CNBC Writes: De-crowning the dollar, and the ‘collapse’ ahead

 

The gradual erosion of the U.S. dollar’s status as the world’s reserve currency has been greatly hastened of late. This is due not only to the perpetual gridlock in D.C., but also our government’s inability to articulate a strategy to deal with the $126 trillion of unfunded liabilities.

Our addictions to debt and cheap money have finally caused our major international creditors to call for an end to dollar hegemony and to push for a “de-Americanized” world.

China, the largest U.S. creditor with $1.28 trillion in Treasury bonds, recently put out a commentary through the state-run Xinhua news agency stating that, “Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated.”

In addition, Japan (our second largest creditor holding $1.14 trillion of U.S. debt) put out a statement through its Finance Minister last week saying, “The U.S. must avoid a situation where it cannot pay, and its triple-A ranking plunges all of a sudden.”

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I disrespectfully disagree with CNBC once again (no surprise there) for a couple of reasons.   

1.  As of  right now there is no alternative to the US Dollar to even attempt any kind of a shift. Chinese Yuan is not a freely traded currency yet and if anything it is still decades away from any sort of an attempt. Plus, China is in the midst of its own Economic Bubble that is surely to blow up soon.  Euro? Not a chance. Europe is a basket case and a one common sense politician away from breaking up.  Bottom line is, there is no currency out there to replace the USD. Yes, the US has its a share of problems, but so does everyone else.

2. USD Collapse?  What collapse?  Listen, we have to make a distinction between Credit Outstanding (which is a huge problem in the US) and the Actual Currency Dollars available. The former is a lot less than Credit Outstanding. That means the demand for USD needed to repay these huge balances will go up substantially over the next decade, pushing the dollar ever higher.

That is one of the reasons I am so bullish on the USD.  While it remains everyone’s favorite target, the USD fundamentals and technicals are looking very good. I would anticipate the USD to appreciate substantially over the next few years. 

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