October 1, 2010
Every time the dollar begins to decline, I wonder, “Is this it, is this the end to the fiat dollar?” The fundamentals suggest that it should be finished, but just as the world is about to declare it dead, miraculously a global storyline seems to emerge just when needed and foreign investors rush back in for “safety.” A clear example was the steady drumbeat of a sovereign-foreign-debt war that resulted in reports of whether the Euro would even survive, while the dollar enjoyed a triumphant ride up victory mountain.
|There is little hope for the dollar rebounding as the Fed’s quantitative easing not only continues, but must increase dramatically to make up ground from lost investors and higher deficits. Photo: Packmatt.|
Since the “world” declared the Euro debt crisis saved, the focus has shifted to exposing America’s deficit problems, which has led to the dollar collapsing to its 5-month low against the Euro. There seems to be a growing realization by foreign countries that a volatile dollar as the world’s reserve currency is unhealthy for their nations and the global economy as a whole — especially as it pertains to vital commodities like oil and food. This increased awareness is causing foreign governments to invest more in other currencies, gold, and even vast stretches of agricultural land — while beginning to advocate for a more stable global reserve currency.
Some are defining this volatility as all out “international currency wars.” The Telegraph reported on Brazil’s fears of a currency war:
Brazil’s finance minister Guido Mantega has complained repeatedly over the past month that his country is facing a ‘currency war’ as funds flood the local bond market to take advantage of yields of 11pc, vastly higher than anything on offer in the West.
‘We’re in the midst of an international currency war. This threatens us because it takes away our competitiveness. Advanced countries are seeking to devalue their currencies,’ he said, pointing the finger at America, Europe and Japan. He is mulling moves to tax short-term debt investments.
There seems to be little hope for the dollar rebounding as the Fed’s quantitative easing not only continues, but must increase dramatically to make up ground from lost investors and higher deficits. Can anything reverse the trend and boost the dollar once again? Perhaps the powers-that-be don’t want the dollar to re-strengthen, as indicated by Stephen Lewis from Monument Securities in the Telegraph article, where he said: “The Fed is playing a risky game toying with more QE. There are already signs of investor flight into commodities. The danger is a repeat of the spike in 2008, which was a contributory cause of the Great Recession. Further QE at this point may prove self-defeating.”
- A d v e r t i s e m e n t
If history is any indicator, the only thing that may temporarily strengthen the dollar is another manufactured disaster, or global uncertainty, which may entice investors back to U.S. Treasury bonds because they’re still widely considered the “safe haven” investment during a crisis. The U.S. is still viewed as the world super power and most innovative economy despite its current economic woes and insurmountable debts. Therefore, during times of international crisis or collective doubt, the big institution investors tend to flock to the dollar, apparently under the assumption that America is best equipped to weather global storms.
Recent news that Ireland’s sovereign debt needs a $40 billion bailout, along with the renewed austerity protests around Europe, or perhaps a major gold scandal may begin to reverse the dollar’s decline once again. However, the severely debased dollar is unlikely to rebound to previous highs given the international awareness of America’s financial problems. Understanding that the goal of the global elite is to move toward a global currency, ultimately they must kill the dollar and other major currencies.
When the world has suffered enough pain from maintaining the volatile dollar as the reserve currency, they will demand, if not beg, for something more stable. The IMF is pushing to implement the Bancor, which has been introduced as the currency name for the basket of currencies called Special Drawing Rights (SDR). In America, when the dollar reaches near worthless levels, the desperate public will likely grasp at any solution. Much like during Katrina when the newly homeless were given ATM cards by the government, we may see the IMF roll out Bancor ATM cards. This will accomplish two goals of the agenda at once: a global currency that is cashless. But maybe not before one more good crisis.
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