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Thread: We've been calling this for ages... (is the US dollar finally unravelling?)

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    Default We've been calling this for ages... (is the US dollar finally unravelling?)

    Don't say nobody warned us...

    in the 2005 melbourne university economic review I wrote the following short article as part of an extensive issue covering economic issues in the USA

    "In considering the likely resolution of the unsustainable situation, it is important to note the privileged position of the U.S. dollar “as the world’s reserve currency… the risk that the world will finance large U.S.. trade deficits for too long” (Roubini).

    Ostensibly, investors in US financial market (bonds) are acting somewhat irrationally, financing the US despite low interest rates.

    Asian reserve banks are keeping large amounts of U.S. dollars as foreign currency reservess to sustain their fixed currency regime.

    Countries also recognize the impact upon world economics of the USA. Given the importance of the United States as a foreign export market, it is difficult to imagine that it would be in any country’s economic self-interest to take a step that could potentially precipitate a U.S. economic crisis.

    I believe countries will continue to acquiese to the USA’s huge deficits. Then there will be a shock, likely to be brought about by some military or political conflict and creditors to the U.S. suddenly decide the risk is too great. The writing will suddenly appear on the wall that devaluations and interest rate rises is certain in the short run… and this would cause U.S. bonds to lose value. So they sell dollars for another store of value. Countries will ask for payment upon maturity of bonds, and try to sell the dollars immediately."

    I've been sitting on a massive position of Euros, Australian Dollars (well that's my residence) and Chinese Yuan (my domicile of birth) for the last 24 months and I it finally seems the borrowed time of the U.S. is beginning to run out. The US dollar defacto embargo by Iran, and the time-bomb that is the US loans market is finally freaking out those capable of influencing the market. If you've been reading Melonie's posts this will come as no surprise.

    If the Democrats win the election, and start enacting leftist government spending policies, I think all hell will break loose! if the government doesn't get its act together and drastically reduce public spending and streamline social security

    I'm interested in what other people think. Do you agree that the weakness in the US dollar is a manifestation of big problems, and is your view similarly bearish. What steps are you going to take to protect yourself / exploit the situation? Especially for Americans it will be hard to eliminate exposure to the US dollar

    some stats:

    USD/EUR from 1/1/06 to 3/31/07

    Average (455 days): 0.79038
    High: 0.84890 (1/1/06)
    Low: 0.74560

    Curent: 0.750

    USD/AUD for the same period

    Average (455 days): 1.31755
    High: 1.42530
    Low: 1.23030

    Current: 1.238
    Last edited by salsa4ever; 03-31-2007 at 04:44 AM.

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    Default Re: We've been calling this for ages... (is the US dollar finally unravelling?)

    yes and the politicians in Washington are now 'playing with fire' ...



    (snip)" March 31 (Bloomberg) -- China's commerce ministry said U.S. tariffs on imports of coated paper from the nation are unacceptable and it reserves the right to take ``necessary'' action, signaling the dispute may escalate.

    The U.S. Commerce Department, reversing more than two decades of practice, decided yesterday to levy countervailing duties to compensate for alleged Chinese subsidies to exporters. The change of policy opens the way for steel, textile and other U.S. manufacturers to apply for the same protection.

    The tariffs ``have severely damaged the interests of Chinese industry,'' Commerce Ministry spokesman Wang Xinpei said in a statement today on its Web site. ``It's unacceptable and China strongly demands the U.S. to reconsider the decision.''

    The dollar fell on concern the levies will provoke trade tensions with China, the second-largest holder of U.S. debt. The department's action comes as U.S. lawmakers, vexed by a record $232.5 billion trade deficit with China, prepare to consider stiffer measures aimed at fighting what many call the nation's weak currency, subsidies and other unfair trade practices. "(snip)

    IMHO if China decides to simply stop reinvesting it's future trade surplus back into US bonds, the US dollar is toast !

    To make matters even 'better', this week Iran started talking to China and other countries about purchasing Iranian oil with Euros / Yen not Dollars.

    (snip)"28/03/2007, Reuters

    China's state-run Zhuhai Zhenrong, the biggest buyer of Iranian crude worldwide, began paying for its oil in euros late last year as Tehran moves to diversify its foreign reserves away from US dollars.

    The Chinese firm, which buys more than a tenth of exports from the world's fourth-largest crude producer, has changed the payment currency for the bulk of its roughly 240,000 barrels per day (bpd) contract, Beijing-based sources said.

    Japanese refiners who buy about 500,000 bpd of Iranian crude, nearly a quarter of Iran's 2.2 million-bpd shipments, continue to pay in dollars but are willing to shift to yen if asked, industry sources and officials said separately.

    Iranian officials have said for months that more than half the Opec member's customers switched their payment currency away from the dollar as Tehran seeks to diversify its reserves, but news of the Zhenrong change is the first outside confirmation."(snip)

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    Default Re: We've been calling this for ages... (is the US dollar finally unravelling?)

    Quote Originally Posted by Melonie View Post

    IMHO if China decides to simply stop reinvesting it's future trade surplus back into US bonds, the US dollar is toast !

    QFT. Scary, isn't it? Time to liquidate fast outta any US dollar position!

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    Default Re: We've been calling this for ages... (is the US dollar finally unravelling?)

    ^^^ yup, no s#!t ! I'm thinking of transferring $10k into an Everbank Euro denominated CD and loading up on even more gold bars. If Iran lights up, or if the Chinese decide to send a message by dumping some of their US T bonds, The US dollar and the price of everything imported (like oil / energy) could make a 10%-20% move really fast.

    This is probably more suitable as a Dollar Den thread, but from a 'global instability' standpoint as well as a 'stupid US politicians' standpoint it's probably best left here in the Wild West section !

    All I can hope is that, when the 'chips fall' re the US dollar as a result of waffling on the Middle East War and political saber-rattling re Chinese imports, US voters will be able to connect the dots to last November 7th.

    In fact, the proverbial 'tin foil hat' crowd are likening today's US political and economic position to that of 1975 - with ineffective 'lame duck' president Gerald Ford getting nowhere with a US congress dominated by the opposition party, and with the rest of the world acting with a total lack of fear of US reprisals. All we need now for some real 'fun' to start is a military pullout from Iraq a la Vietnam and the election of a modern day Jimmy Carter next year ! What's the famous quote ? "Those who refuse to learn from history are doomed to repeat it ?"




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    Last edited by Melonie; 03-31-2007 at 09:35 PM.

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    Default Re: We've been calling this for ages... (is the US dollar finally unravelling?)

    actually, an article on this very subject has just been released ...

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