Over the last three months, banks put 63 percent of their new cash into euros and yen — not the greenbacks — a nearly complete reversal of the dollar’s onetime dominance for reserves, according to Barclays Capital. The dollar’s share of new cash in the central banks was down to 37 percent — compared with two-thirds a decade ago.
Currently, dollars account for about 62 percent of the currency reserve at central banks — the lowest on record, said the International Monetary Fund.
Bernanke could go down in economic history as the man who killed the greenback on the operating table.
After printing up trillions of new dollars and new bonds to stimulate the US economy, the Federal Reserve chief is now boxed into a corner battling two separate monsters that could devour the economy — ravenous inflation on one hand, and a perilous recession on the other.
“He’s in a crisis worse than the meltdown ever was,” said Peter Schiff, president of Euro Pacific Capital. “I fear that he could be the Fed chairman who brought down the whole thing.”
[blockquote] Economists believe the market rebellion against the dollar will spread until Bernanke starts raising interest rates from around zero to the high single digits… [/blockquote]
With credit and commercial spending being as tight as it is I don’t know bumping the rates up to 7 to 9% would help the overall economy much, though certain very large investors would be sure to gain. If we get the ravenous inflation this article warns of, interest rates will surely follow anyhow.
[blockquote]Bernanke could go down in economic history as the man who killed the greenback on the operating table.[/blockquote]
Elsewhere in the article it is mentioned that this has taken a decade. Gee, I wonder who was chairman of the Federal Reserve during most of that time. I wonder who was in charge of monetary and fiscal policy during most of that time. (Hint, it wasn’t Bernanke.)
I doubt that raising interest rates and contracting the money supply would help recovery from the recession or get significant numbers of workers back to work. More than likely it would make things far worse than they currently are.
Yes, personally I would like to see interest rates increase. The return on my savings, money market fund and even bond index fund are ridiculous. And I’m not a “very large investor”. But I would observe that the “cheap money” policy followed over the past decade has not been kind to these or the annuity policy I own. It would be nice if we could return to the days of my youth when simple passbook savings accounts produced a 3% return.
It’s hurting. But the reality is that we are paying the price for the fiscal, monetary and regulatory policies of the past decade. The bills run up in that period, when a budget surplus was turned into huge budget deficits which doubled the national debt in eight years, have come due. It’s time to pay the piper.
Well, not exactly. While Bush did indeed run up deficits, they were also headed back down. (The debt, of course, heads ever higher in any case.) In the CBO projections for the plans of the current administration and congress through fiscal year 2017, the deficit never gets down to the level of the highest deficits of the last decade (nice graph here). And part of those deficits were caused by the fact that the recession that appeared to be ending in 2001 was plunged to new depths by the attacks of September 11.
The weak dollar strategy, on the other hand, is something else. I tend to view it as a politically cheap way to try to have your cake and eat it, too, although it can probably used judiciously to good effect. In any case, combined with our current and projected budget deficits, it really makes things look pretty bleak. Our national debt is slated to exceed 100% of GDP in 2011.
And that still overlooks the effect of Social Security, which still makes the deficit look better than it is, at least for a few more years (here is a snarky, but concise report).
All said, we need a lot more reality injected into the current political environment. And we can probably all agree that history has conclusively demonstrated how resistant politics can be to reality.
It seems the blame game is practiced all the time during a crisis and allows us to ignore the present predicament. When the dollar gives up its dominance over all other currencies, we will be at the mercy of the one who holds the chips, be it China, Germany, Brazil or the IMF. How much sympathy do you think we will receive. Billions of people worldwide are hoping for the demise of the US. Get ready America to see millions as beggars in the street when their money is worthless.
Buy Gold just like the chinese who have figured out a way to unload their $’s. Its been a good strategy for them!
[blockquote]Buy Gold just like the chinese who have figured out a way to unload their $‘s. Its been a good strategy for them! [/blockquote]
Generally speaking it is a very bad idea to buy a commodity when it is breaking all time records. It is a good way to lose your shirt.
Consider those who bought oil futures a bit over a year ago when it they were going for $140+ a barrel.
I got in in Sept 08 at $700 and am up 50% now. The dollar index in Jan 09 was about 79 and is now 71. Thats down 10%. Keep investing in paper that is headed for extinction if you must.
Yes, September 2008 at $700 was a good time to buy gold. That was a bottom of a drop from around $1000 earlier in the year. If you had bought about six months earlier you would have had to suffer a loss of some $300 (30%) by September 2008. If you held on, your gain would be about $50 (5%) at the moment.
Of course, your timing was pretty bad. Had you bought that gold in 2001 (probably around $275 and ounce)…
About the same time you were buying gold, I bought Vanguard Total Stock Index and Vanguard Total International Stock Index. Counting dividends earned, the Total Stock Index is up 25% and the International Stock Index up 39%. Not as good as your more perfectly timed purchase. If I had waited until March 9, 2009, the Total Stock would have netted 40% and the International Stock 87%. Obviously, my “market timing” isn’t as perfect as yours seems to have been. It isn’t clear how you knew when gold hit a bottom in 2008. Not having perfect foreknowledge I knew only that in September 2008 the price was good, and that in the long term I would show a very respectable gain. And I was right. If I had had the availble funds, I would have been buying regularly from September 2008 through March 2009.
Would I buy either index today? No. Would I buy gold today? No. And for the same reason–they have shown gains which may well be the next bubble to burst. And if Bystander is correct, then the reason for the sharp rise in the price of gold is the same as for the sharp rise in silver in the 80s when Hunt was buying all the silver he could get his hands on, driving up the price. If the Chinese stop buying large amounts of gold, the price will drop. And if they start dumping gold for any reason, it will drop even more dramatically.