Jim Rogers has never been one to shy away from stating his mind, and in his chosen field of commodities, he is right far more than he is wrong, and with the U.S. dollar, he has been warning for years that people need to divest of it and put their money in other currencies and investments.
Rogers stated in at the China International Financial Services Conference (CIFSC) last week in Guangzhou that he is winding down his position in the U.S. dollar, and will sell all of U.S dollars before he's through.
Citing the non-stop growth of debt by the U.S. government from administration to administrations, Rogers has asserted for some time that it's a flawed currency, which it is.
Radically and truthfully, Rogers has said the "story of the United States is over. A new story belongs to China.”
Rogers also stated that he no longer has an interest in investing in U.S. Treasury bonds, “because the government is constantly printing more banknotes.”
This means that the inflationary pressures about to hit us would cause an investment in U.S. Treasuries to lose value, even if returns move up some. Even so, Rogers said more than likely bond prices will rise significantly from where they are today, but he will focus on raw materials and companies that do business with a "real economy."
Showing posts with label US Treasury. Show all posts
Showing posts with label US Treasury. Show all posts
Wednesday, September 23, 2009
Friday, September 18, 2009
Money Market Fund Guarantee Program Now Over
Money Market Funds
In response to the collapse of Lehman Brothers last year, and the resultant fall of the net asset value of money market funds below $1, which is called breaking-the-buck, the Treasury Department put into place a temporary Money Market Fund Guarantee Program to help stabilize the money market funds in the country. Today that guarantee program will expire as planned.
The Money Market Fund Guarantee Program was put into place as investors in the money market mutual funds rushed to remove their capital from the funds, after the unusual experience of losing money on them. The temporary guarantee calmed things down, once it was understood their money wouldn't lose any of its value.
A money market fund is a mutual fund which invests primarily in short-term, high yielding US government bonds, commercial paper, and other short-term debt instruments. Very rarely has the net asset value of money market mutual funds fallen below $1, but it has happened, and while they aren't backed by the FDIC, overall they've been considered a very safe investment since they were instituted in 1970.
Money Market Funds
In response to the collapse of Lehman Brothers last year, and the resultant fall of the net asset value of money market funds below $1, which is called breaking-the-buck, the Treasury Department put into place a temporary Money Market Fund Guarantee Program to help stabilize the money market funds in the country. Today that guarantee program will expire as planned.
The Money Market Fund Guarantee Program was put into place as investors in the money market mutual funds rushed to remove their capital from the funds, after the unusual experience of losing money on them. The temporary guarantee calmed things down, once it was understood their money wouldn't lose any of its value.
A money market fund is a mutual fund which invests primarily in short-term, high yielding US government bonds, commercial paper, and other short-term debt instruments. Very rarely has the net asset value of money market mutual funds fallen below $1, but it has happened, and while they aren't backed by the FDIC, overall they've been considered a very safe investment since they were instituted in 1970.
Money Market Funds
Monday, August 3, 2009
Dollar Plunges on Inflation Fears
Weakening Dollar
The U.S. dollar plunged against the Euro, pound, and numerous other currencies today, as renewed concerns about inflation drove up the prices of commodities, with many investors adding raw materials like soybeans, copper and oil to their portfolios.
Investors fled government bonds and the dollar looking for a hedge against inflation, as many are expecting the outrageous spending of the Obama administration to devastate the greenback, bringing enormous inflation for the years ahead.
"A falling dollar is viewed as inflationary," said Richard Feltes, senior vice president and director of commodity research for MF Global in Chicago. "The best inflationary hedge is typically to increase one's exposure to commodities."
Another positive thing for foreign investors is the weakening dollar allows them to buy the dollar-denominated commodities at bargain prices as their currencies strengthen against the U.S. dollar.
While the weather looks like it's cooperating with grains in the U.S., that won't matter for some, as while supply is increasing with wheat, for example, global demand is falling, which has caused wheat future prices to drop over the last couple of months, while being down by 33 percent from last year.
Along with gold, silver, oil and gas, many other precious metals also increased in value, including copper, aluminum and platinum. Heating oil also rose to $1.8713 a gallon.
Among the metals, copper continues to be a huge winner, as it has closed at a 10-month high, gaining 4.4 percent, much of that coming from increased demand from China, whose manufacturing sector has started to rebound a little, promising potentially even more demand.
Some are trying to twist this into some type of recovery, but in general, it's not huge demand driving these prices up, but the expected inflation coming from the weakening U.S. dollar; that, more than anything, will continue to spur foreign investment in commodities which is a bargain for them.
Weakening Dollar
The U.S. dollar plunged against the Euro, pound, and numerous other currencies today, as renewed concerns about inflation drove up the prices of commodities, with many investors adding raw materials like soybeans, copper and oil to their portfolios.
Investors fled government bonds and the dollar looking for a hedge against inflation, as many are expecting the outrageous spending of the Obama administration to devastate the greenback, bringing enormous inflation for the years ahead.
"A falling dollar is viewed as inflationary," said Richard Feltes, senior vice president and director of commodity research for MF Global in Chicago. "The best inflationary hedge is typically to increase one's exposure to commodities."
Another positive thing for foreign investors is the weakening dollar allows them to buy the dollar-denominated commodities at bargain prices as their currencies strengthen against the U.S. dollar.
While the weather looks like it's cooperating with grains in the U.S., that won't matter for some, as while supply is increasing with wheat, for example, global demand is falling, which has caused wheat future prices to drop over the last couple of months, while being down by 33 percent from last year.
Along with gold, silver, oil and gas, many other precious metals also increased in value, including copper, aluminum and platinum. Heating oil also rose to $1.8713 a gallon.
Among the metals, copper continues to be a huge winner, as it has closed at a 10-month high, gaining 4.4 percent, much of that coming from increased demand from China, whose manufacturing sector has started to rebound a little, promising potentially even more demand.
Some are trying to twist this into some type of recovery, but in general, it's not huge demand driving these prices up, but the expected inflation coming from the weakening U.S. dollar; that, more than anything, will continue to spur foreign investment in commodities which is a bargain for them.
Weakening Dollar
Tuesday, July 28, 2009
U.S. Dollar | Monetary Policy China
U.S. Dollar Monetary Policy
With the outrageous policies of Barack Hussein Obama who is pretending he can spend money at will and not suffer any consequences, this has rightfully caused American trading partners, especially the Chinese, to be concerned over the eventual collapse in value of the U.S. dollar, which could devastate China because of their continual and misguided buying up of Treasury debt.
It is assumed that China must do this to continue prospering, (and to a slight degree that may be true), but this has went way beyond that, and American consumers aren't spending, so China is extremely exposed to devastating harm if they don't do something about it.
As a result, the U.S. dollar should be the major focus of Chinese-U.S. talks starting in Washington today as China pushes the Obama administration on how it will manage the fiscal deficit and protect the U.S. currency’s value. Of course the answer is they can't, and any student of the markets and honest economist will acknowledge that.
Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton will host two days of meetings talking on topics from the economic crisis to North Korea. The Strategic and Economic Dialogue is the first by the Obama administration with China.
The global recession has underscored the common interests of the economies, ranked first and third largest in the world, as Vice Premier Wang Qishan seeks to preserve the value of the world’s biggest Treasury holdings, while U.S. pushes China to rely more on domestic demand and not exports for growth.
Bizarrely, clueless Timothy Geither and equally clueless Hillary Clinton are pressing the Chinese on becoming even more socialist by providing more social safety in order to combat the wonderful habits of the Chinese for saving rather than spending. These wackos need to step down out of office for even bringing up such rot. They don't belong in a U.S. government position when they seek to export socialism to the Chinese. They're getting wackier and wackier by the moment.
China’s exchange-rate policy will be talked about. The U.S. wants a more flexible yuan, though Geithner has avoided a showdown on the issue, declining to repeat more ignorant comments he made in written communication to lawmakers after his Senate confirmation hearing in January that China was “manipulating” its currency.
Both nations are pumping cash into their economies to revive growth. Though Premier Wen Jiabao said in March he was worried about the safety of the nation’s U.S. assets, China bought $38 billion of U.S. notes and bonds in May, taking its holdings to $801.5 billion. The Chinese should never have done this, and they still be pay in the face of the horrid and inexperience displayed by the Obama administration.
The U.S. deficit could go as high as a record $1.85 trillion for the fiscal year ending Sept. 30, almost four times the previous fiscal year’s $455 billion shortfall, according to the Congressional Budget Office.
Federal Reserve Chairman Ben S. Bernanke will brief Chinese officials about how the U.S. plans to keep inflation in check over the next few years, people advised of the plan said this month. In June, Geithner told China that the U.S. wants to shrink its budget gap as soon as an economic recovery takes hold.
Unfortunately, Ben Bernanke is as clueless about monetary policy as they come, and along with the Federal Reserve, is largely responsible for the continued and lengthening recession, which should have been allowed to work its way out without government interference.
The U.S. dollar will continue to suffer under these tortuous and horrible monetary policies until the Keynesian way of managment is completely abandoned and recognized as outrageously deficient and unable to work, as decades of failure have already proven.
U.S. Dollar Monetary Policy
With the outrageous policies of Barack Hussein Obama who is pretending he can spend money at will and not suffer any consequences, this has rightfully caused American trading partners, especially the Chinese, to be concerned over the eventual collapse in value of the U.S. dollar, which could devastate China because of their continual and misguided buying up of Treasury debt.
It is assumed that China must do this to continue prospering, (and to a slight degree that may be true), but this has went way beyond that, and American consumers aren't spending, so China is extremely exposed to devastating harm if they don't do something about it.
As a result, the U.S. dollar should be the major focus of Chinese-U.S. talks starting in Washington today as China pushes the Obama administration on how it will manage the fiscal deficit and protect the U.S. currency’s value. Of course the answer is they can't, and any student of the markets and honest economist will acknowledge that.
Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton will host two days of meetings talking on topics from the economic crisis to North Korea. The Strategic and Economic Dialogue is the first by the Obama administration with China.
The global recession has underscored the common interests of the economies, ranked first and third largest in the world, as Vice Premier Wang Qishan seeks to preserve the value of the world’s biggest Treasury holdings, while U.S. pushes China to rely more on domestic demand and not exports for growth.
Bizarrely, clueless Timothy Geither and equally clueless Hillary Clinton are pressing the Chinese on becoming even more socialist by providing more social safety in order to combat the wonderful habits of the Chinese for saving rather than spending. These wackos need to step down out of office for even bringing up such rot. They don't belong in a U.S. government position when they seek to export socialism to the Chinese. They're getting wackier and wackier by the moment.
China’s exchange-rate policy will be talked about. The U.S. wants a more flexible yuan, though Geithner has avoided a showdown on the issue, declining to repeat more ignorant comments he made in written communication to lawmakers after his Senate confirmation hearing in January that China was “manipulating” its currency.
Both nations are pumping cash into their economies to revive growth. Though Premier Wen Jiabao said in March he was worried about the safety of the nation’s U.S. assets, China bought $38 billion of U.S. notes and bonds in May, taking its holdings to $801.5 billion. The Chinese should never have done this, and they still be pay in the face of the horrid and inexperience displayed by the Obama administration.
The U.S. deficit could go as high as a record $1.85 trillion for the fiscal year ending Sept. 30, almost four times the previous fiscal year’s $455 billion shortfall, according to the Congressional Budget Office.
Federal Reserve Chairman Ben S. Bernanke will brief Chinese officials about how the U.S. plans to keep inflation in check over the next few years, people advised of the plan said this month. In June, Geithner told China that the U.S. wants to shrink its budget gap as soon as an economic recovery takes hold.
Unfortunately, Ben Bernanke is as clueless about monetary policy as they come, and along with the Federal Reserve, is largely responsible for the continued and lengthening recession, which should have been allowed to work its way out without government interference.
The U.S. dollar will continue to suffer under these tortuous and horrible monetary policies until the Keynesian way of managment is completely abandoned and recognized as outrageously deficient and unable to work, as decades of failure have already proven.
U.S. Dollar Monetary Policy
Thursday, February 5, 2009
U.S. Dollar: Falls Against Yen
Although the U.S. dollar was the strongest against the Japanese yen in a month earlier on Thursday, later in the day it dropped slightly as investors wait for key jobs data which should confirm the U.S. labor market is under extreme stress.
FOREX trade had the dollar declining against the yen later on Thursday, in anticipation of the expected weak jobs report. It fell from its high to drop by 0.2 percent to 90.94 yen on FOREX trading.
I'm not sure why currency traders are looking to the stimulus plan as a measure of what the U.S. dollar is going to do, as it will make little difference. Socialism isn't going to strengthen the U.S. dollar whatever way you look at it.
As a matter of fact, it'll hasten the collapse of the U.S. dollar as the Federal Reserve will have to print out its fiat money in order to pay for the outrageous sum of debt. That will eventually result in inflation and the dollar plunging in value.
Even the goofy idea that changing an accounting rule would make investors be more adverse to risk is a ridiculous assertion. Playing with numbers won't change the dollar in any way, or the current recession.
The so-called accounting fix could keep banks from generally marking down all assets to prices a badly run nationalized bank could have to pay. Welcome to the new socialist United States.
Tinkering and playing with accounting rules changes nothing, and the value of the U.S. dollar or yen, or any other currency always relates to the underlying fundamentals and nothing else, even when things temporarily get mixed up like in the recent forced liquidation period which made the dollar seem to be strengthening, even though there was no reason it should have been.
Sources say that neither the U.S. Securities and Exchange Commission or Treasury Department were talking about suspending the fair value accounting rule.
Nations and investors will slowly back out of investing in the U.S. dollar through buying Treasuries, as exports no longer make sense when consumers aren't buying products any longer. The motivation is thus no longer there to buy up U.S. debt to finance consumers' purchases.
As far as currencies go, the yen should perform as a place of safety again, along with gold and silver. The U.S. dollar will continue to weaken and collapse, leaving the usual havens of safety the place to go.
The euro also dropped slightly against the yen, while sterling made a slight gain.
Currency trading will be extremely important going forward, and the FOREX market a place to make a lot of money for those who understand what they're doing and that the U.S. dollar is set for a long term plunge in value, collapsing to low levels.
The yen should remain strong during the time the dollar falls.
FOREX trade had the dollar declining against the yen later on Thursday, in anticipation of the expected weak jobs report. It fell from its high to drop by 0.2 percent to 90.94 yen on FOREX trading.
I'm not sure why currency traders are looking to the stimulus plan as a measure of what the U.S. dollar is going to do, as it will make little difference. Socialism isn't going to strengthen the U.S. dollar whatever way you look at it.
As a matter of fact, it'll hasten the collapse of the U.S. dollar as the Federal Reserve will have to print out its fiat money in order to pay for the outrageous sum of debt. That will eventually result in inflation and the dollar plunging in value.
Even the goofy idea that changing an accounting rule would make investors be more adverse to risk is a ridiculous assertion. Playing with numbers won't change the dollar in any way, or the current recession.
The so-called accounting fix could keep banks from generally marking down all assets to prices a badly run nationalized bank could have to pay. Welcome to the new socialist United States.
Tinkering and playing with accounting rules changes nothing, and the value of the U.S. dollar or yen, or any other currency always relates to the underlying fundamentals and nothing else, even when things temporarily get mixed up like in the recent forced liquidation period which made the dollar seem to be strengthening, even though there was no reason it should have been.
Sources say that neither the U.S. Securities and Exchange Commission or Treasury Department were talking about suspending the fair value accounting rule.
Nations and investors will slowly back out of investing in the U.S. dollar through buying Treasuries, as exports no longer make sense when consumers aren't buying products any longer. The motivation is thus no longer there to buy up U.S. debt to finance consumers' purchases.
As far as currencies go, the yen should perform as a place of safety again, along with gold and silver. The U.S. dollar will continue to weaken and collapse, leaving the usual havens of safety the place to go.
The euro also dropped slightly against the yen, while sterling made a slight gain.
Currency trading will be extremely important going forward, and the FOREX market a place to make a lot of money for those who understand what they're doing and that the U.S. dollar is set for a long term plunge in value, collapsing to low levels.
The yen should remain strong during the time the dollar falls.
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.
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.
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.
Wednesday, December 17, 2008
Is the Party Over for U.S. Dollar? Probably!
Earlier this month I asked the question of when the artificial strength of the U.S. dollar was coming to an end. We may be seeing the initial move toward that happening, as it seems deleveraging, which propped the dollar up, may be winding down.
The only question for the dollar, has been how long the deleveraging would take to unwind, as the complexity of the funds involved made it impossible to know. It seems the majority of that has happened now, and the dollar is responding in a predictable manner.
With U.S. obligations now in the trillions of dollars, the absolute necessity of a strong U.S. dollar is crucial to the successful implementation of the misguided bailouts and simulus package, but that isn't going to happen any time soon.
Some were hoping the deleveraging would last longer, giving the dollar a longer period to remain strong, but that isn't going to be the case. Most analysts believe that not only is downward pressure coming short term, but it should last for some time as well.
Today the greenback dropped to a 13-year low against the yen, and fell to its largest one-day loss against the euro, as currencies responded to the slashing of the benchmark interest rates to a range of zero to 0.25 percent, which is the lowest among major economies in the world.
While there are those looking to what Japan did as a blueprint for the U.S., that's a huge mistake for a couple of reasons.
First, the Japanese economy hasn't come near to recovering from its performance when they instituted a similar strategy as set forth by president-elect Obama. He wants to build up the infrastructure of the nation to create jobs.
Just that alone is an unfortunate idea, as it in reality crushed the Japanese economy.
But that's not the only reason it's foolish and misguided. The second reason is the difference between Japanese and American investors.
In Japan, people were willing to invest in the bonds issued by the government because of the huge savings available, as well as the willingness of local investors to fund the debt. Americans can't do that, as they basically have no savings, which makes that a mute point.
So who will fund U.S. debt with the low interest rate and the government talking pursuing quantitative easing (buying Treasuries), that will put more downward pressure on the U.S. dollar.
In the end, the government should have listened to the many voices saying they should let the market sort out the mess, as it's the best mechanism available to do that.
Now that they've decided to enter fully into the fray, they've done far more harm to the U.S. dollar, the economy, as well as the American people.
Essentially everything they've done has backfired and been impotent. It will continue to remain that way no matter how much money they throw at the problem. We're all going to suffer because of their inability to leave things alone and resist intervening.
We're going to be in for a significant bear market concerning the dollar for some time to come. It's only just beginning.
The only question for the dollar, has been how long the deleveraging would take to unwind, as the complexity of the funds involved made it impossible to know. It seems the majority of that has happened now, and the dollar is responding in a predictable manner.
With U.S. obligations now in the trillions of dollars, the absolute necessity of a strong U.S. dollar is crucial to the successful implementation of the misguided bailouts and simulus package, but that isn't going to happen any time soon.
Some were hoping the deleveraging would last longer, giving the dollar a longer period to remain strong, but that isn't going to be the case. Most analysts believe that not only is downward pressure coming short term, but it should last for some time as well.
Today the greenback dropped to a 13-year low against the yen, and fell to its largest one-day loss against the euro, as currencies responded to the slashing of the benchmark interest rates to a range of zero to 0.25 percent, which is the lowest among major economies in the world.
While there are those looking to what Japan did as a blueprint for the U.S., that's a huge mistake for a couple of reasons.
First, the Japanese economy hasn't come near to recovering from its performance when they instituted a similar strategy as set forth by president-elect Obama. He wants to build up the infrastructure of the nation to create jobs.
Just that alone is an unfortunate idea, as it in reality crushed the Japanese economy.
But that's not the only reason it's foolish and misguided. The second reason is the difference between Japanese and American investors.
In Japan, people were willing to invest in the bonds issued by the government because of the huge savings available, as well as the willingness of local investors to fund the debt. Americans can't do that, as they basically have no savings, which makes that a mute point.
So who will fund U.S. debt with the low interest rate and the government talking pursuing quantitative easing (buying Treasuries), that will put more downward pressure on the U.S. dollar.
In the end, the government should have listened to the many voices saying they should let the market sort out the mess, as it's the best mechanism available to do that.
Now that they've decided to enter fully into the fray, they've done far more harm to the U.S. dollar, the economy, as well as the American people.
Essentially everything they've done has backfired and been impotent. It will continue to remain that way no matter how much money they throw at the problem. We're all going to suffer because of their inability to leave things alone and resist intervening.
We're going to be in for a significant bear market concerning the dollar for some time to come. It's only just beginning.
Friday, November 14, 2008
Dollar Should be in for a Rough Ride Going Forward
Now the the Chinese have decided to focus on their own infrastructure with the approximate $585 billion stimulus plan, they'll start cutting back on buying U.S. treasuries.
Acquisition of U.S. treasuries worked in China's favor, as it provided money to U.S. consumers who would then buy Chinese products manufactured in the country.
This has worked as the Federal Reserve has been able to keep interest rates low because of the over $1 trillion China has invested in U.S. government securities, which helped prop up the dollar; even though it has struggled until recently.
Consumers were then able to use cheap money to acquire a huge amount of consumer goods; at least until the mortgage bubble broke, and the weakness of those buying habits exposed themselves.
So we're going to see much less Chinese money going to U.S. securities; continued forced liquidation of funds to get access to more cash; printing more money to pay off misguided stimulus plan; and credit continue to be hard to get.
This will end up being "perfect storm" against the greenback, and will eventually put enormous downward pressure on it.
Acquisition of U.S. treasuries worked in China's favor, as it provided money to U.S. consumers who would then buy Chinese products manufactured in the country.
This has worked as the Federal Reserve has been able to keep interest rates low because of the over $1 trillion China has invested in U.S. government securities, which helped prop up the dollar; even though it has struggled until recently.
Consumers were then able to use cheap money to acquire a huge amount of consumer goods; at least until the mortgage bubble broke, and the weakness of those buying habits exposed themselves.
So we're going to see much less Chinese money going to U.S. securities; continued forced liquidation of funds to get access to more cash; printing more money to pay off misguided stimulus plan; and credit continue to be hard to get.
This will end up being "perfect storm" against the greenback, and will eventually put enormous downward pressure on it.
Thursday, October 16, 2008
U.S. Stock Surge Strengthens Dollar
Currency investors have temporarily taken their eyes off the fundamentals and are helping strengthen the U.S. dollar in response to government response to the credit crisis, as well as the upward moves of the stock market.
While it made no logical sense for the stock market to surge after the troubling news Thursday that mid-Atlantic factory output dropped to its lowest level in 18 years, still it did, and not only that, but the production in the industrial sector in the U.S. also fell to its lowest monthly drop since 1974.
For the most part the reason this is happening is the focus on governments around the world pouring capital into shoring up the credit crisis. This gives the illusion of safety, and for now people are buying into that illusion.
Once the focus comes back to fundamentals, we'll see the dollar soften again, as most of the banks see in the near term.
People have forgotten the real risks involved with the U.S. dollar, and are seeing it as a safe haven. That shouldn't last too long as reality sets back in. Another factor is they still assume the U.S. is the safest bet in times like these.
U.S. Treasuries and other liguid dollar instruments have been the main benefactors over the last few months.
Even the yen has fallen against the dollar in these times, dropping to its lowest level in 7 months.
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Still, confidence in general is still low, and regardless of the government bailouts, credit is still hard to come by.
While it made no logical sense for the stock market to surge after the troubling news Thursday that mid-Atlantic factory output dropped to its lowest level in 18 years, still it did, and not only that, but the production in the industrial sector in the U.S. also fell to its lowest monthly drop since 1974.
For the most part the reason this is happening is the focus on governments around the world pouring capital into shoring up the credit crisis. This gives the illusion of safety, and for now people are buying into that illusion.
Once the focus comes back to fundamentals, we'll see the dollar soften again, as most of the banks see in the near term.
People have forgotten the real risks involved with the U.S. dollar, and are seeing it as a safe haven. That shouldn't last too long as reality sets back in. Another factor is they still assume the U.S. is the safest bet in times like these.
U.S. Treasuries and other liguid dollar instruments have been the main benefactors over the last few months.
Even the yen has fallen against the dollar in these times, dropping to its lowest level in 7 months.
Still, confidence in general is still low, and regardless of the government bailouts, credit is still hard to come by.
Friday, September 12, 2008
Is U.S. Dollar about to Experience Correction?
After about six years of faltering, the U.S. dollar has enjoyed a resurgence lately, as it's been on a significant upward run.
According to the New York dollar index, against the currencies of major trading partners the greenback has risen by 14 percent since the Bear Stearns fiasco.
More significant is the strength it has experienced against the euro, where it has climbed by 13 percent since hitting a $1.60 bottom a couple months ago.
Much of the upswing has come from investors moving their money to safer U.S. Treasury's, from stocks, bonds and real estate.
Some think there will be inevitable correction for the U.S. dollar soon, which could be precipitated by a jump in the price of oil or better news from emerging markets.
Even so, expectations are that Europe will probably cut rates some time in the next several months, and that should keep the U.S. dollar in a strong position in the near term.
According to the New York dollar index, against the currencies of major trading partners the greenback has risen by 14 percent since the Bear Stearns fiasco.
More significant is the strength it has experienced against the euro, where it has climbed by 13 percent since hitting a $1.60 bottom a couple months ago.
Much of the upswing has come from investors moving their money to safer U.S. Treasury's, from stocks, bonds and real estate.
Some think there will be inevitable correction for the U.S. dollar soon, which could be precipitated by a jump in the price of oil or better news from emerging markets.
Even so, expectations are that Europe will probably cut rates some time in the next several months, and that should keep the U.S. dollar in a strong position in the near term.
Monday, July 14, 2008
Uncertainty over U.S. Dollar Continues
The U.S. dollar hovered near a record low against the euro on Tuesday, not long after rising after the U.S. Treasury and Federal Reserve announced emergency plans to help shore up investor confidence in Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE).
Some investors weren't convinced though, as Hiroshi Yoshida, a trader at Shinkin Central Bank said, "It's difficult to actively buy the dollar just because of government support measures, because there are other factors weighing on the dollar, such as worries over the health of financial institutions and rising oil prices.
"The key is his view on inflation. If the market perceives Bernanke to be cautious about raising interest rates, it may add more momentum to dollar selling against the euro."
After the FDIC seized IndyMac Bancorp - as investors swarmed the bank in a panic withdrawing funds on the bank run - stocks in the sector plunged, causing even more instability in relationship to confidence in the U.S. dollar.
As a result, the U.S. Treasury increased its direct credit lines to Fannie Mae and Freddie Mac, adding that they'll buy up shares in the companies if they need to.
Concerning the euro, traders think the euro could rise even higher against the U.S. dollar if the European Central Bank raises interest rates later in 2008.
Some investors weren't convinced though, as Hiroshi Yoshida, a trader at Shinkin Central Bank said, "It's difficult to actively buy the dollar just because of government support measures, because there are other factors weighing on the dollar, such as worries over the health of financial institutions and rising oil prices.
"The key is his view on inflation. If the market perceives Bernanke to be cautious about raising interest rates, it may add more momentum to dollar selling against the euro."
After the FDIC seized IndyMac Bancorp - as investors swarmed the bank in a panic withdrawing funds on the bank run - stocks in the sector plunged, causing even more instability in relationship to confidence in the U.S. dollar.
As a result, the U.S. Treasury increased its direct credit lines to Fannie Mae and Freddie Mac, adding that they'll buy up shares in the companies if they need to.
Concerning the euro, traders think the euro could rise even higher against the U.S. dollar if the European Central Bank raises interest rates later in 2008.
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