When will the US dollar and bonds start to weaken again?
Posted on 07 December 2011 with 7 comments from readers
For the moment the US dollar is winning hands down as a safe haven currency. But we all know this cannot last forever as the US has accumulated huge debts that it can never repay and is running a seriously damaging budget deficit.
Dollar devaluation and inflation is what the Fed would like to achieve with all its electronic money printing. Eventually it will get what it wants and then some. Inflation is a difficult genie to get back in the bottle.
Trump card
So the short-term strength of the US dollar can only be that as the least dirty card game in town. The US looks terribly well organized compared to the shambles that is the eurozone.
But once the problems that make the euro look so unattractive are resolved – either by a financial market collapse or the issuing of eurobonds to replace the debt of bankrupt nations – then the dollar will be toast.
Goldman Sachs has the dollar weakening as 2012 progresses for that reason. Presumably there will be more money printing with a QE3 to drive this process along.
Investors now parked in dollar assets – and more than 100 billion euros was pulled out of French banks last month – should pay attention. Devaluation and inflation is money lost in real terms.
You also do have to wonder about US bond market where most people park their dollars. This has all the classic symptoms of an overblown bubble about to burst. And the returns are lousy for the risk of this implosion.
This is why ArabianMoney is very confident that we have not seen the real all-time highs for gold and silver this year. For as money exits the US dollar it will not all flow into euros or yen partly because confidence in those economic zones is still going to be weak.
US bond crisis coming
We see the scope for an enormous and rather sudden shift into gold and silver as real assets beyond the control of any inflating central bank. They will have to print to save Europe or print to save the world from the collapse.
Either way the holders of real assets whose value does not depend on paying dividends will benefit from rising nominal values and then we will see a speculative boom in the precious metals as an asset class rather like the US treasury bubble today.
But investors who sit tight now in dollar cash are missing the next big opportunity and may end up with devalued dollars rather sooner than they think. Have we not learnt yet that financial markets have gotten hellishly volatile!
7 Comments posted by readers:
It already has. And should accelerate weakening after the Friday summit, at which they will announce some agreement. It won’t have to be very substantive, as long as they agree on something, no matter how trivial, markets will temporarily act as if everything will be fine. You can build up debt for a long time if you can print some money like governments can. (I wish I could do that, so that I could buy the Frank Sinatra mansion that just went on the market near L.A. They say President JFK and Marilyn Monroe used to hook up there.)
Dylan Ratigan has several good articles and interviews about the danger of the $700 trillion global swaps market on his web site, http://www.dylanratigan.com He is one very gifted fellow. If I was that smart, I would be calling the real estate agent about the Citibank heiress house on Ferralone Avenue that Sinatra leased today. But I had to settle for the 50 photo tour on the RE agent web site. The traffic in L.A. is terrible anyway.
nice analysis,, this is what is most likely to happen, any way or another,, the usd is toasted,, doesn’t matter how or why…
Really sensible stuff, Ed.! I wonder how Stephanie’s “May 2013″ for silver above $50 fits into what you have described. I don’t personally think it does.
I like the picture! The US falling flat on its dollar face!
They are in a catch-22 with their bond market, I reckon. They cannot pay the bonds back without printing more dollars. So, they pay their bonds back with dollars worth far, far less than what the investor bought them for.
And the yield is ridiculous, as you say, for the reality of dollar devaluation and US bond market bubble explosion. Why DO people do this? Gadarene swine, I think!
Investments in g & s have been as high as 30-40% of all total invested wealth in the past. I simply don’t see why those events should not repeat themselves at the present time. And long before 2013, I suggest!
i like the new look peter.
i agree, this deal far from over…….somewhere around the end of the beginning is all.
Gotta agree with you Peter, that the USD is no place to be in the long term. The USD is truly trash, and the banking elite, in order to preserve their tremendous influence, have succeeded in deluding the general public that gold and silver are not a “safe haven.”
But in this “interim” period before the next big storm, the flight to quality is still to the USD primarily; today the banking elite, led by JPM, is busy suppressing the paper gold and silver prices. This is an excellent time to buy more of the physical stuff.
Asian exporters are starting to cry here in Asia so I doubt that the Asian currencies will rise much further from here against the USD. It is more in their interest here in Asia that the Asian currencies fall against the USD and I have a good feeling that some where in the near future this will start to happen but as far as the EURO is concerned I think we will see 1.20 to the USD some time soon. 1 to 1 may also be something possible down the road.
The editor recommended USD cash holdings a few posts back.
Ed: Yes so you need to think about when to dump the dollar in the future…