Are We Witnessing The Demise of The U.S. Dollar?

[Trade2win]

Are We Witnessing The Demise of The U.S. Dollar?

After college, I was lucky enough to backpack through Europe. It might sound fancy but this trip was just the opposite. I traveled on a shoe string budget and did everything I could to stretch my money as far as it could go. Besides cheap food, beer, and hostels there was only one thing I wanted to buy – a leather jacket from Italy.

When arriving in Florence I went straight to the leather market and found the jacket I wanted. I began to haggle with the shopkeeper and he offered me 2 prices – 1 in Italian currency and a cheaper price in U.S. dollars. I remember being surprised, excited, and proud that I was from a place where they valued my currency more than theirs. I bought the jacket for $100 and wore that thing for the next 10 years (until my wife finally made me give it away)!!!

This week CNBC has had Warren Buffett and Sam Zell on as guests. Both are famous investors with incredible track records and when they speak I listen. Unfortunately, both are predicting a bleak future for the dollar. Mr. Buffett said that the dollar will become “less important” over time as America’s “dominance” of the world’s economic system diminishes.

Sam Zell went even further and said, “My single biggest financial concern is the loss of the dollar as the reserve currency. I can’t imagine anything more disastrous to our country. I’m hoping against hope that ain’t gonna happen, but you’re already seeing things in the markets that are suggesting that confidence in the dollar is waning.”

What are they seeing that has them so concerned?

Yesterday, the dollar hit a 4 month low against the Euro. Also, an ETF I like to look at, UUP, which seeks to replicate the performance of being long the US Dollar against the Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona and Swiss Franc, moved to 52 week lows.

The weakness in the dollar is especially surprising because of the geopolitical events that exist today. All eyes are focused on the turmoil and violence plaguing the Middle East. In times like these, the dollar usually rises in value because it is a safe haven play; the dollar is the world’s reserve currency and it is backed by the largest, richest, and most powerful nation on the planet. Yet, in the past 2 months as the situation has escalated in North Africa, the dollar has dropped 3.7% in value.

The fact is that reckless spending by the government and a prolonged stimulus plan has gotten us to where we are today… a country whose currency is losing its value. I don’t think this trajectory is going to change anytime soon as Federal Chairman Ben Bernanke seems to be willing to allow the dollar to continue to decrease in order to pump up the economy.

This past summer, I went back to Italy with my wife and I took her to the same leather market where I had gotten that jacket so many years before. She saw something she liked and began to haggle with the shopkeeper. It was déjà vu except this time I was only quoted one price, and it wasn’t in dollars.

What do you think will happen to the dollar? Do you think it will remain the world’s reserve currency? Is your portfolio too heavily weighted in cash? (US $$$$)

(From TheStockEnthusiast.com )

[newbie_mc]

I got a strong feeling, US might not be the BIGGEST dollar in time to come.. In 10 or 20 years time, the biggest currency might be China, everyone is talking about it.. It maybe take years before US wont be the no1 country to look upon.. Once US lose it effect, it would be worst I wonder when can the bad debt be recovered and having more QE3 or QE4 printing dollar, it would dilute the dollar smaller and smaller..

[hahabear]

I got a strong feeling, US might not be the BIGGEST dollar in time to come.. In 10 or 20 years time, the biggest currency might be China, everyone is talking about it.. It maybe take years before US wont be the no1 country to look upon.. Once US lose it effect, it would be worst I wonder when can the bad debt be recovered and having more QE3 or QE4 printing dollar, it would dilute the dollar smaller and smaller..

In my Opinion, China could have a chance to be the biggest currency in the near future, but not before US sabotaged them in a desperate bid to protect it's own interest to remain as the world currency. If China can overcome this sabotage and survive it, then China will be the next world currency.

[Trade2win]

Will rising oil prices lead to QE3?
Yesterday, Atlanta Federal Reserve President Dennis Lockhart suggested that more stimulus could be needed if oil prices continued to climb. With WTI crude at $105, up from $86 just 2 weeks ago, Americans are subject to higher prices at the pump. This has many economists and financial analysts worried, as higher energy prices could challenge the US’s fragile recovery.

In November of 2010, the Federal Reserve implemented a second round of quantitative easing, nicknamed QE2. The goal of QE2 was to push down long-term interest rates, which in turn would boost the economy. To accomplish this, each month through June 2011 the Fed purchases $100 million of long-term US Treasury bonds.

Over the past 6 months, QE2 has been fiercely debated. The Federal Reserve and its supporters argue that QE2 was needed and has been a success – the stock market has rallied, unemployment is diminishing, and the American GDP has stabilized.

Opponents believe that this second round of stimulus was unnecessary and will do severe damage to the US economy in the long run by adding to the already overwhelming debt. Many also blame QE2 for the recent weakening of the dollar and soaring food prices. Some have even accused QE2 as the underlying reason for this eruption in the Middle East.

Recently, there has been some talk of QE3 – a third round of quantitative easing from the Federal Reserve – that would be implemented as QE2 comes to a close this summer. Personally, I am sternly against implementing QE3 and I haven’t believed it’s going to happen.

However, when I came upon yesterday’s comments from Dennis Lockhart, I got concerned. “If [the rising price of oil] plays through to the broad economy in a way that portends a recession, I would take a position we would respond with more accommodation,” Lockhart said. He continued that he doesn’t think WTI crude at $106 justifies a response from the Federal Reserve but, “Around $150 it becomes a much more serious concern.”

In my opinion, QE3 would be like giving a teenage shopaholic another credit card after he/she has already maxed out 2 (if not more) of them. In the short term, the teenager will have a great time with the new credit card – he/she will buy a lot of new clothes, take vacations, and ride around in a fancy car. However, in the long run this teenager is (for lack of a better word) screwed. This teenager is already in severe debt and instead of working to repay his/her bills, he/she is busy maxing out this new credit card and his/her problems will be compounded.

Skyrocketing oil prices or not, the US economy needs to learn to once again function without government stimulus. If there was an issue with the supply of oil and prices went to $150, the Strategic Petroleum Reserve could be tapped, rather than the Fed buying more Treasuries. The Fed needs to get out of the way and stop being an overbearing “Mom” who continually coddles her “teenager” with new credit cards every time it looks like he/she is in trouble.

(Stockenthusiast.com)