Thread: US dollar decline, or collapse?

Originally Posted by crippen

Not a very good entry point, early March was the time. Your chasing the trade from here.

Spin I am looking at the US Government Bonds , they are vulnerable given the amount of money being printed and China,s concern about the amount of $ they hold
Think they might dump the dollar

So a Punt on the Dollar Bonds decline is the way I will play it

Originally Posted by Norton

You're in good company. All the experts, be they here or so called financial experts on TV are all over the map. Bottom line. They don't have a clue either.

nobody can have a clue on how the world will be next year or what shape, there is a small consensus among "real" experts (academics), but no consensus on the course of action to fix things. To make things worse, fiscal policies and Fed policies can be at odds sometimes, and fuck things up really badly even on the way to recovery.

So yeah, impossible to predict with certainty, unless of course you are bkka

Originally Posted by Butterfly

but not trying would be a mistake

so are you agreeing or lighting the candle at both ends ?

^ in the long run, it will reverse, but in the short term you could give it a try (6 months), even though it would be very risky

Originally Posted by Butterfly

So yeah, impossible to predict with certainty, unless of course you are bkka

10000+ posts and this is the first one that is correct. There is hope after all.

Originally Posted by Butterfly

Originally Posted by lom

for future production.

yeah, that's the irony actually. Future production when world demand is collapsing ? the Chinese are securing materials they don't need now and overpaying. Eventually, that will make them less competitive with rising costs, not a good thing when Demand is already low.

Well, I don't agree with you at all.
Collapsing? Now you start to sound like that PassengerAndrew guy..

There will be of course be a rising demand at some time and that will then increase the price of raw material.
This tells me that the Chinese believes that raw material price will be more stable than the USD and it's better to sit with tons of steel than tons of green paper.

^ they could "monetize" those commodities or use them as "an exchange rate", but not sure if securing them so early is very wise

Real Demand is collapsing, and that has a multiplier effect. When I say collapsing, I don't mean the end of the world like our dear friend bkka, but more like a sharp drop in a small amount of time. Of course it will pickup eventually, but the Chinese will be seating with raw materials at cheap prices. If you factor the value of money or investment, it's a substantial loss but maybe they simply don't care.

Seems to make a lot of sense to buy up and stockpile raw materials they are going to need in the future while the price is low. Especially when the value of the $USs they are holding is likely to decrease substantially.

Real things that people can use or eat have real value. Paper money is just a way of trading those real things and has no real value. Thats where the economic experts get it wrong so often. They tend to think in terms of paper money having real value and tangible things having value only in exchange for paper money, when actually its the other way around. The Chinese know how to do business and are buying up real things while the value of the paper money they hold is high.

Despite what anyone might think, its trade in real things that makes the world economy go round. When the value of money gets out of balance with the real things people need to live, then its the value of paper money that needs to change, not the value of the goods, which unlike money is intrinsic.

Never mind. It will happen anyway, despite the fact that the over educated experts dont understand it.

so I suppose in our way buying Gold as are th Chinese is possibly a hedge for us mortals

Originally Posted by Panda

Seems to make a lot of sense to buy up and stockpile raw materials they are going to need in the future while the price is low.

not really if prices get lower, and is it currently that low ? I think most commodities are still at some 10yr high or some other numbers, hardly bargains. Buying now is just taking a bet, and commodities have very short speculative and long recovery cycle, which means you could hold your commodities for 20 years and not see a price increase. Why do you think Futures were invented for ? it's called "backwardation" (sp), producers except their prices to go down (per historical experience) so they locked in their price and have speculators take the risk. Contingo (sp) is an exception, even though it has been a trend recently for most commodities, which re-enforce my idea that it will reverse eventually. A reason we have Commodity-Linked bonds actually, to provide income for investors while waiting for a price increase.

Originally Posted by Panda

Especially when the value of the $USs they are holding is likely to decrease substantially.

that's basically what they are doing, use it as an "exchange rate". Can't remember the official term for it, but it's one strategy to protect yourself from currency exposures.

Originally Posted by Panda

Paper money is just a way of trading those real things and has no real value.

But it's flexible, and it has value for that alone. Are you advocating a return to barter ? that would bring a complete collapse to the international exchange of goods for sure.

Originally Posted by Panda

It will happen anyway, despite the fact that the over educated experts dont understand it.

I am not sure why you are ranting against educated experts, I can only hope you are educated yourself

Perhaps better to tell your story to those silly Chinese people who dont know what they are doing there Butterfly.

^ I am sure they know already, they can't be that clueless, there must be other motivations behind those buying spree we might not know of, I mean they are still buying US Treasury, aren't they ?

Originally Posted by TSR2

so I suppose in our way buying Gold as are th Chinese is possibly a hedge for us mortals

How much gold is held by the general population in LOS? Nearly everyone seems to have some;do they hold it as a hedge against inflation or what??

Originally Posted by Butterfly

Originally Posted by Panda

Seems to make a lot of sense to buy up and stockpile raw materials they are going to need in the future while the price is low.

not really if prices get lower, and is it currently that low ? I think most commodities are still at some 10yr high or some other numbers, hardly bargains.

Yes and no, take a look at London Metal Exchange for daily prices.

Iron ore (and coal) is a different story because their prices are based on long term contracts between mining companies and steel producers (or energy companies).

China has demanded a 50% discount on iron ore from last springs all time high price but producers has been reluctant, waiting for better times to come before digging up the ore, Vale in Brazil has discounted their prices with 20% though.

As the worlds biggest steel producer, China actually increased their steel production with a few percent during the first quarter of 2009 while the world production at the same time fell 25%.
The domestic demand for steel in China is still there so they need the iron ore and are quite pissed about current prices and that is the reason for them buying Australian mines.

They have also bought a lot of copper lately, some statistics:

The global production of copper was ~16 milj tons in 2008 whereof China produced 1 milj tons.
The price of copper fell to a bottom level of 3000USD/ton last autumn, more than a 50% decrease, and has since beginning of this year climbed up a bit mainly due to a rising demand for copper in China.
It is priced ~4500USD/ton today.
Chinas import of copper was record high this April, 400000 tons at ~4000USD/ton.

Now, buying raw material for future production does not necessarily mean future export products.

China has a plan for modernizing the country with some huge building and infrastructure projects so it makes sense that they secure their long time supply of raw material for these projects now when they have a surplus of dollars.
There isn't much else they really need from the west apart from metal and oil, is there?

These SDRs could be just the beginning, China and other countries has slightly moved away from the Dollar in their reserves (only a little) and have made comments.

Posters have noted the strength of the US Dollar is largely based on confidence and faith.

I see this faith as eroding.

An International Replacement for Treasury Notes Is Born

Another major step in the demise of the dollar as the world's reserve currency has just taken place.

The Executive Board of the International Monetary Fund (IMF)has approved a framework today for the issuance of notes to member countries and their central banks. The notes will not be denominated in dollars, but in SDR's and are clearly an alternative to Treasury notes for central banks and others cleared to trade in the notes.

Under the framework, members may sign agreements to purchase IMF notes up to a limit set by the member. Several members have already expressed their interest in buying IMF paper, with China signaling its intention to invest up to US$50 billion, and Brazil and Russia up to US$10 billion each.

The IMF would issue notes at times when loan disbursements are made to members receiving financial assistance from the IMF. Once purchased by member governments, or their central banks, the notes would be tradable within the official sector, which includes all IMF members, their central banks, and 15 multilateral institutions—those which are designated holders of Special Drawing Rights.

The principal of the notes will be denominated in SDR, the Fund’s unit of account, which is a currency basket composed of the U.S. dollar, Euro, Japanese Yen, and Pound sterling. Interest payments will be made quarterly, at the official SDR interest rate, which is a weighted average of 3-month interest rates in these currencies.

The notes have a maximum maturity of five years, which is consistent with the maximum maturity of IMF lending under Stand-By Arrangements and Flexible Credit Line arrangements. Commitments under such IMF lending arrangements have increased to more than SDR 100 billion (about US$150 billion) in the past year, as the Fund has responded flexibly to members’ financing needs during the global crisis.

“This framework for issuing the IMF notes marks a significant step forward in our continuing drive to make sure the IMF can respond effectively to member countries’ needs in these challenging and uncertain times,” the Managing Director Dominique Strauss-Kahn underscored.

Special thanks to Hans Palmstierna.

http://www.economicpolicyjournal.com...-treasury.html

A history of SDRs:

A little history on SDR's.

Special Drawing Rights (SDRs)


The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries. SDRs are allocated to member countries in proportion to their IMF quotas. The SDR also serves as the unit of account of the IMF and some other international organizations. Its value is based on a basket of key international currencies.

Why was the SDR created and what is it used for today?
The Special Drawing Right (SDR) was created by the IMF in 1969 to support the Bretton Woods fixed exchange rate system. A country participating in this system needed official reserves—government or central bank holdings of gold and widely accepted foreign currencies—that could be used to purchase the domestic currency in world foreign exchange markets, as required to maintain its exchange rate. But the international supply of two key reserve assets— gold and the U.S. dollar—proved inadequate for supporting the expansion of world trade and financial development that was taking place. Therefore, the international community decided to create a new international reserve asset under the auspices of the IMF.

However, only a few years later, the Bretton Woods system collapsed and the major currencies shifted to a floating exchange rate regime. In addition, the growth in international capital markets facilitated borrowing by creditworthy governments. Both of these developments lessened the need for SDRs.

Today, the SDR has only limited use as a reserve asset, and its main function is to serve as the unit of account of the IMF and some other international organizations. The SDR is neither a currency, nor a claim on the IMF. Rather, it is a potential claim on the freely usable currencies of IMF members. Holders of SDRs can obtain these currencies in exchange for their SDRs in two ways: first, through the arrangement of voluntary exchanges between members; and second, by the IMF designating members with strong external positions to purchase SDRs from members with weak external positions.

SDR valuation
The value of the SDR was initially defined as equivalent to 0.888671 grams of fine gold—which, at the time, was also equivalent to one U.S. dollar. After the collapse of the Bretton Woods system in 1973, however, the SDR was redefined as a basket of currencies,today consisting of the euro, Japanese yen, pound sterling, and U.S. dollar. The U.S. dollar-value of the SDR is posted daily on the IMF's website. It is calculated as the sum of specific amounts of the four currencies valued in U.S. dollars, on the basis of exchange rates quoted at noon each day in the London market.

The basket composition is reviewed every five years to ensure that it reflects the relative importance of currencies in the world's trading and financial systems. In the most recent review in November 2005, the weights of the currencies in the SDR basket were revised based on the value of the exports of goods and services and the amount of reserves denominated in the respective currencies which were held by other members of the IMF. These changes became effective on January 1, 2006. The next review by the Executive Board will take place in late 2010.

The SDR interest rate
The SDR interest rate provides the basis for calculating the interest charged to members on regular (non-concessional) IMF loans, the interest paid and charged to members on their SDR holdings, and the interest paid to members on a portion of their quota subscriptions. The SDR interest rate is determined weekly and is based on a weighted average of representative interest rates on short-term debt in the money markets of the SDR basket currencies.

SDR allocations
Under its Articles of Agreement, the IMF may allocate SDRs to members in proportion to their IMF quotas. Such an allocation provides each member with a costless asset on which interest is neither earned nor paid. However, if a member's SDR holdings rise above its allocation, it earns interest on the excess; conversely, if it holds fewer SDRs than allocated, it pays interest on the shortfall. The Articles of Agreement also allow for cancellations of SDRs, but this provision has never been used. The IMF cannot allocate SDRs to itself.

There are two kinds of allocations:

General allocations of SDRs have to be based on a long-term global need to supplement existing reserve assets. General allocations are considered every five years, although decisions to allocate SDRs have been made only twice. The first allocation was for a total amount of SDR 9.3 billion, distributed in 1970-72. The second allocation was distributed in 1979-81 and brought the cumulative total of SDR allocations to SDR 21.4 billion.

A proposal for a special one-time allocation of SDRs was approved by the IMF's Board of Governors in September 1997 through the proposed Fourth Amendment of the Articles of Agreement. This allocation would double cumulative SDR allocations to SDR 42.8 billion. Its intent is to enable all members of the IMF to participate in the SDR system on an equitable basis and correct for the fact that countries that joined the Fund after 1981—more than one fifth of the current IMF membership—have never received an SDR allocation. The Fourth Amendment will become effective when three fifths of the IMF membership (111 members) with 85 percent of the total voting power accept it. Currently, 131 members with 77.68 percent of total voting power had accepted the proposed amendment. Approval by the United States, with 16.75 percent of total votes, would put the amendment into effect.

http://www.imf.org/external/np/exr/facts/sdr.htm[/quote

SDR is a start, but is a long way from suitable to replace the $US.

Lots of pessimism towards the dollar. And this was before the "revised" deficit projections.

By NEIL SHAH

LONDON -- The U.S. economy may be showing signs of recovering from the financial crisis, but the jury is still out on the future of the U.S. dollar.

While many analysts expect the dollar to strengthen in coming months as the crisis fades and the U.S. economy turns toward growth, a growing chorus of investors is expressing concern about the longer-term outlook for the greenback.

In a new twist to an old refrain among economists, who have long worried about the effects of growing U.S. debt, they say that the huge liabilities the U.S. is taking on to dig its way out of crisis could ultimately undermine faith in the dollar.

"There has been a lot of disappointment with the way the U.S. credit crisis was handled," says Claire Dissaux, managing director of global economics and strategy for Millennium Global Investments Ltd., a London investment firm specializing in currencies. "The dollar's loss of influence is a steady and long-term trend."

On Tuesday, the Obama administration added fuel to concerns about the dollar, saying the U.S. will run a cumulative budget deficit of $9 trillion over the next 10 years, $2 trillion more than it had previously projected.

"That's going to be negative for the dollar," says Adam Boyton, a currency analyst at Deutsche Bank AG in New York. President Barack Obama also reappointed Federal Reserve Chairman Ben Bernanke, whose efforts to rescue the economy have won praise, but have also entailed pumping large amounts of freshly created dollars into the financial system.

Link & Entire:As Budget Deficit Grows, So Do Doubts on Dollar - WSJ.com

aarrrggghhh

sell, sell, sell

but what?

A steady drum beat against the US dollar. The ultra-loose monetary policy of the US Federal Reserve forces China and the vibrant economies of the emerging world to forge a new global currency order, according to a new report by HSBC.

A monetary policy of near zero rates – further juiced by quantitative easing – is completely incompatible with circumstances in most of Asia, the Middle East, Latin America, and Africa. Divorce is inevitable. The US is expected to hold rates near zero through 2010 to tackle its own crisis.

What is occurring is an epochal loss in the relative wealth and economic power of the old G10 bloc of rich countries compared to rising regions of the world. The euro, yen, sterling, Swiss franc and other mature currencies will be relegated along with the dollar in this great process of rebalancing, but the Greenback will bear the brunt.

Link & Entire:
http://www.telegraph.co.uk/finance/c...supremacy.html


Again, having to get news from media sources outside the US.

Unfortunately most of the world is in the sh*te just as bad or worse than the yanks.