T Nation

Dollar 'Loses Reserve Status'

Dollar loses reserve status to yen & euro
By PAUL THARP

Ben Bernanke’s dollar crisis went into a wider mode yesterday as the greenback was shockingly upstaged by the euro and yen, both of which can lay claim to the world title as the currency favored by central banks as their reserve currency.

Over the last three months, banks put 63 percent of their new cash into euros and yen – not the greenbacks – a nearly complete reversal of the dollar’s onetime dominance for reserves, according to Barclays Capital.

Currently, dollars account for about 62 percent of the currency reserve at central banks – the lowest on record, said the International Monetary Fund.

After printing up trillions of new dollars and new bonds to stimulate the US economy, the Federal Reserve chief is now boxed into a corner battling two separate monsters that could devour the economy – ravenous inflation on one hand, and a perilous recession on the other.

“He’s in a crisis worse than the meltdown ever was,” said Peter Schiff, president of Euro Pacific Capital. “I fear that he could be the Fed chairman who brought down the whole thing.”

Investors and central banks are snubbing dollars because the greenback is kept too weak by zero interest rates and a flood of greenbacks in the global economy.

They grumble that they’ve loaned the US record amounts to cover its mounting debt, but are getting paid back by a currency that’s worth 10 percent less in the past three months alone. In a decade, it’s down nearly one-third.

Economists believe the market rebellion against the dollar will spread until Bernanke starts raising interest rates from around zero to the high single digits, and pulls back the flood of currency spewed from US printing presses.

Economists warn that a jump in rates will clobber stocks and cripple the already stalled housing market.

"Bernanke’s other choice is to keep rates at zero, print even more money and sell more debt, but we’ll see triple-digit inflation that could collapse the economy as we know it.

“The stimulus is what’s toxic – we’re poisoning ourselves and the global economy with it.”

(Full story at: http://www.nypost.com/p/news/business/dollar_loses_reserve_status_to_yen_hFyfwvpBW1YYLykSJwTTEL;jsessionid=65E301CF47ED50D15170F8D6530791C5 )

Right on Obama’s schedule

Shit had I known this was coming I would have kept my money in Europe and not moved it here.

Schiff for the win…this guy has been saying this shit for years. I guess the question would be increase rates or keeps the rates at zero?

[quote]Tiribulus wrote:
Right on Obama’s schedule[/quote]

Come on, dude. There’s hardly any daylight at all between Bush II’s economic policies and Bush III’s. Bernanke started all of this during Bush II with Bush II’s approval.

Those dollars are all sitting in the banks. They were never lent out in the first place.

Either he raises interest rates, defends the dollar, and we give up the doomed-from-the-start “quantitative easing” plan, or he just lets the dollar continue to slide. If he lets it slide, consumers will just keep cutting back and consumption is 2/3 of our economy (lol).

[quote]PRCalDude wrote:
Tiribulus wrote:
Right on Obama’s schedule

Come on, dude. There’s hardly any daylight at all between Bush II’s economic policies and Bush III’s. Bernanke started all of this during Bush II with Bush II’s approval. >>>[/quote]

The difference is Obama and his crew want this to happen.

[quote]Tiribulus wrote:
PRCalDude wrote:
Tiribulus wrote:
Right on Obama’s schedule

Come on, dude. There’s hardly any daylight at all between Bush II’s economic policies and Bush III’s. Bernanke started all of this during Bush II with Bush II’s approval. >>>

The difference is Obama and his crew want this to happen. [/quote]

Want what to happen? The dollar to lose reserve status? That’s a disaster for any and all deficit spending. If the world no longer has to buy up our debt because they’re off the dollar, the federal government will have no way of creating more “benefits” for the people other than good, old-fashioned “tax and spend.” There’s nothing left to tax and there won’t ever be again unless we magically figure out how to keep the baby boomers working until they’re 110 and get the “Demographic of America’s Future” (the Mexicans) into the middle and upper classes en masse. Both are impossibilities.

You seem to think Obama et al are deliberately trying to spoil all of their own fun. Why attribute to malice that which is most likely incompetence?

I can’t assume Tiribulus’ reasoning, but for example:

Charlie Gibson stated to Obama, and Obama did not disagree, that higher capital gains taxation rates than the present value result in lower revenue to the government: that being the case, Mr Obama, why do you want to increase the capital gains taxation rate? (Paraphrase.)

Obama’s reply was because charging a higher rate would be “more fair.”

He didn’t care if revenue was less – it was more important to him to take money at a higher rate out of his sense of what is fair.

Which differs I think a lot from your sense or mine.

Your post seems to presuppose that Obama and friends aren’t looking for a reason to “have” to increase taxation rates, and seems to presuppose that Obama would not like their being a further crisis requiring, according to him, yet more control by government.

It could also be that your post presupposes that Obama does not see more people becoming dependent on government as being a desirable outcome.

My guess is that Tiribulus is not operating under those presuppositions, but perhaps may consider their opposites to be likely.

My take on it: Stanley Mouch is back.

[quote]Bill Roberts wrote:
I can’t assume Tiribulus’ reasoning, but for example:

Charlie Gibson stated to Obama, and Obama did not disagree, that higher capital gains taxation rates than the present value result in lower revenue to the government: that being the case, Mr Obama, why do you want to increase the capital gains taxation rate? (Paraphrase.)

Obama’s reply was because charging a higher rate would be “more fair.”

He didn’t care if revenue was less – it was more important to him to take money at a higher rate out of his sense of what is fair.

Which differs I think a lot from your sense or mine.

[/quote]

With all due respect, Bush II was saying the same things about home loans in 2004 when he really decided to turn on the fire hose of subprimes to Mexicans.

None of these liberals (like Obama) actually think. They just regurgitate the conventional wisdom. I deal with these people all the time where I live. Like Bush II, Bush III is a complete imbecile. He’s done nothing. He’s never had a real job. His only work experiencee involves writing “Dreams from my father” during one of his academic tenures and limp-wristed ACORN organizing done to make him look black enough to black people while avoiding living the nasty existence of those same people he organized. The worst we can expect is someone like Woodrow Wilson where he gets us into another war and throws a lot of us in jail for “sedition.”

You know, I don’t think there was a single thing not only in that post, but in any recent post by me having anything to do with GW Bush, so exactly why you bring him in in response to my post let alone think that a “With all due respect” preface before talking about Bush is required, I have utterly no idea.

I’m unable to remember who has Bush Derangement Syndrome and who does not – well except for the really egregious cases that are memorable – so I just have no knowledge of whether you’re operating from there or not, but really, going on and on about Bush is getting pretty far off track.

If investors and other nations were not seeing these plans for multi-multi-trillions of deficit spending, they would not have lost so much confidence in the dollar. That was within Obama’s control. He deliberately added trillions and is in the process of adding more trillions.

Generally speaking (perhaps not in your case, but generally in terms of effect) the result of going on about Bush in response to Obama disasters has the effect only of excusing Obama. The “buck” is on his desk now; the insane “stimulus” bill was his; and his plans for 9 trillion further added to the deficit in the next 10 years – BEFORE adding in Obamacare – are his plans.

My point in mentioning him is that we should all be used to this by now. Basically, no matter who’s in charge, we’re going to keep having this behavior until there’s no more that can possibly stolen. The world is doing us a favor by tanking our dollar.

I’m not excusing Obama, I’m just pointing out that we’ve had a decade of this, we’re going to have a decade more at least, and there’s really no point in carrying on more about Obama than anyone else.

Basically, we’re about 10 years out from seeing on a national scale what we’re now seeing in California. He can’t add the trillions because no one’s going to buy our debt anymore just the same as California’s bond rating is now like a “D.”

I’d buckle up.

[quote]riverhawk23 wrote:
Schiff for the win…this guy has been saying this shit for years. I guess the question would be increase rates or keeps the rates at zero?[/quote]

I have been following Peter Schiff for a while now, its like that man has a time machine.

Wow. PR is in the right. You guys want to know why this is happening? Look at HH’s graph. This problem isn’t of Obama’s creation. The stimulus was the right move. How do we know? 'Cuz we didn’t fall off that cliff. Schiff may say the sky is still falling, but really we pulled back from that. Their are still a plethora of problems, and reducing the debt/deficit has to move up the list in a short time now. But if you folks think that Obama should have cut spending before this point…well… you either have the libertarian/Schiff belief that the economic foundation is so unsound it has to be broken down and rebuilt or your just being foolish.

Going forward, “G” should be decreased. Period. But you don’t cut government spending in the worst economic crisis since the great depression anymore than you raise taxes at that time. You wait another year for the recovery and do both. Guess when those taxes on those making 250000/year are going to kick in! If Obama is smart he’ll cut government spending at that time too…but we’ll see I guess.

We just drove off the cliff thanks to Obama. We are going to enter inflation. Are you even watching Gold? Gold is at 1066.63 as we speak. What was it at 6-7 months ago? The fact is Peter has been right every step of the way so far, and the collapse that is coming either in 2010 or 2011 is going to be much worse then anything we have ever seen.

The only good news about all this is that when it finally happens the blame bush bullshit should be so overused that Obama may actually have to own up for this monumental failure.

Forced liquidation. Take yer medicine, bitches.

How does the government spend what it doesn’t have? Federal tax receipts are down 40%. All they can do is print money and then sell T-bonds to cover the printed money. The rest of the world finds that wreckless and is now doing something about it.

We tried this in california for 30 years. Every time we had a budget shortfall, we’d float another bond to cover it. Guess who pays back the principle + interest on the bond? The taxpayer. The taxpayer in this state is out of work. Tax receipts are down about 50% here. Also, we can’t float anymore bonds because a) the taxpayers have figured out that we end up paying them back so they won’t vote for them anymore and b) our credit rating sucks so bad that no one will buy them anyway.

Our banking system is insolvent. Our federal government is insolvent. The taxpayer is in debt up to his ears (insolvent). Keeping government spending up is simply impossible as you can’t make money out of nothing.

The same people that are calling for more government spending now were doing it before the crash, so they’re not people worth listening to, I don’t care how many Nobel prizes they give the likes of Krugman.

Wrong. He’s been screaming, “Hyperinflation!” for the longest time and now we’re seeing a deflationary collapse like Japan. Peter Schiff is not early on his call of inflation, he’s wrong. Investors with Euro Pacific have also lost a lot of money, which means that his theories aren’t getting him anywhere real.

[quote]PRCalDude wrote:
The fact is Peter has been right every step of the way so far

Wrong. He’s been screaming, “Hyperinflation!” for the longest time and now we’re seeing a deflationary collapse like Japan. Peter Schiff is not early on his call of inflation, he’s wrong. Investors with Euro Pacific have also lost a lot of money, which means that his theories aren’t getting him anywhere real. [/quote]

???

There is no getting around inflation. He is not wrong. It just hasn’t come home yet…YET!!

You think China isn’t gong to unload its dollars??? When they do all those dollars are coming home and then it is hyperinflation time.

Ignoring this is like trying to ignore the effect of gravity on a falling object.

By the way there is no deflation…that is a contraction of the money supply. The money supply is still being inflated.

[quote]PRCalDude wrote:
He’s been screaming, “Hyperinflation!” for the longest time and now we’re seeing a deflationary collapse like Japan. Peter Schiff is not early on his call of inflation, he’s wrong. Investors with Euro Pacific have also lost a lot of money, which means that his theories aren’t getting him anywhere real. [/quote]

Do you think then that there is no eventual consequence to “printing” (not literally) trillions of added dollars?

Or if you think there is an eventual consequence, how is it not inflation?

Do you believe the consequence will instead be a large decrease in velocity?

If there is no consequence, then how is trillions in value created from nothing?

And the government is getting value for its de novo trillions. So unless value is created from nothing in the process, who is out of equivalent value, and by what mechanism?

[quote]Bill Roberts wrote:
PRCalDude wrote:
He’s been screaming, “Hyperinflation!” for the longest time and now we’re seeing a deflationary collapse like Japan. Peter Schiff is not early on his call of inflation, he’s wrong. Investors with Euro Pacific have also lost a lot of money, which means that his theories aren’t getting him anywhere real.

Do you think then that there is no eventual consequence to “printing” (not literally) trillions of added dollars?
[/quote]

There is a consequence. We’re seeing it in the slide of the dollar.

The printed money went to the banks. In order for it to hit the economy, people and businesses have to take out loans and banks have to be willing to lend the money. Banks have been holding onto the money in anticipation of future losses (more ARMs re-adjusting, foreclosures, etc) and people aren’t borrowing the money because they are already in debt up to their ears. In other words, the credit contraction (which affects the supply of money), overwhelmed the quantitative easing (printing of money) that the Fed tried. All the Fed managed to succeed in doing was driving down the value of the dollar through it’s policy of keeping interest rates at 0 and printing dollars.

We’re only exacerbating our credit problems at this point, which will lead to more of the same cycle we’re in. Japan tried all this in the 1990s, and 20 years later, they’re still trying it. What Japan has that we don’t have is an ethnically homogeneous, high productivity society. Our demographics suggest that we’re losing human capital each and every year, so while Japan could whether their problems, I’m less optimistic about us.

I think we’ve seen that with the credit contraction.

The government thinks it’s getting value. Is it? During the start of the first Great Depression (GDI), they (the government) were saying all of the same things they’re saying now. 10 years later, they were still saying them. The government then tried all the same things the government now is doing. People are operating under the illusion that since we have the FDIC now, things will be better. Well, the FDIC is now insolvent and the only difference between then and now is that we created a lot of wealth between 1945 - 1973 and parenthetically during the late 1990s. Things aren’t as bad because we’re richer, but the decline is the same. Also, we’re only 6-9 months into this thing.

If people think that giving inept and corrupt organizations like AIG and Citi billions of dollars has somehow saved us, then they’ve got another thing coming.