The Precipitous Decline in the U$D

Last years sudden surge in demand for the U$D as the debt bubble burst allowed an artificial jump in the U$D index. That .... is over.

The U$D is now sounding its death nell as our trading partners are seeking ways to minimize their exposure to our exported inflation.

You may have heard about the recent China/Brazil trade agreement.

Chinese President Hu Jintao and Brazilian President Lula da Silva witnessed the signing of 13 agreements in Beijing.

The highlight was a $10 billion loan from China Development Bank to Brazil's state-owned Petrobras oil company. In return, Petrobras is to supply China's state-owned Sinopec with up to 200,000 barrels of oil a day for the next 10 years.

[..}China last month overtook the United States to become Brazil's number one trading partner, with two-way trade in April reaching $3.2 billion.

It was unclear whether or not this trade deal involved using their domestic currencies instead of the U$D but the subject is gaining more traction all the time.

But these are not the only economies shirking the U$D.

The US dollar is not Russia’s basic reserve currency anymore. The euro-based share of reserve assets of Russia’s Central Bank increased to the level of 47.5 percent as of January 1, 2009 and exceeded the investments in dollar assets, which made up 41.5 percent, The Vedomosti newspaper wrote.

The dollar has thus lost the status of the basic reserve currency for the Russian Central Bank, the annual report, which the bank provided to the State Duma, said.

In accordance with the report, about 47.5 percent of the currency assets of the Russian Central Bank were based on the euro, whereas the dollar-based assets made up 41.5 percent as of the beginning of the current year. The situation was totally different at the beginning of the previous year: 47 percent of investments were made in US dollars, while the euro investments were evaluated at 42 percent.

Is it any wonder why we are seeing the U$D return to its all time low support at 80? This is only the beginning.

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NC guest post, the "H" word

I just read this post on Naked Capitalism and he brazenly accuses the Federal Reserve of risking hyperinflation.

So, while we are currently in a deflationary period, what is going on with the dollar is now started to hit the big "H" word.

He also calls this impending recovery, fake.

Either very fake or very painful.

There was a good article in the Financial Times this past week by David Roche. He three flaws why any notion of a "V-shaped" recovery and bull market were flawed and, at the time, he thought the markets were gravely mistaken about any recovery:

1) U.S. households have not fully deleveraged yet (actually I am working on a story about this);

2) Treasury and Fed trying to add leverage to help households sustain their own unsustainable levels of debt;

3) Insolvency problem has not been dealt with by Fed and Treasury.

It is a good article.


Can you elaborate on how;

Treasury and Fed trying to add leverage to help households sustain their own unsustainable levels of debt;

they plan to do this? I mean we have already been down the road twice with so called "stimulous" checks.

Tax breaks? Obama was pulling back the payroll tax break he instituted this year starting next year. (short lived middle class tax break)

The article by David Roche makes a very sad point

that the only way to increase the saving rate without additional pain is to increase household incomes. Household income growth has been do in large part to "stimulus" checks and tax cuts and through good jobs.

But policymakers either don't care or don't understand this point.

The other way

or the proper way, to increase the savings rate in this country would be to increase interest rates.

Thus far they are doing the exact opposite as they want cheap money.

yeah, I don't really see higher incomes any time soon.... heh ... anytime in my lifetime. Not when we are competing for jobs against guest workers, outsourcing, and globalization

income is the dirty word

Which is another reason for EP to exist because we have posts (multiple authors) harping on the need for income and how it is the base element for any economic recovery over and over, from the theory and the statistics.

We need almost a manifesto post. Seriously. On the idiot box, I see "report" after "report" talking about "free money" and "credit score" and what they really mean are "tax incentives" and more debt.

It's like they are just absurd. One cannot get a tax credit when they do not have any damn money in the first place. So, this entire thing, from tax credits for green homes to tax credits for health care is just ridiculous. If you can't make the rent and buy food then no one gives a rats ass about tax credits because there is nothing to credit!

Good news is another hearing a few Congress Reps. are raising hell about the Obama administration giving out so much money to these various corporations (including GM) who are simply busy offshore outsourcing more jobs!

It's like turning an oil tanker

The worldwide move away from the dollar is incredibly slow and extended, but it is happening. More importantly, once the trend is established, it would be almost impossible to reverse it.

The theme is getting picked up

The NY times noticed the dollar's fall this past week.

“Those little footsteps coming down the hallway have begun to frighten many people,” said David M. Darst, chief investment strategist at the Global Wealth Management Group of Morgan Stanley. “The dollar has sold off inexorably, slowly but surely. The key thing driving it is psychology.”

The Federal Reserve is printing money from thin air, and the government is issuing trillions of dollars in new debt as it tries to spend its way out of the recession with a huge stimulus package, new lending programs, health care overhauls and automotive rescues.

Experts warned there might not be enough demand to sop up all those new dollars and dollar-denominated Treasury securities. That led investors to fret about the sustainability of the United States government’s AAA sovereign credit rating after the Standard & Poor’s ratings agency warned this week that the sovereign rating of Britain — which is spending hundreds of billions of pounds to engineer a recovery — is under threat.

And the LA Times noticed the fall in treasuries.

This week couldn't end fast enough for the Treasury bond market or the dollar, both of which were hammered again today as investors bailed out in thin pre-holiday trading.

The yield on the 10-year T-note jumped to 3.45%, up from 3.35% on Thursday and 3.14% a week ago. The yield now is the highest since mid-November.

So much for the idea of Treasuries being a haven: The iShares Barclays 20+Year Treasury exchange-traded fund, which owns long-term government bonds, has lost 22% of its value since the start of the year as rising market yields have depressed older bonds’ prices.

top 10 idiots who brought down America

Wouldn't that make a nice Letterman list?

Ok, I have a theory, which maybe in outer space, that they are trying to turn the United States into a 3rd world currency for the purposes of globalization, trade and most of all, using currency exchange rates to try to reduce the deficit in reality.

yet at the same time, trying to avoid the problem of the dollar now longer being a reserve currency for oil trading.

But, all of this will backfire and turn the United States.....into a 3rd world country.

Anyone really tracking on this want to conjecture as to the real motivations? I know midtowng, you are tracking this extensively with your history knowledge of Bretton Woods.

My take ...

BTW - nice list idea. I put Greenspan at the top.

Anyway my take. I dont think they are trying to turn the US into a third world country. Ultimately it may happen but I believe all their efforts are being geared towards trying to put things back to the way they were. Simple as that.

Prior to the crash the economy was working great for the top 1% as their incomes were increasing several fold while the rest of us were losing ground without any real increase in income since the last decade. Multi national corporations were praising the New World Order of globalization as they have found an entire world of cheap labor. Their short sighted vision was only about the here and now and they needed the US consumer to keep on buying crap they don't need and have no place to store it.

The powers that be (answering to the ultra wealthy) will pull out all the stops to try and return us to the way it was. Their hold on power will only increase as they change the rules in an attempt to try and rebalance the playing field. They will devalue the currency to wipe out the debt that they are creating .... ultimately it will fail and they will take the country, the middle class and poor, and whatever other country that ties themselves to the almighty dollar.

This is why you are seeing other countries starting to limit their exposure. Nobody wants to create a stampede to the door but those that are paying attention are slowly inching that way and hoping nobody else notices.

So more economic denial?

Refusal to face any reality, refusal to realize the U.S. workforce, U.S. middle class is the real economy and the nation?

Are they that stupid? (oops anyone who put the corporate fortunes at the feet of CDOs based on liar loans and fictional income/people mortgages....hmmm, maybe this is rhetorical).

I've been saying this for a while

C'mon, this site has been sounding the alarm for a while now. I even put up a stupid graphic of a list of long-dated futures contracts on the Eurodollar contracts showing a steadily decline in prices. And countless others have been saying the same thing on other aspects leading into this.

If anything, NYT and LAT are contrary indicators

That the NYT and LAT are picking up the theme, together with Bill Gross trying to move the dollar lower, makes me think a short term bottom is very near.

Longer-term of course, the dollar has major problems. But OTOH, look at 10 and 30 year treasuries. From the viewpoint of 2009, it looks like yields are blowing up and prices collapsing. From a 3 or 5 year viewpoint, it looks like the liquidity/solvency crisis of late 2008 that caused yields to drop and prices to surge, has resolved, and bonds are now resuming their former prices/yields.

Bill Gross

In the short-term Bill Gross is almost surely a contrary indicator. He's done that before - saying one thing and doing another.
But Gross isn't talking about short-term effects, and the fundamentals of the dollar are real.

why things will now get worse

In many respects, this is tracking the Great Depression.
An initial crash, a rebound, then the real downturn.
We've had the first two, now comes the third... and it will be the killer because of the dire condition of the dollar.

In case any out there haven't considered the ramifications of a problematic dollar, once we can't pay for oil in dollars, once the world stops using the dollar as a common denominator .... the U.S. sinks to being (no, not 3rd world) rather, just another country. China takes its former place. China will also buy up US assets/property in a major way. Your boss/landlord will likely be Chinese in the future.

As stated in an earlier post, the powers that be are trying desperately to make things like they were before. They're doing that by blowing a new bubble (they're even manipulating the stock market now). They'll never learn. It will fail, in fact we're just now seeing it happen. This is where things get ugly.

How can citizens combat this? Well for one, put some real heat on Obama. Sorry Obama supporters, by appointing Geithner and Summers as his economic team & giving them free reign, Obama has showed his true colors and loyalties.

On a more personal level, starve the beast. Don't have anything to do with the major 5 banks. They are truly evil and need to go (especially Goldman Sacks). Put your money in Credit Unions. Get out of the stock market. Buy physical gold/silver (not the paper funds).

Don't vote for incumbents, demand term limits on Congress & public financing of elections.

Support the move to Audit the Fed, then abolish it (I think the audit will cause such outrage there'll be no doubt it would be subsequently eliminated).

If the above fails, then more drastic action.
I'll address that if needed.