Monday, August 24, 2009

The Doomed Dollar

Ben Bernanke is optimistic about the recovery, and his comments last Friday sparked a rally on Wall Street. But there are other views. Bill Bonner reports:
[D]espite press reports of a recovery, the key indicators of real economic growth are still falling. Almost one out of ten mortgages are now delinquent. And the rate of foreclosures is increasing faster than any time in the last 30 years. Housing prices, meanwhile, fell 16% in the 2nd quarter, from a year earlier, according to the National Association of Realtors.

Unemployment claims went up last week.
Furthermore,
The factories built in China to supply products to America during the bubble years now find they have no market.

Currently, overcapacity and oversupply are causing prices to fall. Falling prices mean rising currency values. Each unit of “money” buys more stuff. But there are many competing currencies, and they don’t all rise and fall together. Even in a world of deflation, some currencies will deflate more than others.

The dollar is, of course, the world’s main money. In a sense, the whole world economy is under its heel. But it is a heel that has never been dipped in the river Styx. It is now a heel that waits for an arrow.

PIMCO is the biggest manager of bond funds in the world. It says the greenback is going to lose its status and lose its value.

“Investors should consider whether it makes sense to take advantage of any periods of US dollar strength to diversify their currency exposure,” says its Emerging Markets Watch report. “The massive amounts of US dollar liquidity produced in response to the crisis” doom the currency.

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