By Chuck Missler
It is no secret that the US dollar has been struggling. In fact, during the past three months, banks have been putting 63 percent of their new cash into yen and euro, and only 37 percent into the dollar. This new trend away from the dollar as a reserve currency is no surprise considering current rock bottom interest rates coupled with the mountains of cash the Federal Reserve has been printing. A mere 62 percent of the currency reserve at central banks are in dollars right now, and that does not bode well for American prosperity.
The current administration may not be as discouraged by the situation as one might think. As Bond buyer Bill Gross of the Pimco said in a recent CNBC interview,
"I think that's part of the administration's plan. It's obviously not announced — the 'strong dollar' is always the policy, so to speak. One of the ways a country gets out from under its debt burden is to devalue."Yet, David Malpass noted recently in The Wall Street Journal,
"No countries have devalued their way into prosperity."It's a great time to borrow capital in dollars, with low interest rates and steady inflation promising a less painful future pay-off. The steady flow of the dollar for off-shore production and manufacturing offers some assurance of wealth for foreign investors, but doesn't secure a lot of help for America. Malpass writes:
"If stocks double but the dollar loses half its value, who beyond Wall Street are the winners and losers? There's been a clear demonstration this decade. The S&P nearly doubled from 2003 through 2007. Those who borrowed to buy won big-time. Rich people got richer, seeing their equity bottom line double. At the same time, the dollar's value was cut nearly in half versus the euro and other stable measures. Capital fled, undercutting job growth. Rent, gasoline and food prices rose more than wages."In other words, America needs a strong, stable dollar. Instead, the dollar is in the decline and will continue to sweep downward as long as interest rates remain low and money-printing remains high. Cheap interest rates are helping spur investors so that the economy can build back up, but at the same time are pulling the financial carpet from under our feet.
World leaders also want a strong, stable dollar. They are not happy about the rise of their own currencies next to the dollar, because their exports therefore become more expensive and less likely to sell in the US market. Countries like China, which are holding vast amounts of dollars, don't want to see their investment lose value.
As the dollar continues to fall, it is being replaced as the dominant reserve currency, and we can almost hear voices calling for a single global currency to settle the mess. In March Governor Zhou Xiaochuan of China's central bank advocated for a super sovereign reserve currency, saying:
"The desirable goal of reforming the international monetary system, therefore, is to create an international reserve currency that is disconnected from individual nations and is able to remain stable in the long run, thus removing the inherent deficiencies caused by using credit-based national currencies."Implementing a global currency would currently present tremendous diplomatic challenges, and the headaches necessary to create it are not yet seen as necessary by most world leaders. Yet, Revelation 13 speaks of a time when all the economies of the world are tied together so that the Coming World Leader is able to require every human on earth to receive a mark in order to buy or sell.
For now, China could do very well to work toward helping strengthen the dollar. If China and those holding large numbers of US dollars want the dollar to stabilize, they should purchase more US goods and services, and help the US economy grow strong.
Deficit Dilemma: How to Dig Out? - Wall Street Journal
Oil crosses $77 for first time in 2009 - CNNMoney.com
Wall St. in Neutral after Hitting 10,000 - CBS News
Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says - Bloomberg
Cashless: Bible Prophecy, Economic Chaos, and the Future Financial Order - Mark Hitchcock (Book)