Tags: Argentina | dollar | judge | safe haven

New York Judge Could Weaken the US

By    |   Wednesday, 06 Aug 2014 08:14 AM

Global investors think of the U.S. dollar as a safe haven. It has historically been a reliable store of value that is free from threats of government confiscation through devaluation.

Of course the Federal Reserve has been weakening that argument for the past few years through various easing programs. Now, a judge in New York has decided to weaken the dollar's role as a global safe haven.

Argentina was forced to default on billions of dollars in bonds because Judge Thomas Griesa sided with a hedge fund against the government of Argentina. This decision will have consequences that exceed far beyond the walls of a New York City courtroom.

To comply with the judge's ruling, Argentina would have to violate Argentinean law. One judge, in one courtroom, has created an impossible situation for the parties involved in a dispute. While this might seem normal to U.S. residents who see judges make extraordinary rulings on a regular basis, it might strike the leaders of foreign countries as an outrageous challenge to their authority.

Countries issue bonds through New York-based banks for convenience. Argentina could easily select banks in London, Moscow or Peking in the future. In time, the U.S. dollar could lose its status as a reserve currency if significant financial activity moves outside the country.

This ruling will likely accelerate the move away from the dollar as a reserve currency and will hurt the U.S. economy in the long run. Meanwhile, Griesa, who was appointed by President Nixon in 1973, will not face any consequences for his decision. Like other federal judges, he answers to no one and can continue to redefine areas like global finance even if he has no expertise in the area.

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MichaelCarr
Global investors think of the U.S. dollar as a safe haven. It has historically been a reliable store of value that is free from threats of government confiscation through devaluation.
Argentina, dollar, judge, safe haven
285
2014-14-06
Wednesday, 06 Aug 2014 08:14 AM
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