Tag Archives: US dollar

Canadian & International Price Issues: The US Dollar Did It

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Analysts everywhere are reminding us that the US dollar is collapsing, both because of exploding debt in the US, but also because of substantial instability in this country.  Political uprisings in Libya have less to do with instability than rallies like this.

I’ve been warning about the prospect of a collapse in the US dollar for some time and have even invented my own term for the impact that this will have on anyone living outside the US:  interflation.  The US will continue to export its inflation to other countries, punishing us in prices for their inability to control their spending.  It’s the internationalization of inflation that none of us can afford.

The ponzi scheme has to stop.  Gerald Calente has described that food and oil prices will continue to skyrocket in the US and that resulting increases in interest rates will crush any opportunity for growth in the American economy.

This situation is what Jeremy Rifkin calls ‘Economic Endgame’, where the US economy (and the global economy by dependency) ping-pongs between states of uncontrollable and unpredictable deflation and growth hitting a wall because any growth translates to rapid expansion in oil prices (which then results in rapid price increases in most other commodities).

Canada, the EU and other countries around the world can avoid this instability by uncoupling themselves and their economies from the influence of pricing everything in US dollars.  Once they do, appreciation will translate to real price decreases in their own economies, fueling real and natural rates of growth and consumption without inflation.  These growth rates will then translate to real demand for US goods and services, presuming they are willing to make anything any more and not survive on the ‘hand in someone else’s pocket’ economy.

Once again, any politician in Canada would be wise to recommend and run on a platform of price equality and stabilization for Canadians, but that’s very unlikely to happen with our current slate of Harper clones.

Another solution for the US will be to eliminate their outrageous level of defense spending, but right now, it’s the only thing keeping this economy alive.

UN Recommends World Should Ditch Dollar

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It’s about time:  folks at the UN are recommending that the world ditch the US dollar in favour of a shared reserve currency.

Original Reuters story here .

For years (arguably, decades), the US has dominated the world economic scene because they’ve been very effective in having everything trade in US dollars, including commodities, treasuries and other securities.

The commodity shock that the world felt in 2007 / early 2008 was due to the plunging value of the US dollar.  This will happen again and put a lot of people around the world in poor houses, force them out of business and increase their cost of living all so that more McMansions and SUVs can be sold and driven in the US.

This is what I call ‘interflation’.  It’s the internationalization of price increases to suit a specific audience, in this case, the Americans.

However, the small sign from the UN is a show of something bigger and more promising:  the US economy is about to face a massive readjustment.  We know that the reality is that the US will continue to print money.  Obama doesn’t have a choice.  The challenge now is that if settlements and other transactions are done using a basket of currencies instead of just the US dollar, there’s no one to demand US dollars, resulting in a massive devaluation of the US dollar.

Research credit:  Cryptogon.com

US to Lose AAA Rating?

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Please note that any opinions related to this or other articles on this blog do not constitute financial advice. Any action that you take should be done so only with the advice and support of a financial planner or registered advisor.

The US is about to lose its AAA financial rating .

The thought ‘no shit’ is the first to come to mind.  These people are printing money faster than Bolt might run the 100 metre dash, and they don’t seem to show any concern what-so-ever that the meltdown in the markets is structural and that the cause is the Federal Reserve.  It is not the solution.

I’m sure we can examine the cause for some time.  The root for me is greed, but maybe some of you have other opinions?

For the effect?  The end result of this?

Most analysts will immediately say that the US will have to increase interest rates in order to attract more buyers of their own toxic debt.  As credibility goes down, rates have to go up to reward capital suppliers for greater risk.

Another important impact is that the value of the US dollar (say, compared to a basket of other currencies) will plummet.  It’s had a brief run upwards, largely because of the need for derivatives traders to cover positions over the last 2-6 weeks.

If you’re wondering why the dollar will fall despite the fact that it’s jumped a little in the last few weeks, just think in terms of supply and demand.  The Federal Reserve and the US government have made commitments to possibly double or triple the volume of ‘cash’ in the marketplace.

The simple laws of economics cannot be ignored:  with excessive supply comes a drop in value.  The vast supply that has been created will trickle into the system over the next 2-6 months and the result will be to ‘lubricate’ the US economy.  I don’t think we’ll see a hike in inflation within the US for some time, given that there are so many other structural issues now (no housing market, no auto demand, etc).

As the US dollar drops, remember my term for what will come next:  ‘interflation’.  This is the exporting of inflation to the rest of the world at the benefit of the US as a result of most commodities being priced in US dollars.  Because we’re still stupid enough to tie all of the international prices of commodities to a single currency (ie. the US dollar), the prices of all of these will take the exact opposite turn.  They will increase as the dollar falls.

So … enjoy the cheap gas and low-cost rice and corn while you can because they’ll return to the price levels that they were back in early 2008.

International Price Hikes Coming?

In the past, I’ve tried to assess the impact that the declining US dollar has on international commodity prices.  Link 1Link 2Link 3 .

At the core, I believe that we (as global citizens) are making a mistake by tying our commodity prices and products to the US dollar.  To quote the old adage "you don’t put all of your eggs in one basket".

As the US dollar depreciates, which is inevitable given the level of debt that the government has issued in order to finance wars across the globe, commodity prices rise because there is a basic and simple inverse relationship.  As the dollar drops further compared to more stable currencies like the Euro, the increase in prices actually becomes exponential.

In recent months, price increases have also been tied to speculation and manipulation, something that should be investigated a little further given the calamity that has resulted from these actions.

Now, over the last few days, the Chinese government has declared that they may start to cut their US dollar holdings.  Full story here .  China currently holds nearly $2 trillion in US currency and this, according to many of their advisors, is just a little too much.  No kidding.

Once a sell-off starts, we should expect the dollar to start to plummet again, resulting in a sharp increase in commodity prices (again).  The recent drops in oil and other commodities should be appreciated while they last.

Of course, I’m going to tie this all back to the Canadian election:  what are we doing to protect us from these gyrations, none of which we can control?  Do we price oil in Canadian dollars or even Euros, like other resource-rich countries have?  What do you think?

The Dollar is Doomed and the Fed’s Days are Numbered

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Most of the non-digital media that I stumble upon like radio and the occasional TV news report rarely identify the fact that the US dollar has tanked so substantially over the last 7 years. The policies of the Bush administration have been a disaster – for most.

And the point of all this: the last 30 seconds of this video interview with Jim Rogers offer some insights that I think we can appreciate:

The American Central Bank is a disaster. It’s causing huge inflation in the world, not just in America. It is so bad – you can write this down -that I suspect that the American Central Bank will disappear within the next decade.