The Us Dollar

[sokal]

LEAP/E2020 believes that the next stage of the crisis will result from a Chinese dream. Indeed, what on earth can China be dreaming of, caught – if we listen to Washington – in the "dollar trap" of its USD 1,400-billion worth of USD-denominated assets? If we believe US leaders and their scores of media experts, China is only dreaming of remaining a prisoner, and even intensifying the severity of its prison conditions by always buying more US Treasuries and Dollars.

In fact, everyone knows what prisoners dream of. They dream of escaping of course, of getting away from prison. Therefore, LEAP/E2020 has no doubt that Beijing is constantly striving to find the means of disposing, as quickly as possible, of the mountain of « toxic » assets which US T-Bonds and Dollars have become, keeping the wealth of 1,300 billion Chinese citizens prisoner.

In any good escape story, the prisoners do not spend their time making announcements that they are preparing to get away. In fact, on the contrary, they tend to avoid arousing their guards' vigilance. According to our team, the Chinese declaration of March 24th asking for the replacement of the US dollar by an international reserve currency was both a "testing of the waters" and a warning: a direct poll to make an assessment of the forces at work (within the G20 in particular) when it comes to moving to a post-Dollar era (1), and a constructive and destructive (depending of the reaction to the previous idea) warning sent to the various global players. A responsible player (and Beijing is one) must send discreet signals to the other players likely to follow or help "planning the job". The preparation (2) and implementation of a « Great Escape » (3) requires the collaboration of several partners and no one who would have been willing to co-operate must end up in trouble because he was not informed (4).

In any event, thanks to the Central Bank of China's "testing of the waters", Chinese authorities have the following four beliefs confirmed:

1. A large part of the other members of the G20 are clearly in favour of a quick shift (5) to a post-Dollar era, in particular Russia, India, South Africa, Argentina, Brazil… therefore Beijing will not be alone when the time for a "Great leap forward " (6) comes. On the contrary, China will be accompanied by a significant part of Latin America, Africa and Asia. The recent Yuan swap deals agreed with some of these countries is already paving the way in this direction (7).

2. The United States and the United Kingdom are refusing to consider any move in the direction of a post-Dollar era. Timothy Geithner's blunder, when he considered discussing the Chinese proposal, was quickly corrected by US political leaders, but it revealed an interesting situation for Beijing. Geithner is Wall Street's man in Obama's team, and his blunder suggests that the financial Anglo-Saxon community would in fact be quite open to discussing any move likely to maintain their financial privileges, even if it means the end of the "Dollar era". The « Dollar wall » is not so solid when it leans on « Wall Street ». Financial players have little attachment to a particular territory (this characteristic dates back to long before our current globalised system). In contrast, Washington still does not want to hear anything about the replacement of the US Dollar as global reserve currency, preferring to listen to and believe in soothing experts' talk instead (8). We know what the result was in the case of subprime loans, the financial bubble, Wall Street's banks, AIG, TARP, the recession, and so on.

3. The Europeans (except UK) are their usual selves, unable to make any really firm decision with regard to their former US protector (9). They are successful in resisting Washington's orders, but they are not able to impose an agenda that would displease the United States. Nevertheless, thanks to their multilateral nature and numerous relays, it is obvious that, once the end of the « Dollar-era » has become irreversible, they would bring all their know-how and lobbying capacity to bear the creation of a new international currency, independent of any particular country. That is the reason why China launched the idea that the SDR (10) could be an alternative to the Dollar, proving that it was open to other suggestions than the Yuan (key condition for European support in the future).

4. Beijing is resorting to increasingly clear and bold announcements, always gradual, sometimes even followed by vague denials, coming from less important sources but soon widely circulated by the international financial media. It is thus increasing its freedom of speech (and of action, as, when it comes to monetary issues, what is said can be a lethal weapon or a soothing remedy) without significantly affecting the value of US Treasuries or the Dollar.

This last aspect is indeed the ultimate requirement of the Chinese government: to avoid by any means a collapse in the value of US Treasuries and the Dollar before it has escaped the « Dollar trap ». LEAP/E2020 believes that, in the coming months, China will reveal the exact meaning of this requirement. Is it a goal or a necessity? If it is a goal, then Washington, London and the international financial media are right: Beijing will follow in Washington's footsteps, merely trying to enhance its influence on US decisions. On the contrary, if it is a necessity, then our team is right and Chinese leaders will strive to sell off their US-Treasuries and Dollars at the best « possible » price, choosing the best « possible » moment, avoiding creating turmoil likely to lower the value of these assets for as long as « possible » (of course, China has been thinking about all the « possibilities » before launching its « escape » plan). But, in contrast to the first option, once all "possibilities" have expired, Chinese leaders will all of a sudden contribute to accelerate the end of the Dollar-era; or, more likely, they will calmly announce that for a number of reasons beyond their control (11), they can no longer continue to play the role of US imbalances' stabilizers. The rest of the article starts after the second graph on this page

Edited August 16, 2009 by sokal

[syd barrett]

Interesting post.

I still have a feeling that the $US could collapse against other currencies during late 2009/2010.

In this world climate, it is far safer to hold a basket of currencies in cash. Most banks offer this facility now and sometimes they pay a small percentage of interest on top.

[Lopburi99]

Glad to see this new thread opened. I am interested to know what the latest thoughts of TV's economic gurus like Naam and others are. Also interested in their predictions in regards to the $USD's future performance in view of Obama's success or lack thereof of his planned initiatives.

[CHAIYENYEN]

Interesting post.

I still have a feeling that the $US could collapse against other currencies during late 2009/2010.

In this world climate, it is far safer to hold a basket of currencies in cash. Most banks offer this facility now and sometimes they pay a small percentage of interest on top.

besides, unless the u.s. dollar be reviewed to reflect the true value of the u.s. dollar today - which is possibly the best way to salvage the u.s. economy and re-start her exports - the future of the u.s. economy looks grim.

[britmaveric]

$ is strong and will continue to dominate the world currency markets. Look for 40-45 per baht soon.

[cyb]

$ is strong and will continue to dominate the world currency markets. Look for 40-45 per baht soon.

I believe you will still see the us dollar at around bht33 to bht 39 for at least the next 12 months. The GBP will gain against the bht moreso than the dollar.

[ray23]

Definetly an interesting topic anyone noted exports are picking in the states, still have very long ways to go.

China the worlds biggget exporter. Now how did they do that lets see keep their currency low, pay next to nothing to their employees.

Kind of makes me wonder just how badly China wants to destroy the money it is holding. Might lose their advantage if they make the dollar to low. Lots of idle factories that wouldn't take much to start producing agian. If they can compete.

It is definetly an interesting world today.

I find it's unique that Thailand wants to be like China in so many ways, but don't seem to understand by not devaluing their currency they don't stand a chance.

Lot more to this then just the value of the dollar.

[RKASA]

The amount of US exports are less dependent on the weak value of a dollar then other issues that effect it, better a strong dollar to support US imports.  The bigger concern world wide is going to be the effect of a collapse of US imports if the dollar falls, and the value of some of the paper held by others in that case.  

China has no interest in becoming the worlds replacement net importer any time soon nor do any others.  Its only a matter of time before we see the Chinese version of Chernobyl.  They sold a lot of stuff, but all they really got for it was IOU's    Ever try to collect from a poor person.   

I see it flat as no boom or bust.  

Its the same reason banks often loan more money to failing companies, its the only hope they have of getting paid back.  Real free trade deals would have avoided this.  The subprime loans, and the financial bubble are what paid for china's boom and it really has no replacement market.  Even other countries that buy from China are net export and get there money from the same source. 

 All roads lead to Rome.

[ronz28]

Robert Prechter of Elliott Wave says dollar is at a turning point to strengthen. His view on the dollar starts at about 7:08 through the interview.

Edited August 16, 2009 by ronz28

[ray23]

I have no idea what is going to happen to China. But I do believe they have no desire to be the worlds largest importer.

The states got hit hard on this one goign take some time them to get up. yuo can see that in the fall in consumer confidence, that is not goign to go away overnihgt. Of course China is trying find other places to export to. That what this is about not the value of currency. Thailand is thinking of them as a importer not an exporter, not a real good idea. Short term it really looks good.

Long term it may have a very bad outcome.

How many of these small countries will they need to gain what they had selling to the states in the good times?

[AlexLah]

Sometimes a picture says it all.

[kurnell]

It will go up for sure. I hope so as my salary is in USA

[sokal]

$ is strong and will continue to dominate the world currency markets. Look for 40-45 per baht soon.

The dollar might go up in the short term but unless your a day trader, who cares about short term ?

[sokal]

I have no idea what is going to happen to China. But I do believe they have no desire to be the worlds largest importer.

The states got hit hard on this one goign take some time them to get up. yuo can see that in the fall in consumer confidence, that is not goign to go away overnihgt. Of course China is trying find other places to export to. That what this is about not the value of currency. Thailand is thinking of them as a importer not an exporter, not a real good idea. Short term it really looks good.

Long term it may have a very bad outcome.

How many of these small countries will they need to gain what they had selling to the states in the good times?

As the dollar falls, the Chinese currencies will have more purchasing power which means they can consume their own goods domestically. That is what would have to happen if there was no intervention in the market.

[RKASA]

Many small countries go panic if they near neg. trade numbers and slam the door closed in protectionist style, (were just a poor country excuse)  they get there cash from the US, UK and other open economies to buy from China and its under valued currency.  China may think they have other markets to sell in, but its the same money.   US buys oil, Arabs buy noodles.  Just follow the money.  

They can only hope to save themselves though open markets and a vary large and free middle class,  two things China hates the most.

As Donald Trump says "You can't sell consumer goods to poor people,  they don't have any money."

If they and misguided others really make the play for another currency, it will turn into be a play at some sort of world socialist order of sorts and result in WWIII.

JMHO

[sokal]

Many small countries go panic if they near neg. trade numbers and slam the door closed in protectionist style, (were just a poor country excuse) they get there cash from the US, UK and other open economies to buy from China and its under valued currency. China may think they have other markets to sell in, but its the same money. US buys oil, Arabs buy noodles. Just follow the money.

They can only hope to save themselves though open markets and a vary large and free middle class, two things China hates the most.

As Donald Trump says "You can't sell consumer goods to poor people, they don't have any money."

If they and misguided others really make the play for another currency, it will turn into be a play at some sort of world socialist order of sorts and result in WWIII.

JMHO

China is the biggest creditor nation with the highest savings rate and the biggest trade surplus.

The US is the biggest debtor nation with the lowest savings rate and the biggest trade deficit.

Now tell me who is the rich one and who is the poor one ?

[sokal]

This is a really good article that explains the inflation and deflation argument and its effect on the dollar.

Inflation vs deflation vs the dollar

[RKASA]

Any real effect on the dollar is not good for the majority and China has collected the most IOU's,  They can trash the dollar if they think its in their best interest, but the biggest creditor nation status will go with it.  plus nobody is going to stay peacefully behind the bamboo curtain, thats going to be the same problem that the USSR had and even sooner now that some wealth has gotten around.  They have to completely change to make any use of the savings and a trade surplus.

The surplus will end almost overnight if they tip the world economic order on its ear out of some dream to be top dog.  Besides, they didn't get where they are by being good at anything other then copying stuff and the use of near slave labor and some currency fixing.  

Thirty five years ago we were all learning Japanese,  what ever came of that? and I think at that time we were also the nation with the lowest savings rate and the biggest trade deficit.  In fact the end was vary near to hear it be told at the time.

I am not saying we all won't see hard times and its all roses, but Vegas would be putting odds on the US.

I am betting the dollar holds  and China blinks and starts to make internal changes that help maintain a trade relationship that works more both ways with everyone.  Anything else would be a complete disaster world wide, but I do give them credit for being as crazy as the little saber ratting puppet they maintain next door to scare us all into believing we need them on the world stage, what ever floats their boat.  They are more then welcome on the world stage without all that drama.

All forms of empire rise and fall but its rare that they fall all at once,  the US has a lot of game left in it.  Way to early to call for that kind of change.  They don't want to go as far as debt relief to keep the exports flowing.  Thats what they will get in the end.

[flying]

Any real effect on the dollar is not good for the majority and China has collected the most IOU's, They can trash the dollar if they think its in their best interest, but the biggest creditor nation status will go with it.

Not to agree that China wants anything to do with being the world reserve currency,

But I do not think they will openly trash the USD. Instead they will spend it as fast as possible hoping for more time.Many reports on the farm lands they are buying as well as Gold & other investments. Whether they can spend down anywhere near what they hold is doubtful but, not unlike Russians spending their failing currency back when they were buying anything they could. I could see China doing the same. At some point the music stops.

[britmaveric]

If you been to China - most of the population is dirt poor and live in a shi*e hole. There are so many in poverty this alone will be China's undoing. TOO MANY PEOPLE = DISASTER. China is tied to the US as every other economy - US Sneezes the rest of the world catches a cold.

[flying]

If you been to China - most of the population is dirt poor and live in a shi*e hole. There are so many in poverty this alone will be China's undoing. TOO MANY PEOPLE = DISASTER. China is tied to the US as every other economy - US Sneezes the rest of the world catches a cold.

China has one of the world's oldest civilizations and has the oldest continuous civilization.

It has archaeological evidence dating back over 5,000 years

I doubt they are worried. They have survived more colds than any other.

It is not a problem for some who are dirt poor to continue as such. It is another for

a pampered population to suddenly have to learn what life is like without.

Edited August 16, 2009 by flying

[Naam]

If you been to China - most of the population is dirt poor and live in a shi*e hole. There are so many in poverty this alone will be China's undoing. TOO MANY PEOPLE = DISASTER. China is tied to the US as every other economy - US Sneezes the rest of the world catches a cold.

China has one of the world's oldest civilizations and has the oldest continuous civilization.

It has archaeological evidence dating back over 5,000 years

I doubt they are worried. They have survived more colds than any other.

It is not a problem for some who are dirt poor to continue as such. It is another for

a pampered population to suddenly have to learn what life is like without.

words of wisdom!

[Naam]

$ is strong and will continue to dominate the world currency markets. Look for 40-45 per baht soon.

yawwwnnnn... i am reading this kind of bull from you over and over and over since several years Brit

[moe666]

Who knows what will happen to the dollar a lot of the experts didn't see last year coming, they didn't see the collapse of the USSR. So how do you predict the rise or fall of the dollar.

[flying]

Who knows what will happen to the dollar a lot of the experts didn't see last year coming, they didn't see the collapse of the USSR. So how do you predict the rise or fall of the dollar.

Many experts did see it coming & tried to warn. They were basically laughed at & ridiculed by the talking heads on shows like CNBC. Many also made a lot of $$$ off the knowledge of what was to come.

That aside to predict one would look at what got us here....Look at what we are doing to reverse that.....So far just more of the same as what brought us to this cliff? So what to expect from that?

USSR I did not follow but I am sure a person can now look at it in hind sight & possibly learn something from it.

[sokal]

Any real effect on the dollar is not good for the majority and China has collected the most IOU's, They can trash the dollar if they think its in their best interest, but the biggest creditor nation status will go with it. plus nobody is going to stay peacefully behind the bamboo curtain, thats going to be the same problem that the USSR had and even sooner now that some wealth has gotten around. They have to completely change to make any use of the savings and a trade surplus.

The surplus will end almost overnight if they tip the world economic order on its ear out of some dream to be top dog. Besides, they didn't get where they are by being good at anything other then copying stuff and the use of near slave labor and some currency fixing.

Thirty five years ago we were all learning Japanese, what ever came of that? and I think at that time we were also the nation with the lowest savings rate and the biggest trade deficit. In fact the end was vary near to hear it be told at the time.

I am not saying we all won't see hard times and its all roses, but Vegas would be putting odds on the US.

I am betting the dollar holds and China blinks and starts to make internal changes that help maintain a trade relationship that works more both ways with everyone. Anything else would be a complete disaster world wide, but I do give them credit for being as crazy as the little saber ratting puppet they maintain next door to scare us all into believing we need them on the world stage, what ever floats their boat. They are more then welcome on the world stage without all that drama.

All forms of empire rise and fall but its rare that they fall all at once, the US has a lot of game left in it. Way to early to call for that kind of change. They don't want to go as far as debt relief to keep the exports flowing. Thats what they will get in the end.

I am a Canadian and I am pro American, I actually like George Bush .

I just don't know how the US can get out of these imbalances. Ideally I hope that the USD will slowly devalue against the Chinese Rumembi and then all the resource country currencies like the AUS,CAD and NZ will appreciate against both.

The problem is that if any one of the big US paper holders decide to give up on the dollar; the first one out will profit the most.

[Kitsch22]

Thirty five years ago we were all learning Japanese, what ever came of that?

Toyota cf. GM ?

[ray23]

You know sometimes it is funny to listen to people talk about the states that must have short memories, your not givening the American people the credit they deserve. We have been through hard times before, you do what you have to do simple a that. Were peopele educated to debt I hope so.

Now the current generation hasn't seen hard times, but I have. Not fun, but you adjust.

What the finacial experts do I don't know, but even in the states things get tough the fmailies will come together again. I have seen it many times with my older brothers. As far a I can tell the savings rate in America is on the way up, that is not going to happen every in a year, takes time especially when work is hard to find.

I have no idea how anyone could call anything at the moment we are really in uncharted waters.

China is spending it's money in country, buying assets all over the world, why not it's fire sale and they have the cash. That does mean thing will be static even China has limits.

I still remember people on here talking about America going down the tube as much as two years ago, and the elated about it. They failed to see the impact on the rest of the world. If the dollar fails why do you think it is going to be any different?

If they stop borrowing money to fund the rest of the world what happens, even during this crisis they are still sending money over seas to help smaller countries. I'm sure the Government has it's own selfish reasons. But the fact is they could help their own economy just by closing that money pit.

China already owns America just as the Japenese did for a period of time.

Watching the dollar one thing is very confusing things get better and the dollar goes down things are bad and it goes up, why?

China's currency has moved very little, simply because the governmant can do that there. But it's on the low side is that what the world really wants?

What would your money worth today, had the Chinese system had been in effect for the past decades. How many could sit and argue this or would you be outside trying to grow a garden to eat. Or would we be in the midst of a huge upheaval of people trying to survive by any mean at there disposal.

How many of us would want to spend our working life living in one romm with a half a dozen other people sending your money to your family.

Now finacially this works keep the labor cost to next to nothing and you can sell your product cheaper. But, how many people in the world are going to be saifisified with doing that? What the effect world wide going to be from taking not only the Americans, but most of the Western world. Be careful what you wish for you just might get it.

The one thing this has proven is no country is immune.

Why is it considered the safe haven?

Dollar falls oil and commodities go up, I beleive they call that inflation. Do we really want that?

We are truly in a world economy, failing countries effect the entire world.

well I think we have to wait and see, there are no clear answers yet.

Edited August 17, 2009 by ray23

[flying]

China's currency has moved very little, simply because the government can do that there. But it's on the low side is that what the world really wants?

Why is it considered the safe haven?

Dollar falls oil and commodities go up I believe they call that inflation. Do we really want that?

China's currency remains low because they do not convert the USD into their own currency

Dollar is considered the safe haven last time....maybe the next time too.

Why is that? It is not because of the strength of its economy it is not because the dollar is backed by anything more than a promise, a promise backed by others labors, so is it smart?

Or is it fear of the biggest military? Feeling perhaps that when TSHTF the bully will probably be standing the longest? But there are times when all the school yard kids figure out a way to deal with a bully.

Dollar falls, things priced in dollars go up.....seems logical But who is that hard on?

[sokal]

You know sometimes it is funny to listen to people talk about the states that must have short memories, your not givening the American people the credit they deserve. We have been through hard times before, you do what you have to do simple a that. Were peopele educated to debt I hope so.

Now the current generation hasn't seen hard times, but I have. Not fun, but you adjust.

What the finacial experts do I don't know, but even in the states things get tough the fmailies will come together again. I have seen it many times with my older brothers. As far a I can tell the savings rate in America is on the way up, that is not going to happen every in a year, takes time especially when work is hard to find.

I have no idea how anyone could call anything at the moment we are really in uncharted waters.

China is spending it's money in country, buying assets all over the world, why not it's fire sale and they have the cash. That does mean thing will be static even China has limits.

I still remember people on here talking about America going down the tube as much as two years ago, and the elated about it. They failed to see the impact on the rest of the world. If the dollar fails why do you think it is going to be any different?

If they stop borrowing money to fund the rest of the world what happens, even during this crisis they are still sending money over seas to help smaller countries. I'm sure the Government has it's own selfish reasons. But the fact is they could help their own economy just by closing that money pit.

China already owns America just as the Japenese did for a period of time.

Watching the dollar one thing is very confusing things get better and the dollar goes down things are bad and it goes up, why?

China's currency has moved very little, simply because the governmant can do that there. But it's on the low side is that what the world really wants?

What would your money worth today, had the Chinese system had been in effect for the past decades. How many could sit and argue this or would you be outside trying to grow a garden to eat. Or would we be in the midst of a huge upheaval of people trying to survive by any mean at there disposal.

How many of us would want to spend our working life living in one romm with a half a dozen other people sending your money to your family.

Now finacially this works keep the labor cost to next to nothing and you can sell your product cheaper. But, how many people in the world are going to be saifisified with doing that? What the effect world wide going to be from taking not only the Americans, but most of the Western world. Be careful what you wish for you just might get it.

The one thing this has proven is no country is immune.

Why is it considered the safe haven?

Dollar falls oil and commodities go up, I beleive they call that inflation. Do we really want that?

We are truly in a world economy, failing countries effect the entire world.

well I think we have to wait and see, there are no clear answers yet.

The US borrows money to fund the rest of the world ? You need a crash course in economics and I sure hope you don't get it from Ben Bernanke.