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GLOBAL EXODU$ OF THE LATE GREAT U$D’$
Last week it was China calling for a mega-shift of its $1.43 trillion greenbacks into "stronger currencies." Now the United Arab Emirates ($3.5T reserves) are warning they too must defend themselves against a falling dollar and "imported U.S. inflation."
OH, DOLLAR, HOW LOW CAN YOU GO?
Conducting Talk Show interviews on the declining (free falling) U.S. Dollar is Swiss America CEO Craig Smith, why says many of the world's central banks are starting to look to the euro to fill their currency reserves instead of the dollar. "A poll carried out by Central Banking Publications found 39 nations of the 65 surveyed raising their euro holdings, with 29 cutting back on the US dollar," reports the BBC.
Smith says The Gulf region currently has 3.5 trillion dollars on deposit, more than double China's dollar reserves. Kuwait has already abandoned its currency's peg with the dollar and slashed its dollar holdings by 50%. Why?
To support his position, Smith quotes the London Telegraph: "Inflation has reached 4.9% in Saudi Arabia and 9.3% in the UAE. Both have refused to follow the Fed in cutting interest rates, drawing a flood of hot money into their economies.”
Asks Smith, "What more can the Fed or Treasury do but to maintain a phony ‘strong dollar’ policy?”
"In today's global marketplace the Fed and Treasury are powerless to halt the dollar's dive, so instead they must inflate it further," added Craig.
During your interview Craig Smith explains the dilemma in a nutshell, saying, "The Fed is now caught in an extreme Catch-22; if they cut interest rates the dollar collapses further, if they raise rates to defend the dollar the U.S. economy depresses under the weight of both $900B in bad mortgage debt and $900B in consumer credit card debt with higher rates.”
Wall Street pundits proclaim the dubious ‘benefits’ of a falling dollar including that the dipping dollar will increase U.S. exports and reduce imports, including our dependence on cheap Chinese-made goods. But, Smith warns, by doing so, we are signaling to rest of the world that everything in America is on a fire sale.
THE DARK SIDE OF THE DECLINING DOLLAR
As bizarre as it sounds, the once nearly worthless Mexican Peso has gained significantly against the U. S. Dollar and the Canadian Loon has, for the first time in decades, now surpassed the dollar in value. So, the $64,000 dollar (or 55,000 ‘loonie’ question is this: Could a further dollar decline lead to a new North American currency, dubbed the "Amero"? "Perhaps,” cautions Smith.
"With the dollar already below par to the Canadian loonie and the peso rising against the dollar, all possible solutions will be floated. Most Americans would fight a new North American Union today, but during a crisis, such as FDR faced in 1933, American sovereignty and wealth may well be sacrificed in the process," says Smith.
"Best case scenario, Smith adds, “the falling dollar will lead to a falling standard of living the U.S. over the next 5-10 years as we gradually get our debt and deficit crises under control."
WORST CASE SCENARIO
"Worse case scenarios are twofold; 1) a debt-induced depression or 2) a Wiemar Republic-style hyper-inflation, in which 'Helicopter Ben' Bernanke will finally live up to his nickname."
"If the dollar falls 10% a year, U.S. investors must receive at least a 10% return just to stay even!"
"Little wonder the most important asset for every investor to own so far in the 21t century is gold, the anti-dollar." says Smith.
Mr. Smith is offering free copy of "America and the Dollar Illusion" included in his 25th anniversary newsletter, Real Money Perspectives, available for free to your audience when they call Swiss America.
Story Links:
http://www.telegraph.co.uk/money/main.jhtml;jsessionid=RFSB2XHTIFP45QFIQMFSFGGAVCBQ0IV0?xml=/money/2007/11/14/cngulf114.xml
http://news.bbc.co.uk/1/hi/business/4200811.stm
ABOUT CRAIG SMITH…
Craig R. Smith is the president and CEO of Swiss America Trading Corporation, one of the largest and most respected investment-grade U.S. gold and silver coin firms in the nation since 1982. He’s been featured frequently on Fox News Channel, CNBC, MSNBC and CNN.
Dollar freefalls toward hard landing
CraigRsmith.com
Nov. 8, 2007
The U.S. dollar tumbled to new lows on Wednesday after a top Chinese official called for the country to shift more of its huge foreign exchange stockpiles out of the greenback.
Cheng Siwei, vice chairman of the Standing Committee of the National People's Congress, was quoted by wire services as saying China should shift more of its $1.43 trillion of currency reserves into "stronger currencies," such as the euro, to offset "weak" currencies like the dollar.
"These comments were made by a man of great stature in China, a nation which now has vast dollar holdings, giving this statement powerful impact worldwide," says author and Swiss America CEO Craig R. Smith.
On this news; the euro rose to a historic high of $1.47, the Canadian dollar rose to $1.10, oil prices spiked to $98.50 and gold hit $840 an ounce.
"Our biggest concern now is if China and other trading partners abandon the dollar, who will loan the U.S. the $2.6 billion a day we need to float our national debt and deficits? The only other alternative is for the Treasury to print money like crazy!" says Mr. Smith.
"Helicopter Ben may yet live up to his name as the Fed is now caught in an extreme Catch-22; if they cut rates the dollar collapses, if they raise rates the U.S. economy collapses under the weight of either $900B in bad mortgage debt or $900B in consumer credit card debt. This means we may be in for either a debt-induced depression (that makes 1929 look like child's play) or Wiemar Republic-style hyper-inflation," says Mr. Smith.
Wall Street pundits are proclaiming all the benefits of a falling dollar, such as increasing U.S. exports and reducing imports, but what a weak dollar really means is that America is having a fire sale and almost every asset Americans own is denominated in a currency that is becoming worth-less on a daily basis.
“So forget the all the 'feel good' dollar talk on TV," says Smith.
"This is a time to be fully diversified. At SwissAmerica.com have been saying for years the printing of money, deficit spending and loose monetary policy would ultimately catch up with us. That day may well have arrived," says Smith.
FORBES.COM/ October 17, 2007
A Weak Dollar Is Bad For America
Carl Delfeld, Chartwell Advisor
Martin Feldstein, the chairman of the Council of Economic Advisors under President Reagan, wrote an article for the Financial Times this week, which outlines why he believes that a more "competitive" or weaker U.S. dollar is good for America.
Even though I am a rock-ribbed Reagan Republican, I cannot overstate how strongly I believe that this opinion is incorrect. "Strong Dollar, Strong Currency" is more than a mantra for me since economic history indicates that no country has ever achieved greatness nor maintained it by debasing its currency.
Here is my case for why a weaker dollar hurts America.
First, a weaker dollar translates into a cut in the real spending power of American consumers--in effect, a reduction in real income.
Second, a weaker dollar weakens the role of the U.S. dollar as the world's reserve currency. Why should investors and central banks around the world invest in US assets when their value is steadily declining?
Third, the chances of a weaker dollar leading to a sharp reduction in America's trade deficit is highly unlikely since 40% of the current balance is due to oil imports that are denominated in U.S. dollars. An additional 20% is due to trade with China, which is, of course, controlling the value of its own currency.
Fourth, a weaker dollar is inflationary since it increases the cost of imports.
Fifth, business leaders know that discounting prices may bump near-term revenue and profits but at a real cost to long-term profitability, not to mention inflicting damage to the brand name. This is what we are doing to the brand of America by trying to increase exports by lowering their price in the global marketplace. Better to stand firm on price and sell into global markets on the basis of what is great about American products: superior quality, innovation and service.
What a weaker dollar really does is to encourage American and international investors to invest in non-American markets. The more the dollar drops, the more global equities rise. Many Asian currencies are hitting record highs against the U.S. dollar.
The Australian dollar has climbed to a 25-year highs, while the Singapore dollar has touched 10-year highs. The Brazilian real, which has jumped 18% in value against the U.S. dollar this year, and the Indian rupee's sharp appreciation against the U.S. dollar during the past year, have supercharged U.S. dollar investors' returns in those markets.
According to EPFR Global, investors are pouring money into global funds--with net inflows of $96.94 billion into world equity funds so far in 2007, while taking out $9.6 billion out of U.S. equity funds. Brazil's local stock exchange, the Bovespa, reported that investors have injected $1.2 billion into the market in September alone.
Foreign investors slashed their holdings of U.S. securities by a record amount as the credit squeeze intensified, according to the U.S. Treasury Department. The Treasury said net sales of U.S. market assets--including bonds, notes and equities--were $69.3 billion in August after a revised inflow of $19.5 billion during July. The August outflow exceeded the previous record decline of $21.2 billion in March 1990.
Last and perhaps most importantly, I view a policy of weakening the U.S. dollar to improve America's competitive position as the path of least resistance.
Let's not roll up our sleeves and cut federal spending, greatly simplify our tax code to encourage productivity and achievement or reduce corporate tax rates and excessive regulation. Let's just wink and weaken and let our nation's currency drift lower on automatic pilot.
My view is that the value of a nation's currency reflects the perceived value of country in the global marketplace. Maintaining and strengthening the value of our nation's currency is in the best interest of American consumers, businesses and investors.
© 2008 Forbes
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