Posted on 11/29/2006 5:30:58 PM PST by GodGunsGuts
WILL CHINA LEAD A STAMPEDE OUT OF THE US DOLLAR?
by Gary Dorsch
Editor, Global Money Trends Magazine
November 29, 2006
The $2 trillion per day foreign exchange market never sleeps. Yet for the past six months, the big-3 central banks, the Federal Reserve, the European Central Bank, and the Bank of Japan managed to lull the currency markets into a deep trance. Since last May, the big-3 central banks corralled the US dollar to within a 3% to 5% trading range against the British pound, the Euro and Japanese yen.
The big-3 central banks utilized their three major weapons, (1) relentless jawboning, (2) Japanese threats of intervention, and (3) coordinated rate hikes, telegraphed far in advance to avoid any nasty surprises in the markets. But the big-3’s spell-binding magic act began to wind down on November 25th, when Chinese deputy central banker Wu Xialong jolted the foreign currency markets, warning other Asian central bankers of the future risk of a US dollar devaluation.
Beijing is having second thoughts about the composition of its $1 trillion portfolio of FX reserves, with 70% held in low yielding US fixed income securities. “Firstly, long-term US interest rates are falling. Secondly, the exchange rate of the US dollar, which is the major reserve currency, is going lower, increasing the depreciation risk for east Asian reserve assets,” Wu said.
On October 10th, Fan Gang, another member of People’s Bank of China’s policy committee, made similar comments, “China risks an erosion of its holdings because the US dollar will probably decline.” On August 29th, Gang wrote, “The US dollar is no longer a stable anchor in the global financial system, nor is it likely to become one, therefore it is time to look for alternatives.”...
(Excerpt) Read more at financialsense.com ...
See also:
http://www.freerepublic.com/focus/f-news/1744705/posts
Gary, does tend to be long winded.
ping
Thanks for the link!
I've been wondering lately if we're on the brink of double-digit inflation. I guess a dump of dollars might have some inflationary effect(?) I'm thinking that this may be one of those times, as it was just before Jimmy Cartern's double-digit inflation, when those who bought big ticket items were the ones who came out smelling like a rose.
"“The US dollar is no longer a stable anchor in the global financial system, nor is it likely to become one, therefore it is time to look for alternatives.”..."
I agree the FRN is going down. I diversified into a currency basket and PM's a while back, but that said, I have to think that maybe the Boyz have created a perpetual motion machine.
Never underestimate The Boyz..
If China sells FRN's the FRN's they hold go plummeting, the value of their Treasuries drops precipitously, and their worth dives. There aren't enough Euro's in the world and printing is out of the question since it will totally dislocate their economy and trash a few member counrtries. Yen...nope. Japan has problems, still.
I can see the dollar drop, but don't see the end of the reserve FRN worldwide. As I said, don't ever underestimate The Boyz.
Actually, we've tried to talk China into letting the Yuan appreciate against the dollar, and they've refused to do it. The last thing they want is a collapsing dollar, because it makes problems for their exports.
Sure, they hate us and would love to destroy us, but they need us to buy all that junk they're cranking out.
btt
How'd you do that so fast??? I'm still playing catch-up when it comes to html.
This is a very interesting article. However, doesn't it all boil down to the simple fact the U.S. is finished raising rates and the European Central Bank has not? Are central banks and traders over-reacting? It won't be the first time. And why did no one notice our budget deficit has declined? We don't need as much of their stinkin' money. Is their a cabal to bring down the dollar?
I'm leaning in that direction too. But rather than buying big ticket items, I'm positioning my investments to profit. After all, we need people who will be in a position to kick start the economy again after this train wreck runs its course :o)
If they do, then they will take a huge economic hit.
Yes and no. Much of the dollar's decline is our own doing (the triple deficits). On the other hand, there is a cabal of enemies (Red China, Russia, Eurasian Alliance) that are actively trying to undermine the USA in an effort to create a "multipolar world." They are attempting to do this both politically and economically. Solution: we need additional tax cuts, and even bigger CUTS IN FEDERAL SPENDING. Americans also need to stop going into debt, and START SAVING AGAIN. Finally, this will probably not happen, at least short of going to war...but we need to cut off all aid and trade with COMMUNIST/slave labor economies. Not only is it immoral to trade with them, there's also no comparitive advantage in it for the USA.
If China sells off its dollar reserves it will convert its reserves into junk because those reserves are composed of all the extra dollars of inflation that the FED has been ladling out on the market. China has been buying them up in order to keep its own reserves from losing value as the dollar declines. By taking the dollars off the market China has caused the rate of general price rise in the US to remain low. If/when those dollars come back onto the market the Chinese economy will be hurt badly and the US may well return quickly to a JimmyCarter economy.
sorry for the double post admin.
Very well put. Has anyone ever considered the fact that Red China may someday do just that ON PURPOSE?
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