By: Eric_deCarbonnel
1) Foreign central banks selling US assets
Most of the nations which have been financing the US's massive current account deficits in recent years have either begun to sell their dollar reserves last year or are planning on selling them this year in order to support their currencies. These nations generally fall into three categories:..
2) The worsening US Trade deficit
The US Trade deficit is worsening because, while imports to the US are falling, exports are falling even faster....
3) Treasuries
It is extremely important to understand that treasuries are the modern day equivalent of money under the mattress, and that, when a crisis confidence hits the dollar, treasuries will be redeemed for printed cash from the fed...
4) Gold Rising
demand for physical gold is a threat to the dollar because it signals a growing loss of confidence in the paper currency. It is also key to understand that gold prices aren't rising because of the changing fundamentals of gold, but because of the changing fundamentals of the dollar. In other words, gold isn't rallying, THE DOLLAR IS FALLING...5) China and the yuan
China is in a different situation that most other nations as it has a growing trade surplus, which stood at $40 billion as of November. As a result of disappearing Asian demand for luxury items and commodity prices plunging, imports to China crashed 17.9 percent in November while its exports only fell 2.2 percent. This leaves China with a problem the US could only dream of: huge, unsustainable upward pressure on its undervalued currency. In order to maintain the dollar peg, China would need to fund not only a large part of the US's gigantic trade deficits, but also the trade deficits of those nations around the world which are selling their dollar reserves. If imports keep falling at their current pace, China will have to buy close to 1 trillion dollars this year alone, which leads to yet another problem: right now, China is not interested In any kind of risky US assets , and what "safe" assets does the US have to sell?... , and China knows this, which is why you have Chinese central bankers on record as saying that, "The US dollar is unlikely to be stable next year"...
6) Never ending bailouts
Although many Americans such as myself are growing tired of America's never ending bailouts, it is important to brace yourself because there are a lot more on the way. Here are a few of the bailouts we will be seeing this year which haven't gotten much media coverage. A) State government bailouts State budget troubles are worsening ...are running out of money ...
7) US budget deficits and (lack of) Tax revenues
The federal government is a facing record breaking budget deficit in 2009. According to the latest government figures, the deficit currently is expected to be $438 billion...
8) The "flight to quality" During the second half of 2008, a "flight to quality" began as hedge funds sold foreign assets to meet redemptions requests. These forced repatriations by hedge funds combined with dollar's outdated reputation as a safe haven produced a record breaking rally in the treasury markets. This "flight to quality" is not something that hasn't seen before. The phenomenon of investors blindly piling into an asset class while ignoring all warnings about the horrible fundamentals and deteriorating outlook has been so common lately that I am growing tired of seeing it. They are called bubbles, and the pattern is always the same:...
9) A loss of confidence
Confidence is the single biggest factor in determining a currency's value, and periods of deflation, such as America has been experiencing these last few months, tend to undermine that confidence and create hyperinflation ...
10) The dollar's former self
The US dollar in 1944 Following the end of World War II, the United States was a global powerhouse whose domestic industries were producing half of the world's manufactured goods. At this time, the US was also creditor nation and held over half the world's foreign reserves. As the US was running a huge balance of trade surplus, these immense foreign reserves were growing fast...
In additions to foreign currencies, the United States also held $26 billion in gold reserves, approximately 60 percent of the world's estimated $40 billion. Finally, the dollar was the only post-war currency fully backed by gold. The strength of the US economy, the fixed relationship of the dollar to gold at $35 an ounce, and the dollar's full convertibility into gold at that price made the dollar as good as gold. In fact, the dollar was better than gold:.. it earned interest and was more flexible than gold. It was under these strong fundamentals that, in 1944, the Bretton Woods agreement was signed and the dollar became the world's reserve currency ...
Today's dollar
The fundamentals backing today are just as amazing as they were back in 1944, except in a negative sense. The US has managed to outsourced its industry to the point of total dependency on foreign imports for its basic consumer goods, energy, and, to an extent, even food. The US can today claim the exalted status of the most indebted nation in human history, with every level of society (individuals, corporations, local/state/federal governments, etc) owing an unpayably large amount of money...
The US capital markets have been tarnish by widespread financial failures, haphazard bailouts, and blatant corporate corruption, the latest being the Madoff's ponzi scheme...
There are also growing doubts about how much gold, if any, are left in our reserves. Perhaps the most damning Indictment of our currency comes from this contrast between its past and current self. How can today's dollar be anything but a joke when compared to its former greatness?
The dollar's status as the world's reserve currency
The dollar became the world's reserve currency through its strong fundamental and by having the longest reliable history of increasing purchasing power. Today's dollar has long since lost both those qualities . Those pointing to the dollar's special status and expecting a new dollar bull market should realize that not everything about being the favored international reserve currency is positive. The downside of being the world's reserve is that everyone is sitting on a great pile of your money, which they could decide to dump back into circulation.
MUST Read entire article: Ten Major Threats Facing Dollar In 2009
http://www.marketskeptics.com/ Read also:
US Asks Arab States For $300B To Save Economy
The US and Britain in Prophecy (see Bible Prophecy List)
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