But now, the economists are beginning to realize what we have been saying all along. The dollar is at risk of losing reserve currency status.We have been warning about this for nearly three years, first in reports to the Pentagon and Intelligence Community, then in a Pentagon-funded study, next in private briefings to policymakers and those charged with our national security and most recently in this Blog and media interviews. Take a look through this Blog, reading as many posts as you can. Here are a few of many examples we have published in recent months:
The Shape of Things to Come
Despite our warnings, the general consensus has been that the dollar could not lose it's reserve currency status because there were no real alternatives available. This consensus thinking permeated the Intelligence Community.On April 10, 2011, The London Telegraph published a WikiLeak originally written June 19, 2009. It's conclusion:
C O N F I D E N T I A L SECTION 01 OF 03 LONDON 001451 NOFORN SIPDIS E.O. 12958: DECL: 06/19/2019 TAGS: EFIN, ECON, UK SUBJECT: LONDON-BASED EXPERTS AGREE THE U.S. DOLLAR WILL MAINTAIN ITS RESERVE STATUS REF: LONDON 1399
This leaked cable (which can be seen at the Telegraph), based on the combined thinking of top economists, currency traders, and other financial experts gave eight reasons why a (natural) demise of the dollar as reserve currency would not happen for decades. This represents the inside thinking of the best international experts on the subject. We believe, absent economic war or financial terrorism, that they were right. Of course, as we have documented repeatedly, there are other forces at work:
Now, the economic community and Wall Street are finally recognizing the dangers to the dollar as we have been warning. Keep in mind that just two years ago, the top experts available to the Intelligence Community were saying the dollar was not at risk. Here is what is being said now:
US Treasury: Dollar Could Lose Reserve Status
Wednesday, August 3, 2011 02:00 PM
The committee of bond dealers and investors that advises the U.S. Treasury said the dollar's status as the world's reserve currency "appears to be slipping" in quarterly feedback presented to the government.
The Treasury Borrowing Advisory Committee, which includes representatives from firms ranging from Goldman Sachs Group Inc. to Pacific Investment Management Co., said the outperformance of safe-haven currencies and those from emerging nations has aided in the debasement of the dollar's reserve status, according to comments included in discussion charts presented ahead of the quarterly refunding. The Treasury published the documents today.
"The idea of a reserve currency is that it is built on strength, not typically that it is ‘best among poor choices'," page 35 of presentation made by one committee member said. "The fact that there are not currently viable alternatives to the U.S. dollar is a hollow victory and perhaps portends a deteriorating fate."
US Dollar Will Lose Reserve Currency Status, Harvard's Niall Ferguson Says
August 1, 2011
The US dollar will eventually lose its status as the international reserve currency to the Chinese yuan, perhaps within five years, Harvard University historian Niall Ferguson said at a presentation in the Diggers and Dealers conference in Kalgoorlie, Western Australia, today. Investors are moving toward a "de facto" gold standard, he said.
A year ago, most economists prolaimed that the dollar would remain king for decades. Now it could lose that staus within five years according to some. We will be bolder. The dollar could be at risk within the next year unless we get ahead of the problem.
This is extremely serious. The only reason that our Treasury is not currently under massive assault as is occurring in Europe is because the dollar has been the reserve currency of the world. This has allowed us to fund our massive debt at very low interest rates. Once the dollar's reserve status is gone, our Treasury rates will rise, increasing our deficits and starting a negative downward spiral as Greece and Italy are experiencing. Speculators with profit motive and financial terrorists will be like sharks smelling blood. Phase Three as we have described will be underway. The only response under this circumstance will be for the Federal Reserve to step in and buy our debt with newly printed money, further pressuring the dollar. The inevitable result will be higher inflation and interest rates.
Will this be the end of our economy? No. But it will be a major blow. The truth is that the size of our economy, our assets, and our potential are all true positives. But, we will have to make serious adjustments. We need to shrink the size of government, reduce regulation, repatriate corporate earnings from overseas, and put Americans back to work. This isn't intended as a political statement. It is economic reality based on a knowledge of global economic warfare. The problem has been American arrogance including an unwillingness to recognize what is happening around the globe.
This Blog does not provide investment advice. Investors should have an advisor who knows their unique circumstances and needs.
All posts Copyright (c) 2011 Kevin Freeman, All Rights Reserved