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The future of the U.S. dollar

by © futureofdollar.com

INTRODUCTION

The world is concerned that the dollar not play the role of the main reserve currency any longer after the financial crisis triggered by the collapse of the U.S. mortgage market led to the worst global recession since the 1930s. government stimulus packages, bailouts, the need to support the liquidity of Treasury bonds, keeping interest rates at the lowest level in the circumstances of low economic growth, high unemployment and low tax collection is to print more dollars. This leads at a high risk of substantial inflation, or hyperinflation in the long term.

With a national debt of $ 12,300,000,000,000 and $ 55 billion in unfunded obligations for programs such as Social Security, Medicare and Medicaid, with the total Federal Reserve and the Treasury bailout commitments now in $ 11,800,000,000,000, of which 3.6 trillion U.S. dollars have been spent and the U.S. need to take immediate steps to protect against possible loss of purchasing power of their dollars U.S. warns inflation.us.

Although there is no significant inflation data in the United States international securities and commodities markets abnormally increased in the last eleven months. Analysts called the "flight from the dollar" or "risk diversification."

There Many factors are credited against the future of the dollar as world reserve currency. Futureofdollar.com This article pays attention to the crucial points of analysis after the completion of extensive research on the subject.

Part I

Weak U.S. economic fundamentals

Nobel Prize winner Paul Krugman says that "a country whose fundamentals are persistent and predictable deterioration will necessarily have a monetary crisis] [in a time. "(1)

1. Public Debt

In mid-February 2010, President Obama signed into law the bill to increase the limit public debt to $ 12394000000000 $ 14,294,000,000,000. This is a second increase at the upper limit of the national debt in less than two months.

Last time, in December, Majority Leader Steny Hoyer said that Congress simply had no choice: otherwise the U.S. would to default on its debt obligations which would be another disaster for the financial markets. (2)

"The services of the Treasury Financial Management U.S. estimates that total U.S. government obligations exceeded $ 90 billion, "David Ross Asset Management indicated radiant in their research. (3) Includes hospital insurance, supplementary medical insurance and social security. "[T] he collected money (borrowed from the Treasury and passed the Congress) is far below what is required to fulfill the long-term liabilities of these programs, even if it had already been spent. Almost all the $ 90 billion is promised obligations to any method of payment provided. "(4)

"Including unfunded liabilities, the U.S. actions 1, much higher in Taiwan and Zimbabwe, for the highest debt to GDP ratio … U.S. debt total unfunded liabilities total more than 625% of GDP. "(5)

The Peterson-Pew Budget Reform Commission noted that "the United States will almost certainly experience a debt crisis driven" that "it can develop gradually or may occur suddenly, but at great cost in any way." excessive debt… affect citizens in their lives daily for damaging the American standard of living through lower economic growth and wages in the wet, and reduced the government's ability to reduce taxes, invest, or a safety net. "(6)

2. Unemployment

Last February, the economy lost 36,000 employees after losing 26 000 jobs in January and 109,000 jobs in December and the unemployment rate stood at 9.7 percent. (7)

In January, the unemployment rate fell from 10.0 to 9.7 by percent. According to Reuters "a sharp increase in the number of people who give up looking for work helped to depress the unemployment rate. The number of" applicants discouraged job "rose to 1,100,000 in January 734,000 a year ago." (8) The number of discouraged workers rose to 1.2 million in February (9).

Gallup reported that in late February 2010 that "19.9% of the U.S. workforce was underemployed during the month of January, which means about 30 million Americans who are working less than their intended capacity. "(10)

In March the summary of comments on economic conditions current Federal Reserve districts, the Beige Book, the government finds that "labor markets in general remains soft throughout the nation." Although "[e] l pace of layoffs declined in most districts … Since hiring plans remained generally soft. "(11)

3. Budget deficit

IMF Managing Director Dominique Strauss-Kahn said at the 10th Annual Herzliya Conference in Tel Aviv that the global crisis has created a problem of fiscal sustainability for many countries that could take decades to fix because of the huge debts accumulated during the crisis, especially in developed countries. (12)

The U.S. budget deficit hit a record $ 1,415,000,000,000 in fiscal 2009 that ended in September. (13) The deficit is likely will exceed one trillion dollars in the current fiscal year as it is more than 651 billion U.S. dollars.

The excess of expenses over U.S. income was 220.9 billion U.S. dollars in February 2010, compared with a deficit of 193.9 billion U.S. dollars in February 2009, the Treasury Department announced in its monthly budget statement. It was the 17th consecutive month in which the government registered a deficit, CNNMoney.com said. (14)

In the beginning February 2010, Obama delivered a budget of $ 3,800,000,000,000 in 2011 to Congress with a record 1.6 trillion U.S. dollars of deficit. (15)

During the debate on the national debt in the Senate, rejected a proposal from a bipartisan commission to recommend ways to reduce the budget deficit U.S., "Bloomberg said." The legislation would have required the panel's recommendations will be voted on by Congress without change. " (16) Instead of the initial idea considered by Congress, President Obama is trying to establish a commission based government deficit to lack any requirement for Congress to act on his advice. Specialists consider it a symbolic place that a particular measure.

4. Economic impact U.S. international military operations

The cost of waging war in Iraq and Afghanistan pushed the budget into the red during the presidency of George W. Bush. The situation deteriorated after the start of the financial crisis when the government introduced incentives packages, bailouts, the need to support the liquidity of Treasury bonds, etc. In addition, in early December 2009 has increased spending by adopting non-productive than 30,000 soldiers be sent to fight in Afghanistan.

All economists agree that one of the main reasons non-monetary inflation is the existence of government significant non-productive expenditures such as military expenditures.

Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said Obama may have too much at the plate. "You can not fight a war, a financial crisis, a recession, and to add health care coverage to the uninsured, at the same time, "he said." It's just a recipe for disaster. "(17)

Notwithstanding the important objectives of the war could be, operations military are, without doubt, very expensive for U.S. citizens, especially in time of financial crisis and the growing deficit. Moreover, the situation does not improve taking into account that about 40 percent of war funding has been provided from abroad, Joseph Stiglitz, Nobel Prize Winner, his research shows "The war is three trillion dollars: the actual cost of the Iraq conflict."

Explaining why wars are expensive, says that military spending not only limited to the direct operating costs, but also include (the largest) loss of human life, the future costs of disability, loss income, rising oil prices, opportunity costs, the social welfare of veterans, non-productive expenditure, loss of confidence in the situation economic future, increasing the national debt, and so on.

"The Obama administration has just asked Congress a defense budget of more than of $ 700 billion … – Almost 5% of GDP – for the next year, "Guardian.co.uk reported at the end of February 2010. This is exactly 1 / 3 of total budget revenues for fiscal year 2009.

"If we stay the course, we spend more and more money," Stiglitz stresses. "The fact that we have funded the war in its entirety deficit means that when in 10 years we decided that we want to pay that, I do not know if we will, the amount we're going to have to increase our taxes will be much larger because the debt that will be much larger. "

5. China's dollar peg

So far China is enjoying low yuan rate giving its exports a competitive advantage in relation to countries with currency appreciation against U.S. dollar.

As a result of China is actually "stealing" jobs from many countries with appreciating currencies of its companies are unable to compete with Chinese producers.

In connection with the United States this means that the country should not expect faster recovery. China's peg to the dollar makes imports into the U.S. cheaper. This supports high unemployment in the U.S.. Unemployment prevents the growth of GDP and reducing income.

Part II

LACK OF CONFIDENCE

Definition of the main reasons for currency crises Paul Krugman says the most important thing is the lack of confidence. The investors' lack of trust – is the defining characteristic of a currency crisis "he argues. (18)

Here are the views of a number of people from different parts of the world to whom many of us know quite well. Their views relate to U.S. dollar and the U.S. economy.

Nouriel Roubini of New York University professor who predicted the financial crisis, said the dollar may weaken in coming three years. (19)

Warren Buffett, an internationally successful investor: "There is a likelihood of significant inflation down the road." (20)

Robert B. Zoellick, World Bank president: "There's little U.S. can do about the dollar collapses, except to restore growth economy. "(21)

George Soros, an internationally successful investors: "Regardless of the situation in the securities markets or condition the economy will be further from the dollar in real assets in the long term. "(22)

Jim Rogers, a successful international investor: "Printing money to help the U.S. economy will weaken the dollar and Treasury bonds over a long period." (23)

José Stiglitz, Nobel Laureate in Economics: The dollar will head down for the moment, given the huge U.S. trade deficit and the imbalance of world trade. (24) "[M] any factors from entering the U.S. dollar's decline. But it is clear that one of the factors is a total loss of confidence, loss of confidence especially in the economic situation in the future. "(25)

Fan Gang, a leading economist and adviser to the Central Bank of China: "This crisis is a crisis of U.S. dollar, it takes a relatively long time to clear. The problem is the U.S. currency and U.S. debt, and finally has to be solved through the depreciation of U.S. dollar. "(26)

Yuri Luzhkov, mayor of Moscow, Russia: The world is on the verge of a radical American currency devaluation. Therefore, Russia must give up their dependence on the dollar as soon as possible. American monetary reserves is based on nothing and industrial production in this country is very low. (27)

The list of known people with similar thought is endless. In his research futureofdollar.com faced a difficulty to find successful investors, economists and foreign policy the opposite thought. There are just some of them. Most of them are government officials U.S., whose job is to restore confidence in U.S. economy a part of this work is being said in "positive" terms.

People in this group or believe that:

* The recession is over and the U.S. economy have a strong recovery, or

* That the dollar will still the main reserve currency for a long time because during the last financial crisis the dollar investors found a safe haven or

* No threat of inflation, based on data from U.S. government, or

* Just saying that "we will sink or swim with the dollar."

For example, Barack Obama hopes that the dollar is "extraordinarily strong" because investors have confidence in the ability of U.S. to lead a recovery worldwide. (28)

The U.S. President Federal Reserve, Ben Bernanke, believes that U.S. asset prices are not out of line with underlying values, and central bank policy will ensure that the dollar is strong. " (29)

The Secretary of U.S. Treasury, Timothy Geithner, provides that the dollar will remain in the world "dominant reserve currency." (30)

Therefore, we to a conclusion that, unfortunately confidence, the U.S. economy and the dollar is losing. The U.S. government must work even harder now to restore it.

Part III

DOLLAR OUT OF DIVERSIFICATION

Maurice Obstfeld and Kenneth Rogoff noted that "there is a tendency long-term diversification of official reserves away from U.S. dollars, especially among fast-growing, with reservations hungry emerging and developing economies, and this trend continues in recent data. "(31)

It is difficult to argue that the future of the dollar today depends significantly in the development of such countries as China, India, Brazil, Russia, and others. These countries accumulate large dollar reserves and U.S. debt.

Let's explore his recent positions on the U.S. dollar with an attempt to predict your future.

1. China

Already for a long time, China was quite aggressive in diversifying their reserves and the protection of the weak dollar, recommending its private sector to do likewise.

The Ministry of Finance Chinese began to sell bonds worth 6,000 billion yuan in Hong Kong in late September 2009, a major step to internationalize its currency at a time of concern the dollar. (32)

China bought the same months the equivalent of $ 50 billion from the sale of bonds for the first time by the International Monetary Fund, a purchase could raise up to Beijing in the background and government assistance quiet campaign to expand the scope of its currency. China took the unusual step of paying for the bonds IMF's 341.2 billion yuan – which is not traded on world markets – and not Euros. (33)

The country signed an exchange agreement with Argentina and was credit according to South Korea, Malaysia, Indonesia and Belarus with its own currency. (34)

In mid-September 2009, the International Monetary Fund announced I was going to sell 403 tonnes of gold. China's central bank showed that he is willing to buy the whole system. (35)

The People's Bank of China showed its intention to reduce their dollar reserves. Chinese authorities to increase their reserves in euros and yen. (36)

China and Brazil established international payments in local currency of the Republic of China. Zhuhai Geli Corporation received a transfer of several million yuan of San Paolo, in the fall of 2009. (37)

The country was trying to expand its oil reserves in Africa By bidding for a maximum of one sixth of Nigeria's oil reserves which are about 6 one billion barrels. Valuation of about $ 30-50 billion Chinese bid is greater than the current owners. China has been buying oil resources in the world for the second years now. (38)

Chinese companies could invest about $ 4.4 billion in Peru's mining sector over the next three years, according to the statement made by the Prime Minister of Peru, Javier Velásquez. (39)

Nearly 44% ($ 14.3 billion) of the total volume of investments in China in the first nine months of 2009 came in mining and manufacturing sector. Representative of Asian Development Bank said that investment in the mining sector by purchasing stocks correspond to a long-term strategy of the country to achieve resource security. (40)

China Investment Corporation (CIC), a wealth fund responsible for managing sovereign part of China's foreign exchange reserves, "has been quietly accumulating shares in resource companies, including Kinross Gold Corp. Canada and Potash Corp. of Saskatchewan according to a filing with securities regulators. "(41)

CIC chairman Lou Jiwei, recently said that the CIC will focus on investment in emerging markets in 2010. In October, the chairman of CIC said the fund has allocated $ 110 billion for foreign investment and had already deployed about half of that. "(42)

"In addition to its $ 3.5 billion interest in Teck, CIC has a stake U.S. $ 652-billion in Brazilian iron ore and nickel giant Vale SA, an interest of $ 4.7 billion in copper miner Freeport-McMoRan, and $ 9.1 million participation in steel producer ArcelorMittal. "CIC has also acquired stakes in several high-profile companies the brand name in North America and Research In Motion Ltd., Apple Inc., News Corp., and AIG Inc. (43)

China reduced its holdings of U.S. securities $ 34,200,000,000 Treasury in December 2009, but still are the largest foreign holder of U.S. debt. (44)

2. India

Suresh Tendulkar, economic adviser to Indian Prime Minister urged the government in the summer of 2009 to diversify its 264.6 billion U.S. dollars in international reserves and fewer dollars to maintain. (45)

The IMF sold 200 metric tons gold to India in early November 2009. Sales $ 6,700,000,000 is "the greatest central bank buys all we know of at least 30 years in a such a short period, "said Timothy Green, author of" The Golden Age. "The only comparable event was continued U.S. purchases in the decade 1930 and 1940. "(46)

3. Brazil

Brazilian Central Bank President Henrique Meirelles, said the country is considering the elimination U.S. gradual. Dollar in trade with China, Russia and India. (47)

In October 2009, the Brazilian Central Bank announced that it reached an agreement with Uruguayan economic authorities to implement the so-called SML system in bilateral trade operations. (48)

Brazilian Finance Minister Guido Mantega said Brazil to spend 10 billion U.S. $ bonds to purchase the International Monetary Fund to increase the fund's resources. This "radical" change help Brazil to diversify its resources, he added. (49)

4. Russia

The Russian Central Bank increased the share of Japanese yen and Swiss franc reserves in the middle of 2008. Japanese yen currently represents about 2 percent of Russia's reserves. The participation of the ex is lower due to limited liquidity.

Russian President Dmitry Medvedev said that the St. Petersburg International Economic Forum in June 2009: "We should not exclude the possibility of a scenario in which the dollar is going to be a serious inflationary pressure. "(50)

Russian reserves now consist mostly of the U.S. dollar and the euro. However, it is quite possible that Russia will add Chinese yuan there, said Alexei Kudrin, Russian Finance Minister. The lack of convertibility of the currency of China and the free movement capital was the main current obstacle. (51)

Brazil and India are interested in resolving bilateral trade with Russia in national currency said Alexander Potemkin, an adviser to the Russian central bank president, echoing Moscow's drive for more use of national currencies and less of the U.S. dollar. "There was an initiative under the BRIC. These countries intend to create conditions for direct payments for trade in local currency," he said. He also said Russia had a powerful experience of mutual settlements in national currencies with China. He estimated that settlements in rubles and yuan and account for about 2 percent Russian trade with China. (52)

Moscow also analyzed in local currencies trade with other countries, including Turkey and Vietnam. (53)

Russian Central Bank first vice president Alexei Ulyukayev said in November 2009 that Russia was going to add the Canadian dollar in its gold and currency reserves in coming months but their participation would be negligible. (54)

Russia, Belarus and Kazakhstan, members of the Customs Union of the Commonwealth of Independent States may adopt a single currency as early as 2012 according to Russian First Deputy Prime Minister Igor Shuvalov. (55) Experts estimate that Russia, Belarus and Kazakhstan will save at least 1 percent of the total transaction amount (tens of millions of dollars) to avoid paying in dollars and the euro. (56)

Russian President Dmitry Medvedev criticized for delaying the creation of a new international financial system, and announced that the president of France, and he himself will take initiative, as long as "Bretton Woods Agreements do not reflect the current economic situation." (57) "Both President Sarkozy and I am concerned the new international financial architecture is not only far far from perfect, we have not taken serious steps on this issue, "said Medvedev (58).

5. Other countries

In April 2009 Latin American leaders signed into force a new South American currency to be called 'sucre'. ALBA leaders (Representing Venezuela, Cuba, Bolivia, Honduras, Nicaragua and Dominica) said that the sucre is necessary to help defray the regional effects of the economic crisis by replacing the global trade in dollars with a new alternative currency. The ALBA countries and their allies plan to use the virtual sucre in early 2010. (59)

In the second quarter ending in June 2009, central banks around the world spent 63 percent of its bookings of new cash into euro and yen, and put only 37 percent in dollars. (60)

Kuwait, Saudi Arabia, Qatar and Bahrain in June 2009 signed an agreement to establish a joint council of monetary union, a prelude to the establishment of a Gulf central bank and launch a monetary union and single currency. The other two members of the Gulf Cooperation Council (GCC) United Arab Emirates and Oman, has not signed after the decision to withdraw from the project. The GCC states have set 2010 as target to launch a monetary union and Single currency, but many experts believe that goal is too ambitious and unrealistic. (61)

Turkey announced in late October 2009 that it was switching national currencies in trade with Iran and China, ending dependence on the dollar and the euro by 20% of its turnover of commodities. (62)

The International Monetary Fund sold two tons of gold to the Bank of Mauritius on the basis of prevailing market prices on November 11, 2009. (63)

Within shortly after, the IMF sold 10 metric tons of gold the central bank of Sri Lanka for about $ 375 million. The purchase is part of Sri Lanka plan to diversify its reserves and that has been accumulating the metal in the past nine months. "Gold is a good anchorage and coverage in these volatile circumstances," said Nivard Cabraal, governor of the bank. "We believe it is a good time to buy." (64)

In early January 2010, Canada announced it might sell about 1 million 10-year bond, its first debt issuance in the European currency in more than a decade. This strategy will help attract new investors while debt denominated in U.S. dollars is becoming less popular among creditors given the decline of U.S. currency value. (65)

It is obvious that trend of diversification out of the dollar persisted throughout the years of 2009 and continues in 2010.

Part IV

WAY OUT

Peterson-Pew Budget Reform Commission suggests that "the U.S. must show its creditors that it is serious about stabilizing the federal debt in a reasonable time. Both spending cuts and tax increases will be necessary. "

Most economists suggest that the U.S. anti-inflation strategy should include:

* The elimination of inflation expectations and encouraging savings;

* The balance between budget revenues to reach and expenditures;

* Increasing the mass of commodities, and

* Strengthening of the national currency by establishing an unconditional priority inflation targeting in other government programs (such as military expenditure, unemployment rate regulation, that influence the currency market, etc.).

Does the U.S. take like a pain to cut spending and control the deficit? Probably not, bearing in mind the words of Sir John Templeton, John Templeton Foundation, who said in 2005: "Psychology around the world is that people do not re-elect the leaders who want to be thrifty. Voters will elect a government that spends more money. "(66)

Many analysts are fairly sure the weak dollar policy is beneficial for the U.S. Therefore, anyone whether the authorities say, there will be no resistance to the depreciation of the dollar on their side.

Most experts now doubt that the solution of the problem depends much of the U.S. and require global action. "We must reform the international monetary system," Yu Yongding, a former Chinese central bank adviser, said in mid November 2009. "A good monetary system should give us confidence. But we have no confidence in the U.S. dollar now," he said. (67)

George Soros believes that "we need a new monetary system and indeed the Special Drawing Rights give you the ingredients of a system," he told the Financial Times.

THE FUTURE OF THE DOLLAR

The future of the dollar is in danger now as shown in the article.

This topic is the main focus of futureofdollar.com. We follow recent developments in this field and provide our readers with information from reliable sources.

This analysis was prepared by http://www.futureofdollar.com ©

March 11, 2010

Notes:

(1) Paul Krugman, currency crisis of 1997;

(2) Reuters, December 17, 2009;

(3) Justin David Ross, The future of the dollar and China: the threat of collapse and the evolution of a new reserve currency, October 27, 2009, Management Radiant Assets, LLC;

(4) Ibid.

(5) Ibid.

(6) budgetreform.org, December 14, 2009;

(7) USA Department of Labor, March 5, 2010;

(8) Reuters, February 8, 2010;

(9) USA Department of Labor, March 5, 2010;

(10) Gallup, February 23, 2010;

(11) The Beige Book, March 3, 2010;

(12) IMF, January 31, 2010;

(13) The Department Treasury;

(14) CNNMoney.com, March 10, 2010;

(15) Bloomberg, February 1, 2010;

(16) Bloomberg, January 26, 2010;

(17) Bloomberg, January 8, 2010;

(18) Paul Krugman, currency crisis of 1997;

(19) Bloomberg, February 04 2010;

(20) FOX Business Network, June 24, 2009;

(21) The Economic Times, November 13, 2009;

(22) Reuters, 26 October 2009;

(23) Bloomberg, October 28, 2009;

(24) The Korea Times, October 28, 2009;

(25) The Three Trillion War dollars: The True Cost of the Iraq conflict, the discussion of books, April 8, 2008;

(26) Reuters, December, 2009;

(27) Business RB.ru Russia, September 1, 2009;

(28) Bloomberg, March 24, 2009;

(29) Bloomberg, November 17, 2009;

(30) Today USA, March 25, 2009;

(31) Maurice Obstfeld and Kenneth Rogoff, global imbalances and the Financial Crisis: Products The most common causes of, November 2009;

(32) People's Daily Online, September 28, 2009;

(33) The Associated Press, September 3, 2009;

(34) The New York Times, September 4, 2009;

(35) CommodityOnline.com, September 21, 2009;

(36) RosBusinessConsulting, November 6, 2009;

(37) NEWSru.com, October 28, 2009;

(38) Vedomosti, September 28, 2009;

(39) Bloomberg, November 25, 2009;

(40) ChinaPro.ru / Vedomosti November 25, 2009;

(41) The Globe and Mail, February 8, 2010;

(42) Ibid.;

(43) Ibid.;

(44) Xinhua, March 1, 2010;

(45) Bloomberg, July 4, 2009;

(46) Bloomberg, November 3, 2009;

(47) Merco Press, October 29, 2009;

(48) Ibid.;

(49) Bloomberg, October 4, 2009;

(50) RIA Novosti, June 5, 2009;

(51) Bloomberg, October 24, 2009;

(52) Reuters, November 25, 2009;

(53) Ibid.;

(54) Reuters, November 2009

(55) Rossiiskaya Gazeta, March 9, 2010;

(56) RBC TV, March 10, 2010;

(57) RIA Novosti, March 01 2010;

(58) Ibid.

(59) Venezuelanalysis.com, April 17, 2009;

(60) CNBC, October 14, 2009;

(61) ArabianBusiness.com, October 11, 2009;

(62) RIA Novosti, October 28, 2009;

(63) IMF Press Release, November 16, 2009;

(64) Bloomberg November 25, 2009;

(65) Bloomberg, January 05, 2010;

(66) Newsman;

(67) Bloomberg, November 17, 2009.

About the Author

Futureofdollar.com is a group of people who, just like billions of other people around the World, will have to live with the future consequences of the current global crisis provoked by short-sighted politicians. We wish as many people as possible were aware of such consequences.