{"id":30936,"date":"2011-03-08T06:26:04","date_gmt":"2011-03-08T04:26:04","guid":{"rendered":"http:\/\/www.turkishforum.com.tr\/en\/content\/?p=30936"},"modified":"2016-12-28T16:08:12","modified_gmt":"2016-12-28T13:08:12","slug":"is-the-u-s-dollar-on-the-brink","status":"publish","type":"post","link":"https:\/\/www.turkishnews.com\/en\/content\/2011\/03\/08\/is-the-u-s-dollar-on-the-brink\/","title":{"rendered":"Is the U.S. dollar on the brink?"},"content":{"rendered":"

\"\"By: Julian D. W. Phillips, Gold\/Silver Forecaster – Global Watch<\/span><\/strong><\/p>\n

Just take a look at the chart of the U.S. dollar Index and you see a frightening sight.\u00a0\u00a0\u00a0If it sinks any further its support will have evaporated.\u00a0\u00a0\u00a0We have watched all this week the gold price rise and look good in the dollar.\u00a0\u00a0\u00a0But in the euro it has barely moved.\u00a0\u00a0\u00a0Against the Swiss Franc the dollar looks so weak.\u00a0\u00a0\u00a0With the Technical picture looking so poor, one turns to the fundamentals to see if they conflict or support a downturn for the dollar.<\/strong><\/p>\n

<\/strong><\/p>\n

The U.S. dollar Fundamentals<\/h3>\n

Can government govern finances?<\/h4>\n

The United States, right now, is on the brink of having used up all its legislated credit capacity.\u00a0\u00a0 At $14.3 trillion there is a desperate need for a higher credit limit.\u00a0\u00a0 Unless, by Friday, they have passed legislation to raise this, the government cannot issue checks or pay staff.\u00a0\u00a0 Yes, they can use various tricks to delay this to accommodate political brinkmanship, but the outside world will be alarmed that the government is unable to tend to such basics or allows politics to overrule finances.\u00a0\u00a0 Here there is a clash of systems, the need for financial correctness against the games politicians play.\u00a0\u00a0 With President Obama\u2019s administration without sufficient power to legislate as they want at a critical time when government should be strong, there is little to inspire confidence in the U.S. government.\u00a0\u00a0 Global confidence in the U.S. dollar will be shaken if such a financial mess were to happen.\u00a0\u00a0 We would most likely see the ratings agencies downgrade U.S. debt before that happens.\u00a0\u00a0 From outside it looks as though the U.S. is oblivious to foreign investor\u2019s opinions at a time when the U.S. is reliant on foreign investors buying U.S. debt.<\/p>\n

Moving down the ladder we have seen so much in the press that individual States are on the brink of bankruptcy and some already there and little seems to be being done to rectify matters to date.\u00a0\u00a0 Or should foreigners just presume that the Fed will rescue them with bailouts?\u00a0\u00a0 If that is to be the path followed that again will undermine foreign investors confidence in the dollar.<\/p>\n

What needs to be understood is that government finances at all levels have to be sound to inspire confidence?\u00a0\u00a0 It seems to be a simple obvious statement, so why is it not being applied?\u00a0\u00a0 Even Fed Chairman Mr. Ben Bernanke is calling for government to sort out the Federal deficit but all we see is a partisan battle that seems oblivious to their countries crying needs.\u00a0\u00a0 Or do we misunderstand the scene.\u00a0\u00a0 Are politics more important than good order?\u00a0\u00a0 Today saw the revelation that China owns more than $360 billion of Treasuries than was thought to be the case.\u00a0\u00a0 Does the government not worry about this dependence?\u00a0\u00a0 Or does the government want to ensure that the dollar weakens?\u00a0\u00a0 This is a strong impression pervading so many foreign exchanges now.<\/p>\n

And the inflation coming from the food and energy worlds is globally pervasive and capable of threatening what little economic growth there is in the developed world.\u00a0 It will affect many, many countries and could reach into the U.S.A.\u00a0\u00a0 We do expect the U.K to experience a shrinking of its GDP in the first quarter of 2011 announcing the arrival of a double-dip recession, so shrinking growth could also affect the U.S. still with its lackluster economy.\u00a0\u00a0 What will this somewhat emasculated government do then?<\/p>\n

The Trade Deficit<\/h4>\n

For so many years now the U.S. has run a Trade deficit balanced by a surplus on the Capital account.\u00a0\u00a0 This inflow of capital is the flow of power from the U.S. to foreign creditors.\u00a0\u00a0 Already we are seeing a tendency to try to diversify away from the U.S. dollar.\u00a0\u00a0 If this trend gathers momentum then the overall picture on the Balance of Payments could sink to a deficit.\u00a0\u00a0 How close is it now?\u00a0\u00a0 Or is it happening as foreign investors diversify into other currencies to stave off or reduce the impact on their surpluses of a falling dollar and overweight natures of their dollar holdings.\u00a0\u00a0 It\u2019s bound to happen if only because of prudence.\u00a0\u00a0 And yet the U.S. is doing nothing to address the situation, why not?\u00a0\u00a0 We see that the main beneficiary of a weak dollar would be the U.S. on the trade front as well as on the debt front.\u00a0 So one question that needs an answer is, does the U.S. government want a weak dollar?\u00a0\u00a0 Or is the U.S. government unconcerned at the U.S. dollar\u2019s exchange rate.<\/p>\n

Inevitable weakness<\/h4>\n

It seems that Europe and other nations are more worried about the U.S. dollar exchange rate than the U.S. is.\u00a0\u00a0 This laissez-faire attitude appears to confirm that the U.S. has no intention of protecting the U.S. dollar\u2019s exchange rate.\u00a0\u00a0 For that reason we have to conclude that the U.S. dollar is inevitably headed to more weakness.\u00a0\u00a0 In the past the \u2018top dog\u2019 nature of the U.S. currency meant that the rest of the world had to suck it up.\u00a0\u00a0 Now, it\u2019s only a matter of time before the U.S. is second to China\u2019s economy in the world.\u00a0\u00a0 By 202 the Chinese economy will have doubled and we have no doubt that the Yuan will be the world\u2019s \u2018top dog\u2019 currency, eclipsing the dollar.\u00a0\u00a0 When that happens and it may be well before 2020, the dollar like all other global currencies will have to pay its own bills with goods not simply freshly printed dollars.<\/p>\n

The $ and the \u20ac Gold Price<\/h4>\n

Is it any wonder then that the gold price is rising in the U.S. dollar.\u00a0\u00a0 The euro is, the Swiss Franc, the Pound and other currencies are rising in the dollar too.\u00a0\u00a0 It\u2019s not the gold price rising in the dollar it\u2019s the dollar falling in terms of gold.\u00a0 Likewise other currencies are not rising against the dollar, the dollar is falling against them.<\/p>\n

To get a clearer picture of what is really happening in the gold price one has to look at the gold price in the euro or the Swiss Franc.\u00a0\u00a0 That will reflect demand and supply better.\u00a0\u00a0 We have and will see the gold price rise in the euro for fundamental reasons but for accuracy\u2019s sake we have to relegate the dollar price of gold to second or third place, because that\u2019s more about the dollar than about gold.<\/p>\n

Gold as part of the global monetary system<\/h4>\n

Today we read that the shareholders of the Bank of Italy, the Italian banks want to use the gold held by the central bank to shore up their balance sheets.\u00a0\u00a0 The Bank of Italy has gold reserves of 2451.8 metric tonnes (68.6% of their foreign exchange reserves) at the moment.\u00a0\u00a0 As shareholders assets, by including these reserves at market value, Italian banks look a lot healthier.\u00a0\u00a0 Yes, this is a touch of \u2018cooking\u2019 the books, but it recognizes the fact that gold has a monetary value, recognized in the monetary world.\u00a0\u00a0 In inter-nation currency transactions gold is being used to secure loans.\u00a0\u00a0 It has a de facto role in the monetary system that is getting harder and harder to avoid.<\/p>\n

Could gold be confiscated?<\/h4>\n

Of course gold will never be confiscated for the same reasons it was in 1933 [money supply expansion].\u00a0\u00a0 Its role today can be as collateral for international transactions, as we see it being used now.\u00a0\u00a0 In a global world it is the only real monetary asset that bypasses nations to be global money that is truly mobile.\u00a0\u00a0 Should a nation find itself in trouble, much like these Italian banks, then gold sits there waiting to shore up balance sheets and serve as collateral for international currency swaps for nations with questionable creditworthiness.\u00a0\u00a0 Will the dollar fall into that category once the Yuan is a truly international currency?\u00a0\u00a0 Certainly holding gold will bypass that eventuality.\u00a0\u00a0 Even in the hands of the U.S. government its citizen\u2019s gold could give the dollar a golden hue.<\/p>\n

In China it is understood by all that all assets of the nation including citizen\u2019s gold is the property of the state.\u00a0\u00a0 In the U.S. citizens are allowed the privilege of owning gold and don\u2019t have the right.\u00a0\u00a0 How small a step to confiscating the huge tonnage of citizen\u2019s gold wherever it is.<\/p>\n

news.goldseek.com,\u00a01 March 2011<\/p>\n","protected":false},"excerpt":{"rendered":"

By: Julian D. W. Phillips, Gold\/Silver Forecaster – Global Watch Just take a look at the chart of the U.S. dollar Index and you see a frightening sight.\u00a0\u00a0\u00a0If it sinks any further its support will have evaporated.\u00a0\u00a0\u00a0We have watched all this week the gold price rise and look good in the dollar.\u00a0\u00a0\u00a0But in the euro […]<\/p>\n","protected":false},"author":83,"featured_media":30937,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[846,146,679,607,94,34,922],"tags":[2247,2936,1471,5054,3524,5051],"class_list":["post-30936","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-china","category-italy-eu-members-european-countries-english","category-switzerland","category-uk","category-usa","category-world","tag-dollar","tag-euro","tag-gold","tag-swiss-franc","tag-us-dollar","tag-yuan"],"_links":{"self":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts\/30936","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/users\/83"}],"replies":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/comments?post=30936"}],"version-history":[{"count":0,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/posts\/30936\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/media\/30937"}],"wp:attachment":[{"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/media?parent=30936"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/categories?post=30936"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.turkishnews.com\/en\/content\/wp-json\/wp\/v2\/tags?post=30936"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}