The United States Dollar is Slipping

The United States dollar! Is anyone paying attention? The greenback is slipping. But in all the commotion hardly anyone seems to notice. We checked this morning and found the euro priced at nearly $1.33.

What could go wrong? Well, the U.S. dollar could continue slipping.

Now, let us imagine that you have the world’s biggest stash of money, which today is more than $1 trillion. No one ever had such a big pile. But let us imagine that the money isn’t really yours. You have been put in to manage it on behalf of the People’s Republic of China. And if you lose it, the people aren’t going to be very happy.

Now, about 70% of that money – $700 billion or so – are in dollars.

You have already gone on record as saying you intended to diversify out of dollars. You expect to do it in an orderly way. But with the dollar going down, you realize that when you finally do diversify you’re going to get less for your dollars than you could get now. In fact, if the dollar falls 5 cents against the euro, you have effectively lost 5% of your dollar holdings – or $35 billion. Hmmmm…what will the people say?

What if the dollar goes down 10%? Hmmm…now you’re talking serious money.

Of course, this is not the first time we have posed this question: Why don’t the people with serious money at stake move to protect themselves? And how come the dollar has, so far, resisted our predictions. With a current account deficit at 6% of GDP, it seems obvious that the dollar must fall. So must it fall when the carry traders unwind their trades. Many borrowed yen to buy dollars. When they get out of their positions they will have to sell dollars and buy yen. The dollar should fall. But it doesn’t. Or it hasn’t. Yet.

There is always tomorrow. Time will sort it out.

Bill Bonner
for Markets and Money

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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