will be "huge" says Paul

Monday, January 5, 2009

Majority of Major Hedge Fund Managers Remain Bearish on U.S. Dollar

The majority of major hedge fund managers are increasingly bearish on the U.S. dollar, and aren't too optimistic about U.S. Treasury bonds or equities either, according to a Greenwich Alternative Investments survey.

Of the hedge fund managers queried, 62 percent said they were bearish concerning how the U.S. dollar would perform in January. That's the highest percentage of bearish responses to the survey since March 2007. It's an 8 percent jump from just December's numbers.

For equities, bearishness rose by 16 percent, as only 46 percent were bullish on how U.S. equities would perform during January 2009, a significant drop from December's 62 percent bullishness.

As for the 10-year Treasury bonds, they remained unchanged, as 54 percent of managers remained bearish, the same as December. What did increase were those who were neutral, as respondents increased to 31 percent in that category, up from the 15 percent neutrals in December. That means only about 15 percent of respondents remained bullish on January 10-year Treasury bonds.