Collapse of the USD

[chuck1rar]

U.S. dollar to fall to 50 yen in 2010

Highly respected economist Daisuke Uno of Sumitomo Mitsui

has said that he expects the U.S. economy to enter into a

double dip recession in 2010, and that record government

borrowings plus low interest rates will cause the value of

the U.S. dollar to collapse, possibly to as low as 50 yen.

***Ed: Uno, who makes use of historical charting data, has

a track record of making accurate forecasts, having

predicted the dollar's current lows, as well as the extent

of the recession after the Lehman collapse.** (Source: TT

commentary from bloomberg.com, Oct 15, 2009)

[aavkk]

well I sure hope he's a ways away from the truth on this one. Cant say however that I would be surprised at all though given our current credit situation with the rest of the world.

[Buch0]

No matter the situation it is going to be impossible to get out of debt with current monetary system anyway.. The banking system is an absolute disgrace. One could go on for days on how screwed the system is but the big picture is never going to change until government take control of the banks.

[SethG]

No matter the situation it is going to be impossible to get out of debt with current monetary system anyway.. The banking system is an absolute disgrace. One could go on for days on how screwed the system is but the big picture is never going to change until government take control of the banks.

while I'd hate to interrupt a solid rant, the value of the dollar is controlled by the federal reserve and can be turned trivially like the volume knob on a stereo. Witness 1.4 trillion dollar deficits with just a swap of obama's stimulus pen!

But I wouldn't bet on the value of the dollar with any sense of confidence. As the international reserve currency, the US government can change the value at will without even so much as presidential approval

[bunburyist]

I have a bit of background in economics and this current situation is fascinating, historic even. IMO not since the abandonment of the gold standard have we been in such a game-changing moment. Current thinking seems very much to be that the dollar is on a cliff edge - hence all the recent clamouring after gold (in part).

The recent mini-bubble recovery is just that I think, we're in for a roller coaster couple of years at least. Opportunities to make and lose a lot of money, esp in FX. Unfortunately, volatile markets mean shaky job security, so if you're not already now's the time to be putting some away. My call - buy a cabin somewhere and load up on beans, smokes n guns

Perhaps a recession pack cigar list is in order?! Upmann coronas major for me

[demiurgic]

I'm sure many of you know this about the Federal Reserve here in the US. However, it's important to REALLY know this fact for the world.

The "FED"eral Reserve , or the root of our banking system, is a private company that came into being a little before the second world war. 1913, to be exact. It's important to let this sink in folks.

Because, as an independent institution, Federal Reserve has the authority to act on its own without prior approval from Congress or the President. My friend who is an EX FED employee told me the following. ' When we went to hotels, on business trips and such, we could not ask for government agency discounts, BUT QUASI-government agency dscounts for rooms for the night'

I can go on and on, but you catch the drift.

Recession, depression, inflation, devaluation of currency, rampant printing of currency without actual backing, are easy peasy to manufacture for this Godfather, and the fact is, no economic climate is too large to manipulate (indirectly or directly), for a puppetier who wields such absolute power over the US and the world at large.

Boys and girls, I remain bewildered by knowing all this for years now. Also I havent the slightest idea what the hell to do about it.

Demi

[yossie]

Guys, Do you still believe economists? I'm sure the history proved they are third-class predicters. Rating companies are as well.

[Chaki]

while I'd hate to interrupt a solid rant, the value of the dollar is controlled by the federal reserve and can be turned trivially like the volume knob on a stereo. Witness 1.4 trillion dollar deficits with just a swap of obama's stimulus pen!

But I wouldn't bet on the value of the dollar with any sense of confidence. As the international reserve currency, the US government can change the value at will without even so much as presidential approval

The US Government does not fix the value of the Dollar. It kind of gave that up in 1971 when Pdt. Nixon scrapped the Dollar convertibility to gold.

In the end, economic fundamentals will assert themselves: inflation, interest rates differential and capital flows. The value of the Dollar could go anywhere based on the performance of the US economy and Government policy (fiscal and monetary). However, I doubt it would go to 50 Yen:Dollar, at least in the short run. The Yen has its own problems as does the Euro. In fact, no other currency could replace the role of the US Dollar as the reserve currency, for now. Just my two (rapidly deprecialting) cents

[bunburyist]

aye - the independence of the Fed, in particular its ability to effectively print its own money does seem strange from the outside looking in.

It's particluarly surprising when you consider the guys in charge are appointed.....how exactly? It doesn't appear to be democratic, or even open for that matter.

''Permit me to issue and control the money of a nation, and I care not who makes its laws...''

*EDIT* just realised this is getting away a bit from the original post, sorry. The key point for now being Chaki's above, the dollar is taking a pounding....but so is the euro, pound, yen etc....

[El Presidente]

Currency has long gone away from a study of economics and onto a study of gambling.

The US gets weaker...the USD strengthens. The US stronger....the USD weakens. A stronger USD means funds/organizations/institutions feel more comfortable to gamble (take money out of USD).

There will be a change in the relative importance of the USD if for no other reason than at the beginning of the decade the US accounted for more than 30% of the worlds GDP and is now a shade under 25% and falling fast.

4% growth, 5% interest rates, no debt and a budget surplus all will cure the $'s ills. Seems a long way away doesn't it

[bunburyist]

4% growth, 5% interest rates, no debt and a budget surplus all will cure the $'s ills. Seems a long way away doesn't it

that'd do it for most western economies to be fair. Bloody hell though, about 3 years ago that seemed almost achievable - not sure we'll see no debt for a long long time.

[tugboat]

...U.S. dollar to fall to 50 yen in 2010....

There is always two sides to a trade.

[reigndrop]

Other traders, including myself at a BB I work at think that the U.S. economy is going to go deflationary very soon, giving way to a much stronger dollar.

[bassman]

4% growth, 5% interest rates, no debt and a budget surplus all will cure the $'s ills. Seems a long way away doesn't it

Absolutely true. But don't expect to see that under the current administration's policies. God, gold & guns- oh and don't forget the bullets!

[thechenman]

The Federal Reserve does control monetary policy in a sense, but it has always worked in line with the wishes of the Administration in power out that time. Every Fed Chairman wants to keep his job...just like everyone else. The U.s. dollar is week and it will remain so for the time being. At least until Bernanke is confident that withdrawing the economic stimulus the governement is providing to the economy will not be missed. Bernanke is a big historian of the Great Depression in the U.S. and Geithner is very knowledgeable about the economic situation that exists in Japan which started several decades ago. The last thing they want to happen in the U.S. is what has happened in Japan for the last decade. Once those concerns are over, you can be sure that the Fed funds rate will climb, and climb aggressively. With that I would imagine that strength would flow back into the dollar as Treasuries would be providing better rates of returning thereby drawing better bids at auction, and more demand for the U.S. dollar. Will it happen overnight. Unlikely...but withing a year to a year and a half from now. Very likely.

It is also unlikeyly that the value of the USD would decline to 50 Yen, that said, my current hedge against the USD fall is to be long the Yen. Still I think the 50 Yen level is not likely.

Will the USD be replaced as the defacto currency to business. As the Prez has said, U.S. consumption is no longer as great as it once was, but the Yen is unlikely, the Yuan even moreso. If anything stepped up it would be the Euro. Still, I don't see it replacing the USD anytime soon. Sure thre is a lot of talk given the devaluation of the USD, but much of it will go away when the USD recovers. And recover it will. If it doesn't, we are all in for a lot more than just a jobless recovery. At 20%, the U.S. economy is still large enough to take down most of the world. Not just from a GDP, import./export scenario, but from a Treasurie securities perspective. With so many governments with 10s of billions of dollars invested in U.S. Treasuries...a collapse would be near armageddon. A scary thought...

[jmasterj]

Can't afford bullets anymore. The price they go for these days...I should have stocked up two years ago!

What I've read is that the USD is and will slowly be phased out as the standard for international reserves but it won't be in one event or even two events in a row that change this but a series a events occurring over several years. And as far as anyone knows, we could be right in the middle of these phasing events as reports are always looking in the rearview mirror and never forward forecasting. I believe it to be a safe bet to move any liquid USD reserves you have into commodities that will stand the test of time such as certian precious metals or if you don't feel you'll need the money(...ever...)even a well thought out land purchase.

Gabillions of dollars have been printed to give away in the stimulus packages the last year or so which have helped lower the USD and with a lower USD comes the hopes that US exports will pick up as international money can buy more now. That's right my friends from downunder..buy up all those Chevy Tahoes and Caddy Escalades baby!

[neal875]

Can't afford bullets anymore. The price they go for these days...I should have stocked up two years ago!

What I've read is that the USD is and will slowly be phased out as the standard for international reserves but it won't be in one event or even two events in a row that change this but a series a events occurring over several years. And as far as anyone knows, we could be right in the middle of these phasing events as reports are always looking in the rearview mirror and never forward forecasting. I believe it to be a safe bet to move any liquid USD reserves you have into commodities that will stand the test of time such as certian precious metals or if you don't feel you'll need the money(...ever...)even a well thought out land purchase.

Gabillions of dollars have been printed to give away in the stimulus packages the last year or so which have helped lower the USD and with a lower USD comes the hopes that US exports will pick up as international money can buy more now. That's right my friends from downunder..buy up all those Chevy Tahoes and Caddy Escalades baby!

Oooh, that is a very risky suggestion that I hope most people will not take to heart. Precious metals and real estate--especially as you note: land? At this phase of the economic cycle? Liquidate the KING of assets, cash, for the falling knives of precious metals and land? Now, if you had suggested these to us in 2002, we'd be electing you King right now--but in late 2009?

In addition, keep in mind that most people who invest in precious metals do so in the form of stocks or funds of some kind that cover the precious metal sector of the stock market-- or similar. Most of these assets are up 400% or more in the past few years mostly on speculation (ouch). These people don't actually hold bullion or any substantial amount of coins. So, they have no real liquidity whatsoever, although those precious metal stocks have made great wallpaper for many others who bought them at the height of earlier historic bubbles. As for real estate, ask those who thought it was the world's best investment just 4 years ago and who now cannot get an offer on their homes in time to avoid foreclosure and bankruptcy. People who won't be able to make a nickel on their homes for several years to come if they're lucky. Plus, real estate and gold stocks or funds are going to be tough to use for buying gas, guns or food as some here have cited as the necessities. So, will bullion by the way--it is just tough to make change at the local grocery or gun store for a $20.00 gold piece unless you want it valued at--oops-- $20.00. Be careful. The commodities guys are looking for prey right now and they have a lot of money to generate great advertising and public relations for their position. But when commodities begin to drop--they do so very quickly and relentlessly and these guys will never be seen again. Just ask my mother who bought $800 an ounce gold coins in 1981. It took more than two decades to get back to that level. Want to wait? If you must buy gold, buy gold not gold stocks. And, I wouldn't suggest buying very much of it at this time. And if you want to take advantage of low real estate prices--my suggestion is to buy with a very savvy agent, have a good deal of patience on the investment and NEVER BUY LAND at this time unless that is your profession.

While all of this is opinion, we can look at history as a good indicator. If you are over 35, you have heard about the death of the dollar more than once. Always great arguments for it but it never materializes. That's because at the end of the day--the world trusts that the US will pay its debts on all Treasury notes. Because it always has--always. The same feeling is not there for the Euro, the Pound and certainly not for the Yen. And with good reason--do you trust these currencies more than the US dollar over the long haul? And, if so, what is your argument for this position? And while this could change, I don't think it will in our lifetimes. Until the day that the US Treasury misses a bond payment, you're good. If they ever do--it is time to head for the hills--but those gold stocks and mortgages won't help you when you do.

I know it isn't sexy now to advocate this position, but slow and steady will win the race. Money flows not only where it can get the greatest return--BUT WHERE IT IS THE SAFEST. And when this latest economic cloud lifts, those who bet against the dollar will be---AS THEY ALWAYS, ALWAYS HAVE--firmly planted in the loser's chair. Just a warning to do a little serious reading and research in the Wall St. Journal, online and other places of note and stop thinking that entertainment outlets like CNBC and Talkradio are the gospel when it comes to your family's financial security.

[tigger]

Can't afford bullets anymore. The price they go for these days...I should have stocked up two years ago!

What I've read is that the USD is and will slowly be phased out as the standard for international reserves but it won't be in one event or even two events in a row that change this but a series a events occurring over several years. And as far as anyone knows, we could be right in the middle of these phasing events as reports are always looking in the rearview mirror and never forward forecasting. I believe it to be a safe bet to move any liquid USD reserves you have into commodities that will stand the test of time such as certian precious metals or if you don't feel you'll need the money(...ever...)even a well thought out land purchase.

Gabillions of dollars have been printed to give away in the stimulus packages the last year or so which have helped lower the USD and with a lower USD comes the hopes that US exports will pick up as international money can buy more now. That's right my friends from downunder..buy up all those Chevy Tahoes and Caddy Escalades baby!

It's disgraceful what the Government and Fed have done to the dollar. I suspect that over the long haul, the dollar will improve versus other currencies from where it stands now, although I think there's still significant downside risk before that happens.

As ever, diversification is key. I wouldn't put all of my eggs into precious metals and land, although I don't think this is a bad time to be slightly overweight gold (the commodity, not stocks).

It would not surprise me at all to see the world move toward a basket of reserve currencies/oil currencies, etc.

Fiat money has always been a dangerous path to travel, and it always will be, IMO.

[reigndrop]

The Federal Reserve does control monetary policy in a sense, but it has always worked in line with the wishes of the Administration in power out that time. Every Fed Chairman wants to keep his job...just like everyone else. The U.s. dollar is week and it will remain so for the time being. At least until Bernanke is confident that withdrawing the economic stimulus the governement is providing to the economy will not be missed. Bernanke is a big historian of the Great Depression in the U.S. and Geithner is very knowledgeable about the economic situation that exists in Japan which started several decades ago. The last thing they want to happen in the U.S. is what has happened in Japan for the last decade. Once those concerns are over, you can be sure that the Fed funds rate will climb, and climb aggressively. With that I would imagine that strength would flow back into the dollar as Treasuries would be providing better rates of returning thereby drawing better bids at auction, and more demand for the U.S. dollar. Will it happen overnight. Unlikely...but withing a year to a year and a half from now. Very likely.

It is also unlikeyly that the value of the USD would decline to 50 Yen, that said, my current hedge against the USD fall is to be long the Yen. Still I think the 50 Yen level is not likely.

Will the USD be replaced as the defacto currency to business. As the Prez has said, U.S. consumption is no longer as great as it once was, but the Yen is unlikely, the Yuan even moreso. If anything stepped up it would be the Euro. Still, I don't see it replacing the USD anytime soon. Sure thre is a lot of talk given the devaluation of the USD, but much of it will go away when the USD recovers. And recover it will. If it doesn't, we are all in for a lot more than just a jobless recovery. At 20%, the U.S. economy is still large enough to take down most of the world. Not just from a GDP, import./export scenario, but from a Treasurie securities perspective. With so many governments with 10s of billions of dollars invested in U.S. Treasuries...a collapse would be near armageddon. A scary thought...

Bernanke is firm on not allowing us to go into a deflationary spiral. The deflationary spiral will still happen though, soon I suspect. I really expect inflation to kick in during the summer of 2010. I would advise everybody that has any many load up on hard assets and start shifting into inflationary plays. It will be there last chance to do so. Volckler will be back in 2011ish to fight inflation like he did in the 80's, you can quote me on that.

As for the next global currency, that's really up in the air right now. It it's going to be the yuan (like everybody says it will be), it won't be for at least another 15-20 years, so that there portfolio of treasuries will have time to mature. If they unpegg their currency now, they will be forced to take MASSIVE writedowns on their current holdings. China isn't without its own problems though, inflation will be creeping up there pretty soon. And the Euro isn't out of the woods either, Eastern Europe will be its Achilles heel. Interesting and confusing times to say the least.

[tucomapache]

Guys, Do you still believe economists? I'm sure the history proved they are third-class predicters. Rating companies are as well.

Amen...

[El Presidente]

Of course you could stabilize all the major worlds currencies by banning spec trading in metals/oil commodities. ie...a purchase requires a physical puchase contract

[bassman]

Of course you could stabilize all the major worlds currencies by banning spec trading in metals/oil commodities. ie...a purchase requires a physical puchase contract

An excellent point. The big rise in oil prices in 2008 was caused by speculation, not lack of supply.

[tigger]

Of course you could stabilize all the major worlds currencies by banning spec trading in metals/oil commodities. ie...a purchase requires a physical puchase contract

We'd have saved ourselves a mess of trouble if Credit Default Swaps had been structured similarly - don't allow people to buy insurance on things they don't have a stake in.

I loathe regulation, but the market proves over and over that it's not mature enough to live without it.

[shortsqueeze]

We'd have saved ourselves a mess of trouble if Credit Default Swaps had been structured similarly - don't allow people to buy insurance on things they don't have a stake in.

I loathe regulation, but the market proves over and over that it's not mature enough to live without it.

This is true, like John Paulson who sold everything in sight. He was buying these contracts for pennies on the dollar. But look, there is plenty of blame on those who structured these garbage pools and then dumped their toxic waste all over the earth. And to add insult to injury, the greedy fools who loaded up on them then went ahead and wrote contracts on top, instead of hedging their bets; the double whammy.

[Buch0]

An excellent point. The big rise in oil prices in 2008 was caused by speculation, not lack of supply.

This exact point makes for scary thought.. Speculation alone can kick off the rollercoaster and quite often does. All one needs to do is look at the collapse of Enron to see how easy it is for a whole market to be infected by nothing but speculation.