Tuesday, Jan 06, 2009
The demise of the Dollar?
Telegraph: Willem Buiter warns of massive dollar collapse
The long-held assumption that US assets - particularly government bonds - are a safe haven will soon be overturned as investors lose their patience with the world's biggest economy, according to Willem Buiter.
Professor Buiter, a former Monetary Policy Committee member who is now at the London School of Economics, said this increasing disenchantment would result in an exodus of foreign cash from the US.
Posted by flintster1994 @ 10:11 AM (1408 views) Add Comment
28 Comments
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1. mark wadsworth said...
WB is top man, but to put this in context, here's a chart of USD against a basket of other major currencies since 1990:
2. rich said...
Sorry Mark, not sure I understand your point. Are you saying that the graph you've posted contradicts WB's prediction?
3. paul said...
Also there seems to be something in the wording of the article - Buiter has talked of a hypothetical scenario and the Telegraph seems to have taken it as a prediction.
... said this increasing disenchantment would result in an exodus of foreign cash from the US ...
This reminds me of that sketch where Chris Morris does the same thing.
4. mark wadsworth said...
@ Rich, I'm not making any particular point, but that chart tells me that USD lost about a third of its value over six years and then had one heck of a dead cat bounce. As to where it goes now, your guess is as good as mine.
5. jackas said...
I can't see any other destiny for the dollar apart from terminal decline.
Unless the Fed stops printing money and raises interest rates. And Elvis does a gig on the moon.
6. P. Riddy said...
The recent bull market was a blatent part of the election theatre. The dollar started falling back ON election day.
7. Rentinginthesouth said...
Mark, can you give the calculations of the graph, i.e. what does it exactly show and what is the math against other currencies?
8. vindicated said...
I'd appreciate anyone's sensible view on what the dollar is going to do. I have about $100,000 out there and am poised to bring it all back into GBP at the moment (with exchange being a good bit lower than when we sent it out, we should profit a little). Anyway, if the dollar is heading for another great demise, then I certainly will bring it all back...... then send it out again when it weakens.
Sorry, not much of a sensible debatable comment on the article.
9. luckyjim said...
vindicated
The dollar is not going to get much stronger is it ? If it does get slightly stronger against the pound (and you bring your money back now) you will have missed out on a small gain.
I think the possibility of a big loss is more likely. Nobody would raise an eyebrow if the dollar fell back to 1.80/1.90 to the pound. This doesn't mean the pound is strong by the way, just less weak than the dollar.
10. jackas said...
What interest rate are you getting on your $? And how prone is the US govt to quantitative easing?
Obama says "use it or lose it".
There in lies your answer. The dollar is doomed.
11. 51ck-6-51x said...
The USD will be pounded (unintentional pun), but I don't think it is doomed unless the real big US paper owners decide to start selling, which would imply that countries that are big net exporters to the US (chiefly China, Japan & oil exporters) do not value the future custom over the relative devaluation implied by the US inflationary pressures - if that starts to happen the USD will certainly be doomed, as will the global economy IMO.
12. goweresque said...
My guess is that as AEP said a few days ago, the USA will come out of all this better placed than most economically. They always do. I suspect there will be a bigger growth rebound in the States than in Europe (or Japan). I'm not saying the $ will rise massively, but I don't think its going to tank either. If anything is going south its got to be the euro. Its priced too high given the massive fault lines within the euro-zone, with Germany suffering from lack of exports, many banks overextended in Eastern Europe, the PIGS very weak also. Buy £, sell euro, $ to trade sideways.
13. str 2007 said...
Vindicated
Why don't you bring back 25% now, followed by 25% every couple of weeks ( or every week) that way if you think it's near peak against the £ you will have an average closer to peak than changing it all now.
14. bellwether said...
What is it with this site and predictions re the decline of the US or the USD. As the decline has to be relative to something, it is a meaningless position unless you say what the decline will be against. Name the candidates?
15. stillthinking said...
I think the dollar is the crutch of the Asian economies. For a major dumping to occur the largest holders i.e. China and Japan would need to get out. But get out to what? Push up the euro? I don't think any of the major countries want to have any currency strengthening.
If Japan came out of domestic recession, yes, they will dump dollars,but they won't recover. If China manages to kickstart their world sized domestic economy, then they will dump dollars, but when will that be?
The debtor nations are doomed, or rather their savers are, but when?
Should China dump dollars, Japan will print yen in exchange for dollar holdings and vice versa. There is an ongoing competitive devaluation going on, which has the effect of supporting the dollar, because there is no need to artificially weaken the dollar. It weakens by itself, and is strengthened solely by the actions of others.
All of this chit-chat about the shift of power east, I think it has already happened.
I don't think the euro will break and I think the germans will force a sound money policy on the rest. Maybe that changes.
My own feeling about the pound is that it has much further to go, particularly when we start absorbing the exported inflation of the developed world. I don't want to paid in pounds and I don't want any savings in pounds, and I also don't want anything of value owned by me in the UK.
16. bellwether said...
Incidentally I think anyone who works in the UK and is earning in sterling would be foolish to go long on Sterling with their savings. We have all of the problems of the US (worse if you look at debt relative to GDP, worse if you look at the housing bubble both how big it got and how much further it has to fall.
Vindicated IR's in the US are already at zero % and the UK will get there between now and the spring. I doubt Sterling will strengthen much in that scenario. Do you?
17. stillthinking said...
Bellweather, what I think is that the whole world is going into recession.But the whole world won't remain in recession forever. When there is a recovery then the US will go into a decline because they will have an inflationary problem which the creditor nations won't have. That is when the tide goes out for the US, not now.
The debtor nations will decline against the creditor nations.
18. bellwether said...
Like the dramatic final sentence Stillthinking, and largely agree with your synopsis apart from the main bit ie that power has already shifted to the East/China - incidentally I see Japan as more western int terms of its society and development.
I think that this shift is the narrative that runs through alot of debate and we like a good story but apart from its reserves (which are worth nothing in isolation) I struggle to see Chinas advantages, lack of democracy, lack of resources relative to population (who are per capita poor), lack of independant innovative thought due to culture/polictical system, poor demographic due to one child policy, not a place that the brightest from elsewhere are likely to chose to live.
19. bellwether said...
I've not even begun to go on about common language, rule of law, transparency all of which are essential to trade and benefit the US and its allies - I appreciate that the US is not the most popular country in the world but compared to China its the postively loved and identified with.
Also you discount the possibility of US/West getting its act together and actually becoming more productive. Quite feasible I'd say.
20. stillthinking said...
Not impossible at all. I will never give up on the UK. I already tried leaving and after three and a half years I had to come back because home sick.
21. bellwether said...
Yeah it has its moments for sure!
22. mark wadsworth said...
@ Rentinginthesouth - it's just daily closes from www.oanda.com of USD, CAD, AUD, GBP, EUR, CHF, SGD and JPY weighted one each, i.e. if long run EUR = 70p, it gets timesed by 1.43 and so on. Not very scientific but as good as anything.
23. Rentinginthesouth said...
Thanks for the info Mark (and the graph)
24. vindicated said...
Many thanks all for the advice. Appreciate it. The dollars are the proceeds from a house sale over there. We sent the money at around $1.80 to the pound so could not bring it back whilst it was raging at $2.04 etc. The main aim was to emigrate but that's not happening any time soon so we now plan to at least make some money from transferring the funds back over here whilst the dollar is so strong.
Jackas, we make sod all interest on the money. We're lucky if it is $3 or $4 per month. Cracking eh. Methinks the money will be winging its way back here quick smartish.
Str 2007 - useful advice. Thank you.
Thanks again all. Oh, anyone have any experience of moneycorp.com? Wachovia (our American bank) will only charge around $40 to transfer the money to our UK account but Moneycorp are insistent that they could get us a better deal. I'm not sure I get the point of moneycorp.
25. P. Riddy said...
Belweather, you think in fiat money, your head isn't screwed on properly. All currencies will be devalued simultaneously relative to gold and other real assets. This happened last depression after gold confiscations, it will happen this depression. Its the only way the establishment can pay off their debts. They either let the banks go bankrupt or devalue currencies. They have demonstrated that the banks will not be allowed to fail. Go figure.
26. Stevie Dee said...
Shekels, barring that Gold.
27. beartil2010 said...
xe.com will transfer any amount of money free of charge and you may find you get a better rate than with the bank. I have used them and others I know have too, no problems, no limit on funds. You do have to pass money laundering checks etc. so it takes a bit of time to set up.
28. Whiterabbit said...
I just moved over a 100k into dollars. You can get 4% on an insured dollar account at a few US banks right now. My Cahoot savings account just dropped to 2%. I cannot see how the dollar won't be stronger against the pound and euro by end of 2009.