U.S. Dollar in Strong Decline
November 25th, 2006Via: Financial Times:
A sharpening slide in the US dollar unnerved global markets on Friday as investors sought to protect themselves from the possibility of sustained dollar weakness.
As US markets were closing on Friday , the euro stood at a 19-month high of $1.309, up 1.2 per cent, while sterling gained 0.9 per cent to a 1½-year peak of $1.9333. The yen climbed 0.5 per cent to ¥115.66.
European and Asian stock markets suffered the fallout from the dollar’s decline with exporters to the US the worst performing stocks in all regions. But on commodity markets, dollar-denominated prices tracked higher as gold, copper and oil became cheaper in other currencies.
The euro’s strength could put the European Central Bank under fresh political pressure not to raise interest rates again after the expected quarter percentage point rise to 3.5 per cent on December 7.
The dollar has now fallen this year by more than 10 per cent against the euro and 12 per cent against sterling. Some economists suggest the greenback has further to slide given a weak economic outlook in the US, and the prospect of interest rate cuts there next year.
An important paragraph in this FT front-page article was:
“These concerns [about the $’s weakness] were heightened by comments from Wu Xiaoling, deputy governor of the People’s Bank of China, indicating her unease at the rapid build-up of $1,000bn of reserves in China. She said Asian foreign exchange reserves were at risk from the dollar’s fall, although she stopped short of indicating that China was about to stop adding to its pile of reserves.”
On page 33 of this edition of the FT, in the ‘Currencies’ section, we are thrown a further tidbit concerning China’s thinking about the intrinsic value of the $:
“China’s foreign exchange reserves exceed $1,000bn, the world’s largest, and the possibility that global central banks might diversify their vast foreign currency reserves away from the $ has become a big talking point in foreign exchange markets. The remarks triggered a buying spree for alternative reserve currencies, principally the euro.”
Chinese burn?
China holds all the cards now. Everyone knows it. They have been keeping the music playing these last few years, and they can pull the plug on the U.S. at their whim. Of course, it’s more complicated than that. The U.S. and China are now in a Mexican standoff. If the Chinese think they’re going to sell larger quantities of crap to people who pay in Euros, what do they think is going to happen to the Euro when Americans stop buying BMWs, Airbus aircraft and all the rest of it?
How about another analogy: The global currencies are a bunch of dominoes standing on their sides, waiting to tip over. One falls onto another, and in very short order, there’s no more liquidity.
The U.S. dollar is the big one. If that thing goes, the rest of them go. Why? Because the U.S. is where the rest of the planet sends their shit to be bought up with real estate bubble funny money! HAHAHAHA The entire global economy is now a component of the U.S. real estate bubble. Follow the money? Where has a lot of it been coming from? Joe and Jane Six Pack flipping stucco boxes to each other.
Brace for impact.
[…] The other day, in a comment, I wrote: China holds all the cards now. Everyone knows it. They have been keeping the music playing these last few years, and they can pull the plug on the U.S. at their whim. Of course, it’s more complicated than that. The U.S. and China are now in a Mexican standoff. If the Chinese think they’re going to sell larger quantities of crap to people who pay in Euros, what do they think is going to happen to the Euro when Americans stop buying BMWs, Airbus aircraft and all the rest of it? […]