Posted on 03/03/2011 12:49:59 PM PST by FromLori
The dollar's dominance in the world will diminish, due to increased pressure from emerging markets to raise interest rates to slow their economies over the next 18 months, Ray Dalio, founder & CIO of Bridgewater Associates told CNBC.
"It's inevitable that the dollar's role as the world's currency will diminish from the dominant world currency to one of a few," he said.
"It will fade probably fairly quickly so the United States which accounts for almost two-thirds of the reserves will probably go down to 50 percent of the world's reserves and it will have an effect on lending," he added.
Due to a new world order of indebted developed nations including the United States, the countries of the Euro Zone and Japan, and growing emerging economies which now account for 53 percent of the global economic growth, monetary policies in rising economies are "inappropriate," Dalio said.
"If you have currencies that are linked, you have interest rates that are linked, and it's created totally uneconomic behaviors in those countries," he said. "This is going to be the next big seismic shift."
By 2012, it will become "intolerable" to maintain those currency links, Dalio said. By keeping those currencies linked and keeping interest rates the same, it has made it a "one way street for investors," he added.
(Excerpt) Read more at cnbc.com ...
Stepping away from my incessant beat of the D-Month drum for a moment:
I am humbled by your willingness to be the bigger guy in all this: explaining any irascibility, being willing to engage with rebuke etc.
Whenever I get impatient or heated with a poster - I do not do half as well as you. I’ll just leave it at that. You are the man.
Well, it’s after midnight here. I’m off home. Goodnight all.
“But some of the POLITICAL elitists defend the BAILING OUT of FAILED COMPANIES...they are the enemy of capitalism...and they post HERE.
To them, using TAXPAYER money to bail out their crony partners is A-OK, and will HELP this economy...stupid is as stupid does.
But, not happy with the extent of the damage done, they promote monetizing the debt in order to devalue the dollar so they can pay off that debt in worthless dollars...truly clueless.”
I know it’s pathetic. It’s helping the economy all right helping it right into a severe Depression. We already have $6.3 Trillion in GSE debt that obozo kept off the budget and yet his buddies at the big global banks are allowed to continue dumping their toxic crap on the taxpayers!
Obama’s Budget Has One Small, Missing Piece.... For $6.3 Trillion Dollars
http://www.zerohedge.com/article/obamas-budget-has-one-small-missing-piece-63-trillion-dollars
“I have indeed been banging on about an impending 80% devaluation like some demented raven-haired Cassandra for about a year now.”
I have known the dollar is going to implode, and I learned most of this over 2008. So, you have been warning about this since at least 2010? Are you surprised that the dollar is lasting so far? Do you think it will fall by the 80% after QE3?
“The average wage is ~ 45,000 dollars now, but my guesstimate says it must rise to 240,000 dollars per annum to reach “repayment equilibrium”. A devaluation of approximately 80% must take place for this equilibrium to occur. “
And this is very interesting. The rate of inflation for the income to reach, in rough figures, the equilibrium level to repay the debt would be enormous. Roughly, over 500%!!!
I don’t think the government will be able to do this without major violent market disruptions, societal and political.
First, where did I specifically blame Bernanke or the FED?
Its been a joint effort by both the federal government and the FED.
Greenspan kept rates far too low far too long to get people to buy houses - and they did... It created artificial demand resulting in increase prices and over production. Those increased prices looked like increased returns on “investment” so people borrowed even more until the vicious circle of positive feedback - AKA credit bubble - finally collapsed. And government greased the skids in every way possible to encourage people to borrow ever more the entire time.
As far as reserve currency goes, we’ve benefited hugely by our currency being the world’s reserve currency. When you make it unstable and have it rapidly lose value people try to move their wealth elsewhere in an attempt to preserve as much as they can. As they do, we’ll suffer economically as a result.
And last but not least, I was talking about our currency, not our increasingly fascist government which our currency is merely a symptom of.
Keeping the well connected class going is just more important to the political class. They no longer see that we even matter. They have gotten away with too much, stealing the hard earned savings of the retired class, to encouraging the young to be indentured slaves to that same government is unthinkable by a country that thinks it is free. Now all it is becoming is fee-ed into servitude.
And Chicago Thugs running the whole thing just makes my skin crawl.
http://www.oanda.com/currency/historical-rates/
The most important thing to keep in mind, is that having the world's reserve currency has been very, very beneficial to the U.S. Losing that status would hurt — a lot. Just ask Britain (the British Pound used to be the reserve currency). A reserve currency must be stable, and must be a good store of value (at least compared to any alternatives). The U.S. dollar used to be as sound as — well as the U.S. dollar. Increasing government debt, and the Fed's loose money policies, of late; have cast doubt on the stability, and have eroded the value of the greenback. You cannot blame other nations for looking for alternatives, to protect their own financial assets.
“Its been a joint effort by both the federal government and the FED.”
YES!!!
The FED exists, historically, because the government turned over their constitutional duty to have a sound currency, and gave that to a private bank. And that private bank keeps this sorry state of affairs going by feeding this government with more and more debt. They BOTH live off of the debt. The FED by keeping the interest on that debt, and the government by buying votes.
We are close to the end of the line where this will NOT WORK anymore. All fiat currencies die, the people somewhere along the way lose confidence in the system.
Then, watch out below!
I hate the FED and all of its evil done to this country.
A private bank, with private profits, and private balance sheets. With their fiscal policy, they control this nation. No freedom will remain as the corruption of this 1913 monster lives.
“Keeping the well connected class going is just more important to the political class. They no longer see that we even matter. They have gotten away with too much, stealing the hard earned savings of the retired class, to encouraging the young to be indentured slaves to that same government is unthinkable by a country that thinks it is free. Now all it is becoming is fee-ed into servitude.
And Chicago Thugs running the whole thing just makes my skin crawl.”
Thats the same way I feel. I wonder how many people actually realize that inflation is an undeclared tax on all of us? A den of viper’s the lot of them.
Fed siphons $100 billion from savers
http://finance.fortune.cnn.com/2010/11/03/fed-siphons-100-billion-from-savers/
Well if you really want to talk big picture, the problem isn’t government per se, it is after all the government WE elect over and over, it is the voters at large that think they are entitled to other people’s wealth. That think government is the final creator, distributor and equalizer of all things. For example health care is too expensive, so mandate someone else pay for it. Never mind government already played a primary roll in making it expensive in the first place...
As with all socialism, people think they like “a little socialism”... It warms their hearts “doing good for others” and all... Once applied, that socialism always requires a little more socialism to fix the consequences of the previously applied socialism... The vicious circle continues until everything is consumed and everyone is destitute and dependent on government for their next meal.
That’s the root of our problems.
He does this on every thread. He starts talking smack, then when called on it, apologizes and starts again.
I just told him off from the get-go, so I didn’t get the apology like everyone else did. I wear it as a badge of honor.
Greenspan kept rates far too low far too long to get people to buy houses
Not at all. He was doing the usual since Volker: keeping inflation low without choking growth.
It created artificial demand resulting in increase prices and over production.
Yes, there is this line of reasoning about "money chasing assets," but here there is a higher-order, primary reason, and the distinction is important, I believe: artificial demand for housing was created by the Community Reinvestment Act (1998). It mandated that a specific proportion of loans be given to those that cannot afford them under usual lending standards. This legislated proportion continually increased to 52% in 2007.
There is a good measure here: the rate of home-ownership. It is good because it stood at about 65% for a long time --- through oil shocks and inflation, slow and fast growth, existence and nonexistence of the Soviet Union... Well, it started to increase immediately after 1998 and reached 69%. That is, 4% of Americans, about 11 million peple, bought houses they could not afford. All this talk abut housing crises will miraculously disappear when (and if) the rate of home-ownership reaches 65-66%.
(If you want another measure, superimpose housing prices and CPI: they rise more or less in parallel up until 1998, and then housing prices sharply diverge from the CPI).
The demand was created thus as part of social engineering by Congress (initialed by Clinton who charged Rubin with the task). Money supply and interest rates have nothing to do with that. The cause and effect are so separated in time, that many people don't see the cause and remain incredulous when it is offered. It does not help, of course, that the government successfully deflected public anger with the help of the media --- onto Wall Street, CEOs, bonuses, the Fed, rating agencies... But it was the government that was the culprit behind the artificial demand.
Reading you post gave me a rate pleasure. And its ending, in particular, is worth repeating: our increasingly fascist government which our currency is merely a symptom of.
So many people on this forum, and public in general, now view the word "fascist" as an insult. It's a pleasure to see someone who knows the difference and, more importantly, can recognize fascist tendencies in our economy for what they are. That the majority does not even recognize them as such, let alone reverse those tendencies, is what disheartens me most.
I think that there will not be a formal QE3. The Fed will merely stealthily extend QE2 for as long as they can.
Now, the market should have already priced in QE2 to the end of June. But a QE2 lasting until the end of time is a different matter. All I can say is that the 80% slide won't happen until after June 30.
It could - for all I know - start right away on 1st July.
But it seems more likely that the slide will hold off until there is some critical mass of foreign movements towards not-using-the-dollar-as-reserve. Maybe the trigger will be some announcement from the Shanghai Cooperation Organisation, I'm not sure. But once a critical mass of foreign actions has occurred then D-Month will begin. At the end of D-Month I would expect 80% devaluation from the level of USD snapshotted in Aug 2010.
As with Argentina and Mexico - the Government won't have to do any extra thing to create inflation (in the current case the Govt already did their part with all the years of monetary easing and irresponsible spending).
If the USD loses reserve status then it will simply drop like a stone: it will profoundly change character like the phase transition from a solid to a liquid. Hard Assets will rise enormously as people buy anything - anything - to get out of the dollar.
Housing prices however will eventually fall - because mortgages simply do not work in a high-inflation, low-enforcement environment.
The Government will do very many stupid and irresponsible things during this period which make life even more unbearable. They will make sure that their Unions get paid in line with inflation and then some. They will bring in dumbass anti-gouging laws for anyone who raises prices in line with inflation. They will make everyone buy a Volt (Ok I made that last one up).
And Fiscal Conservatives will be blamed (!) The Liberal line will be something like: "Oh we were managing an orderly transition of the dollar, but you Conservatives screwed everything up".
So - a lot of pain is ahead. But (60% of) Americans are a great people and they will pull through. Especially if they have all the usual domestic precautions in place, and if they buy Gold and Silver - at any price - before D-month.
Hope this was helpful.
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