Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Gold & Silver Begin New Advancing Cycle Phase - 6th May 21
Vaccine Economic Boom and Bust - 6th May 21
USDX, Gold Miners: The Lion and the Jackals - 6th May 21
What If You Turn Off Your PC During Windows Update? Stuck on Automatic Repair Nightmare! - 6th May 21
4 Insurance Policies You Should Consider Buying - 6th May 21
Fed Taper Smoke and Mirrors - 5th May 21
Global Economic Recovery 2021 and the Dark Legacies of Smoot-Hawley - 5th May 21
Utility Stocks Continue To Rally – Sending A Warning Signal Yet? - 5th May 21
ROIMAX Trading Platform Review - 5th May 21
Gas and Electricity Price Trends so far in 2021 for the United Kingdom - 5th May 21
Crypto Bubble Mania Free Money GPU Mining With NiceHash Continues... - 4th May 21
Stock Market SPX Short-term Correction - 4th May 21
Gold & Silver Wait Their Turn to Ride the Inflationary Wave - 4th May 21
Gold Can’t Wait to Fall – Even Without USDX’s Help - 4th May 21
Stock Market Investor Psychology: Here are 2 Rare Traits Now on Display - 4th May 21
Sheffield Peoples Referendum May 6th Local Elections 2021 - Vote for Committee Decision's or Dictatorship - 4th May 21
AlphaLive Brings Out Latest Trading App for Android - 4th May 21
India Covid-19 Apocalypse Heralds Catastrophe for Pakistan & Bangladesh, Covid in Italy August 2019! - 3rd May 21
Why Ryzen PBO Overclock is Better than ALL Core Under Volting - 5950x, 5900x, 5800x, 5600x Despite Benchmarks - 3rd May 21
MMT: Medieval Monetary Theory - 3rd May 21
Magical Flowering Budgies Bird of Paradise Indoor Grape Vine Flying Fun in VR 3D 180 UK - 3rd May 21
Last Chance to GET FREE Money Crypto Mining with Your Desktop PC - 2nd May 21
Will Powell Lull Gold Bulls to Sweet Sleep? - 2nd May 21
Stock Market Enough Consolidation Already! - 2nd May 21
Inflation or Deflation? (Not a silly question…) - 2nd May 21
What Are The Requirements For Applying For A Payday Loan Online? - 2nd May 21
How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part1 - 1st May 21
INDIA COVID APOCALYPSE - 1st May 21
Are Technicals Pointing to New Gold Price Rally? - 1st May 21
US Dollar Index: Subtle Changes, Remarkable Outcomes - 1st May 21
Stock Market Correction Time Window - 30th Apr 21
Stock Market "Fastest Jump Since 2007": How Leveraged Investors are Courting "Doom" - 30th Apr 21
Three Reasons Why Waiting for "Cheaper Silver" Doesn't Make Cents - 30th Apr 21
Want To Invest In US Real Estate Market But Don’t Have The Down Payment? - 30th Apr 21
King Zuckerberg Tech Companies to Set up their own Governments! - 29th Apr 21
Silver Price Enters Acceleration Phase - 29th Apr 21
Financial Stocks Sector Appears Ready To Run Higher - 29th Apr 21
Stock Market Leverage Reaches New All-Time Highs As The Excess Phase Rally Continues - 29th Apr 21
Get Ready for the Fourth U.S. Central Bank - 29th Apr 21
Gold Mining Stock: Were Upswings Just an Exhausting Sprint? - 29th Apr 21
AI Tech Stocks Lead the Bull Market Charge - 28th Apr 21
AMD Ryzen Overclocking Guide - 5900x, 5950x, 5600x PPT, TDC, EDC, How to Best Settings Beyond PBO - 28th Apr 21
Stocks Bear Market / Crash Indicator - 28th Apr 21
No Upsetting the Apple Cart in Stocks or Gold - 28th Apr 21
Is The Covaids Insanity Actually Getting Worse? - 28th Apr 21
Dogecoin to the Moon! The Signs are Everywhere, but few will Heed them - 28th Apr 21
SPX Indicators Flashing Stock Market Caution - 28th Apr 21
Gold Prices – Don’t Get Too Excited - 28th Apr 21
6 Challenges Contract Managers Face When Handling Contractual Agreements - 28th Apr 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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.


© 2005-2019 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