Tags: ashish | advani | US | Dollar | economy | inflation | china

Global Tide Turns Stronger Against US Dollar

By Ashish Advani   |   Wednesday, 20 Apr 2011 08:10 AM

I woke up in a cold sweat this morning at about 4 a.m. Slightly disorientated, I tried to get my bearings as the nightmare that I was having seemed surreal.

I had a nightmare that the world was conspiring against the United States and that we had the makings of doomsday scenario beginning to play out.

As I collected my wits about me, I realized to my dismay that the doom surrounding me related to the news I had heard over the past few days. It was real — and the perfect storm was developing in front of my eyes.

Before you wonder what I am talking about, I am referring to the perfect storm developing against the U.S. dollar and what its consequences will unleash upon us.

I have been talking to you about inflation in the country and how it will eat us alive. A direct factor leading to this is the gradual but definite devaluation of the U.S. dollar we are witnessing. What hasn’t been very clear in the media around the United States is the direct and dangerous steps being taken by various countries to undermine the dollar.

Did you know that China has been actively promoting the renminbi (locally known as the Yuan) in its trading relationships? While this is not a threat by itself, but when we understand the consequence of such action in relation to the weakening dollar, it scares me.

China has, since late 2008, been steadily and steadfastly signing bi-lateral currency swap contracts with its larger trading partners. A bi-lateral currency swap means that the two countries would conduct trade with each other in local currencies and eliminate any U.S. dollar (or any other third currency) between themselves. So if China buys oil from Brazil, the price will not be settled in U.S. dollars.

China has signed such bi-lateral currency swaps with South Korea, Hong Kong, Malaysia, Indonesia, Thailand, Singapore, New Zealand, Russia, Uzbekistan, Iceland, Argentina and Brazil. I apologize if I have missed any other country that has already turned their back on the U.S. dollar already – not.

As if that was not enough insult, the BRICS countries (Brazil, Russia, India, China and the new shining member in this group – South Africa) have started flexing their muscle. In a significant step toward enhanced economic cooperation, the BRICS, on April 14, signed an agreement that will enable them to provide credit to each other in local currencies and collaborate in capital markets and other financial services. With 42 percent of the world’s population and 18 percent of the world’s GDP, the groups’ strength cannot be discounted.

The entire premise of being against the U.S. dollar is based on the argument that the dollar rose to its prominence at the end of World War II, and the economic reality to today’s world has changed enough that the dollar cannot continue to remain the reserve currency.

The volatility in the commodities priced in U.S. dollars cannot be denied, nor can the inherent internal weakness of the dollar (unsustainable deficits).

I am having a hard time defending their views and I am seeing the global traders sell the U.S. dollar virtually every day.

If this was all not bad enough, gold hit $1,500 per ounce while silver is knocking the door of $45 an ounce.

While the news is not new to us, Standard and Poor’s (S&P) finally awoke from its slumber and stated the most obvious truth. The U.S. sovereign debt rating is under review and the outlook on the U.S. debt is negative.

Really? Thank you Mr. Johnny Come Lately …

Frankly, I have exited the U.S. dollar years ago and have been investing in various currencies and stock markets around the globe. I strongly recommend you do the same, dear reader.

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Advani
I woke up in a cold sweat this morning at about 4 a.m. Slightly disorientated, I tried to get my bearings as the nightmare that I was having seemed surreal. I had a nightmare that the world was conspiring against the United States and that we had the makings of doomsday...
ashish,advani,US,Dollar,economy,inflation,china,yuan,undermine
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2011-10-20
 

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