Hallelujah, of course, is a word of praise. To use that word to describe the fact that the USD has lost 40% of its value in the last 5 years, however, is economic blasphemy. Yet last week on television I had the pleasure of debating a well known strategist on the fallout of our crumbling currency and his angelic chorus was heard praising the falling dollar because of his belief that it would boost exports, rescue the economy from recession and encourage future GDP growth. Truly, "Hallelujah for the falling dollar!" is what he exclaimed.
How this type of popcorn economics is allowed to permeate the airwaves is beyond me, but we have all endured this kind of rhetoric long enough that it is time to draw a line in the sand to protect our currency. His contention, along with many others, further underscores my belief that if we continue on our current monetary course, we will be doomed to further a further, banana republic-style loss of purchasing power. With this sort of thinking today, it should come as no surprise to the U.S. consumer that the price of oil is now approaching $120/barrel and that most commodities are at or near record highs. There can be no mystery as to why inflation is at a multi-decade high.
Let's be clear: a falling dollar makes all Americans poorer. It not only forces our import dependent economy to experience higher prices, it causes domestic prices to rise as well. But the most pernicious part of our chronically weak currency will come in the near future because it will discourage foreign investment into our economy just when we need it the most. In prior commentaries I have stressed how our future debt obligations will cause tremendous strain on our economic growth, and it is becoming more widely known that our projected entitlement deficits are expected to reach $59 trillion. With no domestic savings, our hopes of prosperity lie in the lap of continued foreign largess.
The trouble with that plan is that foreign central banks already own 53% of our publicly-traded debt. Compounding the problem is that 64% of their currency reserves are already held in U.S. dollars. Having a non-diversified and concentrated currency reserve is an untenable position — how are these foreign creditors supposed to increase their U.S. dollar weightings from here?
By the way, if you think that foreign central banks have no choice but to support our treasury market, listen to a quote made on March 27th 2008 from Kwang Dae-hwan, head of South Korea's Pension fund (the fifth largest pension fund in the world). "It is difficult to buy more US Treasuries because the portion of our Treasury Investment is already too big and Treasury yields have fallen a lot."
I would hasten to add to Mr. Dae-hwan's comments that the value of his Treasuries has crumbled in currency-adjusted terms. The above quote received little attention, especially from those who believe that un-ending deficits are our birthright but just how long can these foreign creditors be expected to support our Treasury market, struggling currency and reckless spending habits regardless of how it affects their economy?
It would seem prudent to me that the U.S. should do everything in its power now to strengthen the currency and boost domestic savings, especially in light of the amount of Treasury issuance which will be needed in the near future as Medicare and Social Security really come home to roost.
Hallelujahs aside, it is without question a horrible tradeoff to suffer runaway inflation and a stagnant economy in the simplistic name of boosting exports — especially in view of the fact that manufacturing today represents little over 10% of U.S. Gross Domestic Product.
Unfortunately, it appears the chorus in praise of currency debasement is growing louder even as the dollar continues to sink. If Wall St. and Washington, D.C. continue to worship at the feet of crumbling currency, it won't be long until their Hallelujahs fall silent against the crashing wave of hyperinflation.
Michael Pento is a Senior Market Strategist with Delta Global Advisors and a contributor to Green Faucet.
Help those hedge funds out, Ben. So they can make more money shorting the dollar.
Trillions of black market money to launder and invest. Trillions in untaxed falling dollars.
What will happen if the dollar is replaced by another currency in the global black markets?
It makes all of our manufactured goods cheaper, so we can export more. Now, if I could just find all of those factories that Bush and the GOP paid to have shipped over to China, bring them back here, and train and hire some people to work in them, then I could take advantage of this amazing opportunity to cash in on the falling dollar! (I wonder if the Chinese would loan me the money to buy back our factories.)
While I am an unabashed capitalist, the whole process is self serving to the privileged few who look down their nose at the middle class. The CPI is flawed and under represents the true cost of inflation while corporations doing business overseas take advantage of the falling dollar. We're told they need the profits to invest in America and create jobs. Yet small business has created 70% of new jobs. It's a mess built upon inordinate greed that serves few and imprisons the working family.
Where is your data, what time frame? The Bush Dollar is ONE of the causes, another is OPEC, OPEC is a Cartel, monopoly.
Well, that sounds like a situation we have seen before.
Fed Chairman Paul Volker ended up raising interest rates to, what, 19% to restore the world's faith in the dollar? Then Reagan and the GOP scooped the profits of a strong dollar into their on coffers. Look how long W kept his stooges (john snow) talking about a strong dollar while this goons raided the US Treasury. (Well, at least the government did not force everyone into gay marriages)
And now, what? A Dem will be POTUS when rates go up again? This MAY stabilize the money, but the next prez will certainly be GOP.
Or McCain will lower the rates to Zero and relegate us to banana republic status?
http://www.greenfaucet.com/fundamentals/no-bubbles-in-riotville
...pretty timely, seeing as how the lead news story right now in this section is about people hoarding food and food riots. Scary stuff
The economy is good? We need to cut (the richest people's) taxes!
The economy is bad? We need to cut (the richest people's) taxes!
Violence is up in Iraq? We need to put more troops in the country to stop the violence!
Violence is down in Iraq? We need to put more troops in the country to prevent violence!
"All ye who enter here (the GOP school of higher learning), abandon all hope of reason and logic!"
There are some indications that the American public is finally becoming aware that the right-wing's lies are self-serving and bad for the middle class, but there are also a lot of people who still seem to be addicted to the neo-con kool-aid.
It is against free market philosophy to have an industrial policy and so our industrial policy has become debase the dollar?
.
That may be a major contributor to the mortgage and credit default problems .....
Fellow Huffpo blogger, Max Keiser's film "Death of the Dollar" includes an interview with former assistant Secretary to the Treasury, Paul Craig Roberts. Roberts has some very powerful things to say about this notion that a falling dollar somehow benefits the US.
Here's a link to the film:
http://www.youtube.com/watch?v=54MUm2P1jOU
Secondly, re: this argument that China will never stop funding the US dollar because then they would lose because all the dollars they hold would become worthless . . . .
Well, this out a few days ago on Bloomberg:
http://tinyurl.com/44fbhd
Headline: China's Currency Reserves Climb 40% to $1.68 Trillion
Quote: A falling dollar contributes to the build-up of China's foreign reserves as the assets are quoted in the U.S. currency, according to UBS AG economist Jonathan Anderson.
``The onset of the credit crisis and the crumbling of the U.S. housing bubble precipitated a significant sell-off of the dollar,'' said Anderson, who is based in Hong Kong. That has boosted the value of the assets that China holds in other currencies.
``A sizable portion, 35 percent to 40 percent of China's foreign-exchange reserves, is held in European and Japanese assets,'' he said.
There are plenty of people to quote who are short the dollar. PCR is not one of them.