What most mainstream economists have missed out in their analysis of global currency outlook with regard to the US dollar’s outlook is the political perspective.
The dollar bears have got their analysis right over the long term but over the short term of 6 months to a year, the US dollar index may rebound due to a stronger-than-expected recovery in the US economy, a hike in Fed interest rates, or the end of quantitative easing or some global financial crisis where flight to safe dollar havens resumes. So the dollar bulls may be right for the short term.(this has turned out to be true with the Greek soveriegn crisis and better-than-expected US economic data lifting the US$ in the first quarter of 2010)
The decisive factor that will lead to the demise of the US$ (be it through an outright collapse of 40-50% or a gradual annual depreciation of 10% over the next five years) is predicated on four factors:
1. The excessive and irresponsible printing of money (through the US Treasury’s creation of excess reserves) and the monetization of America’s rising debt burden.
2. The large holdings of US dollars by global central banks notably China, Japan and the BRIC countries. Nobody wants to be holding large amounts of a currency that will fall sharply in value. Their ongoing policies to buy US Treasuries to support the US dollar will eventually end if investors continue to abandon the US dollar due to its government's debasement/devaluation policy.
3. China’s policy response to the prospect of a weakening US dollar is to move its assets away from the dollar and into hard assets and other currencies.
4. The political drive by a group of globalists to engineer the emergence of a new global reserve currency. The latter will not happen unless the US dollar collapses. (In fact, many sound economists and central bankers have voiced their approval of a global currency to stabilise the global economy.)
The fourth political factor is the most important factor that is overlooked by economists presumably because (a) it appears to come from conspiracy theorists (b) a monetary union of the world seems more justifiable and noble than a political union under a one world government. But if you follow closely the actions of the US government and the statements and actions of many world leaders, the stage is already set for a new global reserve currency, whether by default, accident or through negotiation. The question is whether this move will be successful or will the US economy suddenly find its way out of structural decline through a technological breakthrough or resource discovery?
We live in interesting times not just because all well-known economic theories and policies (namely Keynesian and Monetarist) have failed to convincingly rescue the world from the current global recession, but a wrong policy move by governments can lead the world into a Greater Depression. The current global solution of piling up more government debt to compensate for the deleveraging of private debt is a short-term pain-killer that will not cure the patient of the root cause of his illness, which is too much debt in the first place.
This leads one to ask whether government leaders can be that stupid. They may act stupid and go against the interests of their electorate in favour of a vested interest group who put them in power. However, it is my view that there are certain prominent "global" leaders who may pretend to act selfishly for their lobby groups but who are actually setting up the stage for a one world government.
This could soon happen in the next 2-3 years when the current dosage of orthodox economic policies (flooding the economy with newly created money) leads into new asset bubbles and financial collapse. By then, global markets systems could be shut down and food shortages and civilian unrest will force governments to impose marshall law.
Subscribe to:
Post Comments (Atom)
The dollar carry trade will produce another major asset bubble in Asian equities as Asian central banks peg their currencies to the falling US$. This is because they need to print more money and keep interest rates low relative to the US$ to maintain their exchange rates with the dollar.
ReplyDeleteIn addition, these currency policies are sustaining their trade surpluses, which is bringing inflows of foreign currencies into the system, putting upward pressure on their exchange rates. As a result, domestic liquidity rises and is channeled into property and stock markets. Hong Kong and China and two markets that have been boosted by the Fed's zero interest rate policy.
Whether this will lead to the next asset bust depends very much on valuations, leverage and the rebalancing of Asian economies from externally driven to internally driven economies.