November 23rd, 2009
- With the national debt now topping $12 trillion, the White House estimates that the government’s tab for servicing the debt will exceed $700 billion a year in 2019, up from $202 billion this year, even if annual budget deficits shrink drastically. In concrete terms, an additional $500 billion a year in interest expense would total more than the combined federal budgets this year for education, energy, homeland security and the wars in Iraq and Afghanistan.
- St. Louis Fed member Bullard said over the weekend that he favors extending the Fed’s program of purchasing mortgage-backed securities beyond the 1st Q next year. This adds many more months to the low rates for an ‘extended period of time.’ His comments have pummeled the US Greenback, and as the dollar fell, stock futures soared
Tags: dollar demise, dollar fall, Dollar News, hedge against declining dollar, interest expense, mortgage-backed securities, national debt, weak dollar
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October 26th, 2009
“The long-term deficit and debt that we have accumulated is … unsustainable. We can’t keep on just borrowing from China or borrowing from other countries. We have to pay interest on that debt … and that means we’re mortgaging our children’s future.”
— President Barack Obama
“One way to solve the debt problem is to … devalue the dollar and … inflate the currency. That’s the cruelest tax of all.”
—Senator Judd Gregg
“The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.”
— Benjamin S. Bernanke, Chairman, U.S. Federal Reserve
“It’s the … official policy of the central bank and the United States and to … debase the currency.”
— Jim Rogers, Co-Founder of the Quantum Fund
“The current crisis is not only the bust that follows the housing boom … it’s basically the end … of a 60-year period of continuing credit expansion based on the dollar as the reserve currency.”
— George Soros, The world’s #1 global investor
“Holding dollars today represents risk … without … reward!
— Joseph Stiglitz, Nobel Prize-winning economist
“The costs of a dollar-dominated system to the world may have exceeded its benefits. The dollar should be replaced by a new global reserve currency.”
— Zhou Xiaochuan, Governor, China Central Bank
“The rise of emerging economies such as China and Russia will prevent the U.S. dollar from remaining the world’s only reserve currency.”
— Nicolas Sarkozy, President of France
Tags: Barack Obama, Ben Bernanke, George Soros, Jim Rogers, Joseph Stiglitz, Nicolas Sarkozy, Senator Judd Gregg, Zhou Xiaochuan
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October 12th, 2009
• The dollar’s position as the world’s leading reserve currency faces increased pressure as the financial crisis allows emerging economies greater influence on the world stage, analysts said.
• A report last week in The Independent claiming that China, Russia and Gulf States are among nations prepared to ditch the dollar for oil trades has heightened the uncertainty surrounding the US currency’s future.
• “The US dollar is being hurt by the continued talk of a shift away from a dollar-centric world,” said Kit Juckes, an analyst at currency traders ECU Group. Three conclusions stand out very clearly. Firstly, the shift in economic power away from the G7 economies is continuing. Secondly, there is a growing acceptance amongst those winners that one consequence of this power shift will be to strengthen their currencies. And finally, as long as the US economy is not strong enough for any rise in interest rates to be conceivable for a long time, the dollar’s underlying downtrend will remain in place, added Juckes.
• The United Nations last week called for a new global reserve currency to end dollar supremacy, which had allowed the United States the “privilege” of building up a huge trade deficit.
• Despite what the Fed and other central bankers say, a weaker dollar is desirable because it is necessary to rebalance the global economy. As long as the decline is gentle and orderly, then they’re happy.
Tags: dollar, U.S. dollar, U.S. Dollar News
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October 8th, 2009
Investors who are convinced that serious inflation looms — but who’ve been putting off buying gold or some other potential hedge – will want to read the latest client letter from Kyle Bass, the hedge fund manager who made a fortune betting against mortgage-backed securities in 2007.
Bass’ March client letter carried a warning about looming inflation, too. But back then, he declared the U.S. to be “in relatively better shape than the rest of the world,” and thought that the dollar would be “a safer currency than any other.”
The dollar, however, has been dropping since then, a downtrend that made headlines again on Tuesday.
In the latest letter, Bass seems much more concerned about the U.S.:
There have been 28 episodes of hyperinflation in national economies in the 20th century, with 20 occurring after 1980. Peter Bernholz, professor emeritus of economics . . . at the University of Basel, has spent his career examining the intertwined worlds of politics and economics with special attention given to money. In his most recent book, “Monetary Regimes and Inflation: History, Economic and Political Relationships,” Bernholz analyzes the 12 largest episodes of hyperinflation — all of which were caused by financing huge public deficits through monetary creation. His conclusion: The tipping point for hyperinflation occurs when the government’s deficit exceeds 40% of its expenditures.
Uh-oh. Office of Management and Budget projections, Bass says, “imply that the U.S. will run deficits equal to 43.3% and 39.9% of expenditures in 2009 and 2010, respectively. One has to ask whether the U.S. reached the critical tipping point? . . . In fact, the recent price action in metals, the dollar and commodities suggests that the market is already anticipating the future.”
Tags: hyperinflation, inflation, Kyle Bass, U.S. deficit
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October 7th, 2009
“U.S. Dollars have value only to the extent that they are strictly limited in supply. But the U.S. Government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. Dollars as it wishes at essentially no cost.”
Ben Bernanke, Remarks to the National Economists Club, Washington, DC, 11/21/2002
Tags: bernanke, U.S. dollar, U.S. Dollar News
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October 6th, 2009
The Independent (UK)
The Demise of the Dollar – October 6, 2009
In the most profound financial change in recent Middle East history, Gulf Arabs are planning – along with China, Russia, Japan and France – to end dollar dealings for oil, moving instead to a basket of currencies including the Japanese yen and Chinese yuan, the euro, gold and a new, unified currency planned for nations in the Gulf Co-operation Council, including Saudi Arabia, Abu Dhabi, Kuwait and Qatar.
Secret meetings have already been held by finance ministers and central bank governors in Russia, China, Japan and Brazil to work on the scheme, which will mean that oil will no longer be priced in dollars.
The plans, confirmed to The Independent by both Gulf Arab and Chinese banking sources in Hong Kong, may help to explain the sudden rise in gold prices, but it also augurs an extraordinary transition from dollar markets within nine years.
***
The United Nations called on Tuesday for a new global reserve currency to end dollar supremacy which has allowed the United States the “privilege” of building a huge trade deficit.
“Important progress in managing imbalances can be made by reducing the reserve currency country’s ‘privilege’ to run external deficits in order to provide international liquidity,” UN undersecretary-general for economic and social affairs, Sha Zukang, said.
Tags: dollar, dollar demise, oil
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September 8th, 2009
- In yet another step to internationalize the yuan as a global currency, China will be selling yuan-denominated bonds on the international market for the first time.
- This could be a new option for fixed-income investors, including central banks, who want to diversify away from the dollar. It will be interesting to see what yield these bonds end up offering, and if central banks bite.
- Given the consensus view that the yuan is artificially undervalued versus the dollar, longer-term Chinese bonds are likely to be appealing for their currency appreciation potential, in addition to their interest income. We expect a strong a response.
- NEW YORK (AP) — The dollar fell to a low for the year Tuesday against the euro and a basket of major currencies as gold prices shot past $1,000 an ounce for the first time since February.
- The 16-nation euro rose as high as $1.4493, its strongest level this year, in European trading, from $1.4337 late Monday.
- The dollar index fell as low as 77.14 against a basket of six major world currencies that includes the euro, yen, Canadian dollar, British pound, Swedish krona and Swiss franc. That’s its lowest point since last September.
Tags: Chinese bonds, dollar fall, dollar fell, Dollar News, euro news, yuan as global currency
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