Is a collapse of US dollar imminant?

Narz

keeping it real
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http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/19/bcnsaudi119.xml

Fears of dollar collapse as Saudis take fright

By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 8:39am BST 20/09/2007

Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.

"This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas.

"Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said.

The Saudi central bank said today that it would take "appropriate measures" to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg.

As a close ally of the US, Riyadh has so far tried to stick to the peg, but the link is now destabilising its own economy.

The Fed's dramatic half point cut to 4.75pc yesterday has already caused a plunge in the world dollar index to a fifteen year low, touching with weakest level ever against the mighty euro at just under $1.40.

There is now a growing danger that global investors will start to shun the US bond markets. The latest US government data on foreign holdings released this week show a collapse in purchases of US bonds from $97bn to just $19bn in July, with outright net sales of US Treasuries.

The danger is that this could now accelerate as the yield gap between the United States and the rest of the world narrows rapidly, leaving America starved of foreign capital flows needed to cover its current account deficit - expected to reach $850bn this year, or 6.5pc of GDP.

Mr Redeker said foreign investors have been gradually pulling out of the long-term US debt markets, leaving the dollar dependent on short-term funding. Foreigners have funded 25pc to 30pc of America's credit and short-term paper markets over the last two years.

"They were willing to provide the money when rates were paying nicely, but why bear the risk in these dramatically changed circumstances? We think that a fall in dollar to $1.50 against the euro is not out of the question at all by the first quarter of 2008," he said.

"This is nothing like the situation in 1998 when the crisis was in Asia, but the US was booming. This time the US itself is the problem," he said.

Mr Redeker said the biggest danger for the dollar is that falling US rates will at some point trigger a reversal yen "carry trade", causing massive flows from the US back to Japan.

Jim Rogers, the commodity king and former partner of George Soros, said the Federal Reserve was playing with fire by cutting rates so aggressively at a time when the dollar was already under pressure.

The risk is that flight from US bonds could push up the long-term yields that form the base price of credit for most mortgages, the driving the property market into even deeper crisis.

"If Ben Bernanke starts running those printing presses even faster than he's already doing, we are going to have a serious recession. The dollar's going to collapse, the bond market's going to collapse. There's going to be a lot of problems," he said.

The Federal Reserve, however, clearly calculates the risk of a sudden downturn is now so great that the it outweighs dangers of a dollar slide.

Former Fed chief Alan Greenspan said this week that house prices may fall by "double digits" as the subprime crisis bites harder, prompting households to cut back sharply on spending.

For Saudi Arabia, the dollar peg has clearly become a liability. Inflation has risen to 4pc and the M3 broad money supply is surging at 22pc.

The pressures are even worse in other parts of the Gulf. The United Arab Emirates now faces inflation of 9.3pc, a 20-year high. In Qatar it has reached 13pc.

Kuwait became the first of the oil sheikhdoms to break its dollar peg in May, a move that has begun to rein in rampant money supply growth.

Why or why not? If you believe it is, where is your money?

Personally I'd wager the dollar is in major trouble and would be willing to bet more Americans have invested in Euros than the reverse (feel free to dispute this dollar loving CFC Europeans ;)).
 
The euro is being independantly devalued by member states in violation of EU currency agreements. I wouldn't bet on many new countries adopting it (barring the actual formation of a single euro country), let alone it's long term competition with the dollar (even if opec standardizes on the euro).

But for EU officials, that legitimacy rests on a strict set of rules governing inflation and public debt that are designed to keep the euro economy stable _ even though EU governments bent the rules in 2001 to allow Italy, Belgium and Greece to sign up for the euro when their public debt was well above the legal limits.
http://www.washingtonpost.com/wp-dyn/content/article/2006/05/16/AR2006051600571.html

It was also devalued ~2001 by a couple countries who simply did so in blatent violation of the agreement. No penalties were levied.
 
The euro is being independantly devalued by member states in violation of EU currency agreements. I wouldn't bet on many new countries adopting it (barring the actual formation of a single euro country), let alone it's long term competition with the dollar (even if opec standardizes on the euro).

http://www.washingtonpost.com/wp-dyn/content/article/2006/05/16/AR2006051600571.html

It was also devalued ~2001 by a couple countries who simply did so in blatent violation of the agreement. No penalties were levied.
Yeah, six years ago inflation was 0.1% above the arbitary limit decided upon, and that point it was decided that "What the hell, let em' in".

In the following six years this 0.1% deviance hasn't yet brung the Euro low. But there is always hope, apparently.;)
 
A collapse of everything is imminent. Take a look at the shaky stock markets and housing markets.
 
collapse = only if the dollar continues to be badly mismanged
 
There's been a long period of mismanagement, to be sure.

But I think that there won't be a collapse, merely a continued devaluation as America loses its competitive edge
 
Let's hope fervently there will be nothing like a collapse. We'll all get terribly hurt if there is.

But there's a kind of confidence-brokering going on. Essentially there is an international demand for US "greenbacks" as a "secondary currency". This means the already huge US economy has this extra bolstering to its performance in that it can print more money than the US economy alone could support without kicking off rampant inflation. It's a huuuge boon to the US.

Problem is, it only works as long as the rest of the world has enough confidence in the US acting as an economic powerhouse. Hurt that confidence, and they might start dropping the dollar in favour of well, the Euro most likely.

Have they been given sufficient reason? Who knows? We'll know when it happens, but there certainly is increased worry over this. It could be the real deal, or it could be just general market angst over nothing.

Then again the fact that the US is massively overspending, government letting the budget deficit grow, while the public has spent some considerable time (years) borrowing money for consumption (i.e. living above their actual means on the assumption that continued growth will take care of things) are things that make people worry over the US. At some point they will act on that worry. Either there is a slow come-down, or a rather nasty and rapid fall.

Or so I think, from an interested layman's position. There certainly are economists out there predicting gloom and doom over the US economy. Some with more glee than is strictly becoming. While others claim it's all just rosy and peachy, nothing to see here, which needs to be seen in the light of the fact of that confidence-game going on.:crazyeye:

Prophesies have a nasty tendency of being self-fulfilling in these matters. Or so the economic historians tell me. They tend to take the longer view, and then borrowing for consumption and letting the budget deficit grow sooner or later always produces a reaction.:)
 
No.

Its just usual fear-mongering and making news so there is news.

The US dollar is weakening and will continue to weaken until the ship rights itself, but collapse? lol
 
yes when people start beliving in economic downfall, they will stop spending thereby making the crises worse, so economics are really self fullfilling
 
after the imminent collapse of the oil economy
 
Yeah, six years ago inflation was 0.1% above the arbitary limit decided upon, and that point it was decided that "What the hell, let em' in".

In the following six years this 0.1% deviance hasn't yet brung the Euro low. But there is always hope, apparently.;)
At the opposite of what many people think, inflation is extremely low in the euro zone. Since 2000, inflation has always been very steady between 1.9% and 2.2%. In 2006, inflation in the euro zone was of 1.94% compared with 2.37% in the UK, 2.93% in the US, 2.32% in Canada or 3.78% in Australia. After 8 years of euro, we can decently consider it as a rather stable currency.

Actually, considering the status of the ECB and the Maastricht criteria, many economists consider the Euro has revealed itself as a much more stable currency than the US dollar. This being said, whether the euro is good for the European growth or not is another debate, the thing is that we can't decently accuse the euro of being a weak currency.
 
You're right. If the jews want the dollar to fall, then it falls.

Good thing I just bought this new tinfoil hat with monopoly money.
 
You're right. If the jews want the dollar to fall, then it falls.

Wha? Jews? What have they got to do with it?

All people are tied to the same slavery, regardless of race/creed.


Good thing I just bought this new tinfoil hat with monopoly money.

Yep.

That's right! Laugh it off as an X-files conspiracy...It's all lizards controlling it, eh?

It is highly amusing to see people totally indoctrinated into laughing off the idea that they are controlled.

Sure pal, wait till you get tasered for speaking back to an 'official'...

:)
 
yes Economics affect everyone and everyone effect economics, so indeed "they" do controll it ;)
 
I have developed multiple internet personality disorder...


John says (Classic Me)
The dollar is going to lose its edge as the world's reserve currency. That is just a matter of fact. American economic dominance couldn't be expected to last forever, at least not the way our government does business. Is it going to collapse? Probably not. There are too many vested interests in preventing that from happening, not the least of which is the well-being of the economies of the rest of the entire world.


Jack says (Cynical Me)
The US Dollar is going to float around weak for a while. Sometime during the Late Summer or Fall of 2008, the US with whatever cause, manufactured or otherwise, will attack Iran, and shortly after that, no more than one year, the dollar will collapse whether due to actual market forces, or due to a manufactured crisis, in order to pave the way for the people of North America to accept the "Amero".


Wow, that was fun. Did I beat the CTs?
 
That is what I am saying...When the interest rates change, the public are under the idea that it magically happens.

I was trying to get across that elite economists plan it all out, not some Illuminati or Greys from the 5th dimension, but very informed and powerful men.

Currency and market crashes happen so someone can profit from it - Not conspiracy...Fact.

No tinfoil hats or 'succour-punch' crystals required.

...
 
I have developed multiple internet personality disorder...


John says (Classic Me)
The dollar is going to lose its edge as the world's reserve currency. That is just a matter of fact. American economic dominance couldn't be expected to last forever, at least not the way our government does business. Is it going to collapse? Probably not. There are too many vested interests in preventing that from happening, not the least of which is the well-being of the economies of the rest of the entire world.


Jack says (Cynical Me)
The US Dollar is going to float around weak for a while. Sometime during the Late Summer or Fall of 2008, the US with whatever cause, manufactured or otherwise, will attack Iran, and shortly after that, no more than one year, the dollar will collapse whether due to actual market forces, or due to a manufactured crisis, in order to pave the way for the people of North America to accept the "Amero".


Wow, that was fun. Did I beat the CTs?

:)
I think you should put information about this in your sig:

"Jack = Cynical Me"
"John = Common Me"

And then start all your analysing posts with "Jack says:" or "John says:"
 
:)
I think you should put information about this in your sig:

"Jack = Cynical Me"
"John = Common Me"

And then start all your analysing posts with "Jack says:" or "John says:"

I don't want my signature to get cluttered, but I appreciate the idea.
 
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