Meanwhile, the dollar has bounced. Is the worst over for the greenback? It has been on a slide for the last four years - down about 25% against therest of the world's money since February '02.
Has it now bottomed out? We doubt it. There are problems, imbalances,absurdities, irregularities, and contractions that must be cured.Foreigners hold more than $13 trillion worth of U.S. dollar assets - andmust continue to add to their holdings at the rate of $800 billion per year. For the time being they do so with no gun to their heads. And yet,every one of them knows that the dollar is in a vulnerable position. It rests on the 'faith' of the world's people...a faith that could be shaken at any minute.
Has it now bottomed out? We doubt it. There are problems, imbalances,absurdities, irregularities, and contractions that must be cured.Foreigners hold more than $13 trillion worth of U.S. dollar assets - andmust continue to add to their holdings at the rate of $800 billion per year. For the time being they do so with no gun to their heads. And yet,every one of them knows that the dollar is in a vulnerable position. It rests on the 'faith' of the world's people...a faith that could be shaken at any minute.
Today, for example, brings news that Iran will try to diversify more ofits international commerce away from the dollar - following a trend thatis now well established. Half the world seems to want to back away from the greenback.
And soon, the biggest American financial policy makers - Ben Bernanke and Hank Paulson - will journey to China. They must tell the Chinese to let the yuan rise, says Nancy Pelosi and the other dough-heads. What does that mean? It means that the Chinese would stop adding to their U.S. dollar assets - bonds, stocks and cash. And what would that mean, dear reader? It would mean that the dollar would fall.
Of course, the foreigners are trapped. If they sell the dollar...or merely stop adding to their holdings...the dollar will fall. But so will the value of their huge dollar holdings.
"A 30 percent drop in the dollar, could cost foreign investors an easy $3 trillion in lost purchasing power, not to mention the loss to U.S.citizens who own over $46 trillion in dollar net worth assets," writes Richard Benson. "Our leaders must find a way to lower the U.S. Trade Deficit, or risk the dollar losing its unique position as the World's Reserve Currency.
"America's currency problem is a very sad day for the Republic. It used to be that the Federal Reserve policy was set simply with domestic economic policy in mind. In years past, we could virtually ignore the dollar in setting monetary policy because it was totally secure in its role as the World Reserve Currency. But today, because of our country's profligate fiscal and over-easy monetary policies, the dollar has been undermined.
"What is ahead for the dollar? We don't know. But we see a lot of downside risk...and little upside potential. It could go way down, in other words.It is not likely to go way up.
- Addison Wiggin
