Sunday, June 14, 2009

Too Many Loud Voices of Support for the Dollar for Comfort

Skeptical minds are questioning the implications inherent in the article, Russia’s Kudrin Signals No Alternative to Dollar Global Status. Please consider all the following from the article:

Russian Finance Minister Alexei Kudrin said the dollar is in “good shape,” further affirming that there’s no substitute for the world’s reserve currency.
Kudrin rushed to reassure investors of Russia’s confidence in the dollar just days after his boss, President Dmitry Medvedev, questioned its global status, joining China’s central bank Governor Zhou Xiaochuan in suggesting the world may need another benchmark for settling international debts.
“It’s too early to speak of an alternative,” Kudrin said in an interview two days ago in Lecce, Italy after meeting officials from the Group of Eight nations. . .

“At this point there’s no alternative to the U.S. dollar in terms of deep liquid markets and trading 24-7 globally,” Michael Woolfolk, senior currency strategist at the Bank of New York Mellon in New York, said yesterday in a telephone interview. “Nothing even comes close to the dollar in terms of reserve status.” . . .

The dollar got some support last week when Japanese Finance Minister Kaoru Yosano said his country’s confidence in U.S. Treasury securities is “unshakeable,” signaling the second- biggest foreign holder of the securities will keep buying them.
“We have complete trust in the fact that the U.S. views its strong-dollar policy as fundamental,” Yosano, 70, said in an interview in Tokyo on June 10 before attending the G-8 meeting of finance ministers in Italy. “So our trust in U.S. Treasuries is absolutely unshakable.”

Over the past two years, it has become clear that the United States has committed a fraud upon the rest of the world by creating securities tied to loans on the value of housing in the U. S. These loans, called mortgages, were "packaged" in inscrutable ways and are defaulting at ridiculous levels despite allegedly high-class U. S. rating agencies having blessed these securities as "AAA". Other AAA and less highly-rated U. S. loans have proven unsound, as well.

Furthermore, the Bushbama Continuity has perpetuated the malinvestment here in homes, rather than directing investment to export-oriented industries in which the U. S. actually has a competitive advantage.
These industries include medical technology, information technology, agricultural know-how, and even- somewhat oddly- financial services knowhow.

The more the U. S. continues to bail out homeowners and especially the holders of the mortgages, the weaker the dollar will trend.

All the above expressions of support for the dollar only serve to demonstrate its weakness. It's obvious who Charles Atlas is when lined up against the 97-pound weakling. Right now, the U. S. is Charles Atlas in the advancing stages of a wasting disease, and the former weaklings are continuing to bulk up.

The only safe way to make money from a continuation of this trend is to own the once and possible future currency known as gold, though only with a very long-term horizon. Owning BZF (the Brazilian real) on pullbacks continues to make sense.

Copyright (C) Long Lake LLC 2009

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