Here is a summary of how the US dollar (
USD) is being attacked:
- Obama Admin devaluing USD while claiming strong dollar policy
The Obama
Admin's intentions are clear, they intend to devalue the dollar. They have printed enough money to increase the monetary base by over 100% in slightly over a year. Per the Telegraph UK, "
America's monetary base was equal to 6% of national income, and now, after a little over a year of money printing, it's 12%". The motive is to boost US exports. More importantly we can lower the value of our huge amounts of foreign debt.
- Quantitative easing has no indication of slowing
The Fed Reserve continues to buy our debt with printed money, even though Ben
Bernanke stated that he was going to be implementing an exit strategy to stop quantitative easing. Our government is still auctioning off record amounts of our debts across various time frames, like 1yr, 5yr, 7yr, and 10yr. The Fed Reserve still has to buy up debt on the 5yr, 7yr, and 10yr debt because there is not enough domestic and foreign demand for our debt anymore. There is still much more debt to sell (at record amounts), so I am betting that Ben
Bernanke is lying to keep the
USD afloat. Watch gold, silver, other commodities, and strong currencies for the indication of what the market believes.
- USD becoming popular carry trade
Since interest rates are almost at zero, investors are borrowing
USD and investing in areas around the world with high interest rates i.e. Brazil with 8.75%, and Egypt with 8.25% interest rate. The carry trades are flooding the world with cheap dollars.
- Central banks dumping large amounts of USD
Global central banks are diversifying into commodities and foreign currency as a hedge against
USD devaluation. According to
Bloomberg, "
foreign currency holdings increased by $413 billion last quarter, to $7.3 trillion". World leaders are acting on their threats to dump US dollars, and this might become more aggressive if
USD value falls off a cliff.
- Tension with Chinese over Yuan and Hong Kong Dollar Peg to USD
Not only are the Chinese holding huge amounts of our debt that is being devalued, but their currencies are being devalued along with ours.
- Joseph Stiglitz's Thoughts
"A new global reserve system is needed after the global financial crisis exposed the U.S. dollar-based system as flawed and risky". "The current global reserve system is fraying. It's falling apart. The issue isn't whether we go to a new system. The question is do we do so in an orderly or disorderly way." Stiglitz's suggestion is going with a
SDR via the IMF; with a basket of currencies as the world's reserve currency instead of the
USD by itself.
