In case you listen to George Bush about the strength of the U.S. economy, this might be a bit of a surprise. Ladies and Gentlemen, our fiscal solvency is in the shitter and that might be better if I was saying that literally. Figuratively speaking, the dollar is taking a beating today and the last few months and years might just be the beginning of it. A long time ago (1970s approx.) the British Pound was worth the same as one of our greenbacks. Now it is trading one to $2.10 and the Euro is now valued at $1.47. A few years ago you could get a Euro for eighty cents. Why is this happening to us? Well.....
From The Guardian:
Analysts said today's falls had been sparked by comments made by Cheng Siwei, vice chairman of China's National People's Congress. He told a Beijing conference on Tuesday that China would "favour stronger currencies over weaker ones, and readjust accordingly".
A vice director of China's central bank, Xu Jian, was also quoted as telling the conference that the dollar was "losing its status as the world currency".Thanks to China's booming exports, the country now holds the largest reserves of foreign currency in the world. The People's Bank of China reported last month that at the end of September, China's foreign reserves were worth $1.434 trillion.
Adam Cole of RBC Capital Markets said this morning that the comments from the two Chinese officials had "clearly been the catalyst" for the latest dollar weakness.
This isn't China's fault however, at least not entirely. The status of the dollar has been weakening and the American trade deficits definitely figure prominently into the mix. Chinese statements might have been the catalyst for today's decline, but that isn't the only country that can spell disaster for the dollar.
From Currency Trading:Countries are growing weary of losing money on the falling dollar. Many of them want to protect their financial interests, and a number of them want to end the US oversight that comes with using the dollar. Although it’s not clear how many of these countries will actually follow through on an abandonment of the dollar, it is clear that its status as a world currency is in trouble.
Obviously, an abandonment of the dollar is bad news for the currency. Simply put, as demand lessens, its value drops. Additionally, the revenue generated from the use of the dollar will be sorely missed if it’s lost. The dollar’s status as a cheaply-produced US export is a vital part of our economy. Losing this status could rock the financial lives of both Americans and the worldwide economy.
Most Americans aren't too aware of this potential and very likely economic catastrophe. China has taken care of the dollar despite it's weakness so that they could continue to flood the U.S. market with cheap goods and spike their manufacturing output. Yet that track can only be a downward spiral in the eyes of economists that can think long-term, eventually this is going to catch up to us.....and the future isn't as far off as it seems.
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