Quote:
Originally Posted by jasonnoguchi
Yes, the USD is a concern now. In fact, I don't think the USD is going to last very long and would likely go into default to be replaced by something else... maybe the Amero? That will probably allow the US to default on all of their USD based debt, thus wiping out the huge debt in one go. well, just my guess. But if a USD default really happens, we are all in trouble and that is the next big financial crisis that I wrote about in my other recent writings.
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Ok, that may well be true, but what is the underlying thesis behind this?
As I've illustrated in other threads, we've been experiencing deflation since March 2009. In other words, despite the Fed's valiant attempts to
deliberately weaken the Dollar, the Dollar has actually been strengthening!
Here's a quick chart if you want to look at it.
Also, while there have been talks of changing the trade of oil from Dollars to a basket of currencies (which I actually support by the way), the talks-- instigated by Russia and China no less-- have been voted down. Oil is still traded in Dollars, which still shows some global confidence in the currency.
It's also interesting to see that for a lot of Sovereign Wealth Funds (SWFs), their "flight to safety" still results in the mass buying of US Treasuries. Again, more concrete signs of confidence and buying into not just America's future prospects, but ultimately, the Dollar. To be fair, I hear that there is more talk of "diversification" now though, but those are considered aggressive plays, and most SWFs have already done that back in 2008....
These may seem like anecdotes, but nothing speaks louder than someone voting with their money.
Finally, in a different thread, I've also linked
Kiplinger's take to the Dollar. While it is only an online news article, I think this one should not to be taken lightly. For example, it states that the slip in Dollar trading is systemic, despite the deflationary pressures and the subsequent strengthening of the Dollar. So why is this? The reason is NOT the loss in confidence of the Dollar itself, but rather, loss in confidence over a V-shaped economic recovery. There is a distinct difference.
It's true though that we have a lot to worry about. Our national deficit is reaching a point where I wonder if it is truly sustainable. But the issue is pretty simple and straightforward, and when it's all said and done, pretty much everything hinges on an economic recovery, which I am fairly optimistic about.
For example, at the very least, the economy has already "bottomed". The contraction ended when companies exhausted their inventories, causing a "rebound" of sorts. Now, with the marketplace having evolved due to the recession, the market now has to find a new footing to step back up towards genuine growth, and ideally, without relying on the old consumer model. We've got a lot of ground to cover, but this chapter of the story has yet to be written....