Best of the Week
Most Popular
1.Gold Price Target of USD 2,300 - GoldCore
2.Greece Banking System Collapse Monday as ECB Pulls the Plug, Capital Controls Ahead of GrExit - Nadeem_Walayat
3.Why British Muslims Are Leaving Elysium Paradise for Syrian Hell - Nadeem_Walayat
4.Greece BANKRUPT! Financial and Economic Collapse to Follow IMF Debt Default - Nadeem_Walayat
5.Extreme Gold/Silver Shorting - Zeal_LLC
6.European Empire Strikes Back Against Greek Debt Fantasy, Counting Down to GREXIT - Nadeem_Walayat
7.Gold And Silver – Three Choices: Sell, Hold, Hold and Add. A Trading Treatise - Michael_Noonan
8.Gold and Silver Price Headed for Breakdown - Jordan_Roy_Byrne
9.Greece Crisis OXI - Raul_I_Meijer
10.Flatline Investing and Dead End Debt Schemes - Doug_Wakefield
Last 5 days
The Pentagon’s 2015 Strategy For Ruling the World Through Endless War - 5th July 15
United States Celebrates the Disastrous Secession From Great Britain - 5th July 15
Greece Referendum Vote Result Forecast Yes Win, But Depression Will Continue - 5th July 15
The Great Greek Economic Depression - 4th July 15
Happy 4th of July Stock Market Analysis - 4th July 15
The Most Pressing Reason Yet You Want to Avoid Investing in Retail Stocks - 4th July 15
Fed’s Full Normalization and the Stock Market - 3rd July 15
The U.S. Dollar's 2014-2015 Rally: Wave 3 in Action - 3rd July 15
Stock Market Where are we? And where are we Going? - 3rd July 15
Xi’s Anti-Corruption Campaign Is Key to China’s Prospects - 3rd July 15
How the New Iranian Nuclear Deal Will Impact Crude Oil - 3rd July 15
China's Stock Market Rollercoaster Ride Continues - 3rd July 15
Gold Stocks Cheap to Buy but Not for Long - 3rd July 15
Capital Controls and a Bank Holiday in Greece… Here’s How You Can Profit - 3rd July 15
Greece's Varoufakis: I will Resign if there's a 'Yes' Vote - 2nd July 15
The Student Loan Bubble: Gambling with America’s Future - 2nd July 15
Inflation Is Lurking, but This Asset Can Protect You - 2nd July 15
Three Total Wealth Stock Investor Tactics You’ll Need Because Greece Isn’t Over - 2nd July 15
Why This $5.6 Trillion Investor Profit Boom Is Set To Take Off - 2nd July 15
Greek Debt Crisis: "Too late to prepare now" - Video - 2nd July 15
Guaranteed US Dollar Death Dynamics - 2nd July 15
The Greek Stress Test & The Reality Of Incremental Changes - 2nd July 15
Forget Drachmas Greece Syriza Government Could Instruct Central Bank to Print Euros! - 2nd July 15
Greece Debt Crisis Trigger for Stock Market Crash or Bull Rally? Video - 1st July 15
Gold Stocks Break Below 2008 Low - 1st July 15
SPX Stock Market Retracement May be Over - 1st July 15
Silver Tunnel Vision 'Experts' - 1st July 15
Gold And Silver - Monthly, Quarterly Ending Analysis - 1st July 15
Europe’s Controlled Demolition - 1st July 15
The End of Dow 18,000; Bailouts No Longer Extended  - 1st July 15
Athens Mayor: Greek Government Should Resign - 1st July 15
China Stocks - This Is What a Bubble Looks Like - 30th June 15
Stocks Plunge on Greece Euro-Zone Financial Armageddon Blackmail - 30th June 15
Greece Crisis Shows Importance of Gold as Europeans Buy Coins and Bars - 30th June 15
Stock Investors Express Route to Profits in the Healthcare Sector - 30th June 15
Beyond the Greek Impasse - 30th June 15
Gold GDXJ : Impulse Move Pending - 30th June 15
Fed Interest Rate Increase Could Be Best Thing to Happen to Gold - 30th June 15
Marc Faber - Greece is Basically Bankrupt - 30th June 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

China Stocks - Where are they going?

U.S. Government Shutdown: Next Step Dollar Collapse?

Politics / US Dollar Oct 04, 2013 - 10:27 AM GMT

By: Sahil_Hafeez

Politics Not a single person might make a conciliatory sentiment for rehashing cautioning that, on account of the grim Obama administration and Republicans, Uncle Sam is closed down. Genuine monetary analysts are currently anticipating mobs in the streets that there is presently nothing the USA can do to avert the fall of its currency, and its economy. It has no reserves to back its worth, and has the most indebted country in the world, is dependant of the credit from America's previous foes.


Throughout the most recent numerous days, both Russia and China have said they will be exchanging their impressive dollar holds into Euros. It will soon achieve the sum downfall of the dollar, and the American economy. Hence, every living soul needs to make one thing richly clear; it is not a matter provided that US is set to have a currency collapse, it is when. And when is much sooner than later. It could happen tomorrow, one month from now and even one year from now. Here I want to include a quote from James Rickards, the creator of "Currency Wars," says this:

This was the analysis and bits of hearsay of worldwide markets. Right away we should observe how it is conceivable dollar might collapse by offering my replies to some essential inquiries for those financial commentators.

What is a dollar crash (cave in)?

A dollar cave in (collapse) is the point at which the worth of the dollar falls so quickly that every one of the aforementioned who hold the dollar panic, and offer them at any expense. In this situation, sellers might incorporate: foreign governments who hold U.S. Treasuries, traders in exchange rate futures who exchange the dollar versus different currencies, and individual speculators demand assets denominated in anything other than dollars. The fall of the dollar implies that everybody is attempting to offer their dollar-denominated assets, and not a single person needs to purchase them, driving the worth of the dollar down to close to zero.

What are the explanations why the U.S. dollar turns down? Will it harm or help the U.S. economy? Right enough to make a complete crash of the dollar, as the large groups (financial commentators) are cautioning?

The dollar decreases when it loses value in relationship to foreign currencies. When this happens, the dollar can purchase fewer foreign goods, expanding the cost of imports and creating inflation. Furthermore, investors in U.S. Treasury bonds will sell their dollar-denominated holdings.

What might make this happen (Dollar breakdown)?

Numerous conditions must be set up soon after the dollar could break down.

 There must be an underlying shortcoming.
 There must be a reasonable currency alternative for everybody to charge into.
 A triggering occasion might need to happen.

The leading condition does exist. The dollar declined 51% against the euro between 2002 and 2013. Why? The U.S. debt more than tripled throughout that time period, from $5.9 trillion to $16.738 trillion. This expands the chance the U.S. will let the dollar's worth slide, permitting it to repay the debt with cheaper money.

Is there a reasonable alternative to the dollar?

The dollar's value is strong as measured by central bank reserves. The dollar imparts of IMF reserves totaled $3.76 trillion in the second quarter from $3.766 trillion in the first quarter, as per the IMF, or about 61.9 percent of aggregate reserves. The following most well known currency is the euro reserves rose to US$1. 446 trillion or 23.8 percent of the sum, in the second quarter from $1.431 trillion in the first quarter. The yen's impart tumbled to 3.8 percent in the second quarter from 3.9 percent in the earlier quarter.

Countries in the euro region fringe, for example Greece, Italy, Portugal, and Spain, France yet to have recouped from past enormous capital flight and euro zone turns from financial to political crisis have debilitated the euro as a viable alternative to the dollar as a worldwide currency.

What event could bring about dollar breakdown?

China and others have contended for a new global currency. Nonetheless, replacing the dollar might be a massive undertaking, might require incredible worldwide resolve and not happen rapidly.

Out and out, foreign countries claim $5.1 trillion dollars in U.S. debt (as of May/2013). In the event that China, Japan or other major holders began disposing these holdings of Treasury notes on the secondary market, this could make a panic leading downfall. China possesses more than $1.31 trillion in U.S. Treasuries. That is since China pegs its currency, the Yuan, to the dollar. This keeps the costs of its exports to the U.S. moderately cheap. Japan possesses more than $1.11 trillion in Treasuries, likewise keeping its currency, the yen, low to animate exports to the U.S. Japan is attempting to move out of a 15 year deflationary cycle, and the 2011 earthquake and nuclear disaster haven't made a difference.

China and Japan can, yet won't, brings about dollar breakdown? Might China and Japan ever truly isn't that right?

Just provided that they saw their holdings declining in value too quick and they had an alternate market to offer their products to. The economies of Japan and China are reliant on U.S. consumers. They realize that assuming that they sell their dollars, their products will cost more in the U.S. and their economies will endure. At this time, it’s still in their best interest to hold onto their dollar reserves. China and Japan are selling progressively to other Asian countries, which are continuously getting wealthier. Then again, the U.S. is still the best market on the planet.

How does China shake U.S. dollar's value? Why does China inherently so much U.S. debt?

China has altered the worth of its currency, the Yuan, to the dollar. At present, a dollar is worth 6.12 Yuan. Numerous experts suppose it is misleadingly low. Provided that China permitted its currency to float freely, it might be more valuable than the dollar in view of China's solid economy, and it might rise. China does this to keep its products cheaper than U.S. products, hence expanding its exports to the U.S.

The only way China can keep the Yuan misleadingly low is to guarantee to recover dollars for Yuan at the settled rate. To do this, it should keep a great supply of dollars available for reserve. Rather than holding dollar bank bills, it holds U.S. Treasuries, which it can rapidly sell for dollars. As China's economy develops, it should purchase more U.S. currency to meet the growing number of Yuan.

Provided that it did happen (dollar crumple), what might happen next?

A sudden dollar fall might make worldwide monetary turmoil as investors hurry to different currencies, for example the euro, or different assets, such as gold or different items. Demand for Treasuries might dive, driving up interest rates. Import costs might skyrocket, bringing about inflation.

U.S. exports might be extremely inexpensive, boosting the economy quickly.

Conclusion: Why the dollar won't fall

Numerous say the dollar won't fall in light of the fact that

 It’s backed by the U.S. Government, making it the world's safe harbor currency.
 It’s the all inclusive medium of trade, on account of the U.S. (still generally) complex financial markets.
 The major oil contracts are still priced in dollars.

Many in Congress need the dollar to decay in light of the fact that they accept it will help the U.S. economy. A weak dollar brings down the cost of U.S. exports with respect to outside goods, making U.S. products more focused. Indeed, the decrease in the dollar served to enhance the U.S. Trade Deficit in 2012. Obama. Republicans and FED might have not been worried about dollar freely declining its value. It would help U.S. to cover the trade deficit. (Obama, Republicans and FED drama behind delay in tapering and the government shut down)

On the other hand, the fall of the dollar will throw the planet into a worldwide misery. Those countries with huge outside debt won't trade sufficient to procure the income to service their debts, and will slide into bankruptcy. The economies of Europe, New Zealand, Australia, Canada and the UK will likewise completely crumple, as an aftereffect of their indebtedness and not having the ability to service their borrowings. The Asian economies, which have hinged on American trade, will additionally be extremely influenced. Be that as it may, they will recuperate after a period, however just after significant political and economic turmoil. Despite the fact that the dollar has declined incredibly throughout the most recent ten years, it has not yet made a breakdown. It's not to the greatest advantage of most nations to permit this to happen; since it might diminish the value of their dollar holdings.

By Sahil Hafeez
Financial Analyst

sahilhafeez@ymail.com

Qualifications: MBA, CFA, FRM

Current City: Hong Kong

© 2013 Copyright  Sahil Hafeez - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Biggest Debt Bomb in History