On the waning power of the US dollar

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You must surely have encountered many stories or economic pointers or market signs that indicate the waning power of the US dollar. They are frequent enough, and not without reason. The fact is that despite the still considerable punch left in the US dollar we are now living through the end stage of its global dominance. Indeed its relevance diminishes every day.

You may have read the article ICT tweeted recently. If not, you can read it here:

If you come across any articles referencing the USD's decline please post them in this thread. I think it could make for some interesting reading over time. Obviously too, if you want to discuss any of the posts just go for it.
Here is an article that refers to the way the USD can be used and abused by US foreign policy. This type of insight weakens the dollar simply by exposing a way the US might be seen as seeking to support the dollar. Anyway, it's an interesting viewpoint that is as entertaining as it might be informative.
Putin's aide proposes anti-dollar alliance to force US to end Ukraine's civil war

Sergey Glazyev, the economic aide of Vladimir Putin, published an article outlining a plan for "undermining the economic strength of the US" in order to force Washington to stop the civil war in Ukraine. Glazyev believes that the only way of making the US give up its plans on starting a new cold war is to crash the dollar system.

In his article, published by Argumenty Nedeli, Putin's economic aide and the mastermind behind the Eurasian Economic Union, argues that Washington is trying to provoke a Russian military intervention in Ukraine, using the junta in Kiev as bait. If fulfilled, the plan will give Washington a number of important benefits.

Firstly, it will allow the US to introduce new sanctions against Russia, writing off Moscow's portfolio of US Treasury bills. More important is that a new wave of sanctions will create a situation in which Russian companies won't be able to service their debts to European banks.

According to Glazyev, the so-called "third phase" of sanctions against Russia will be a tremendous cost for the European Union. The total estimated losses will be higher than 1 trillion euros. Such losses will severely hurt the European economy, making the US the sole "safe haven" in the world. Harsh sanctions against Russia will also displace Gazprom from the European energy market, leaving it wide open for the much more expensive LNG from the US.

Co-opting European countries in a new arms race and military operations against Russia will increase American political influence in Europe and will help the US force the European Union to accept the American version of the Transatlantic Trade and Investment Partnership, a trade agreement that will basically transform the EU into a big economic colony of the US. Glazyev believes that igniting a new war in Europe will only bring benefits for America and only problems for the European Union. Washington has repeatedly used global and regional wars for the benefit of the American economy and now the White House is trying to use the civil war in Ukraine as a pretext to repeat the old trick.

Glazyev's set of countermeasures specifically targets the core strength of the US war machine, i.e. the Fed's printing press. Putin's advisor proposes the creation of a "broad anti-dollar alliance" of countries willing and able to drop the dollar from their international trade. Members of the alliance would also refrain from keeping the currency reserves in dollar-denominated instruments. Glazyev advocates treating positions in dollar-denominated instruments like holdings of junk securities and believes that regulators should require full collateralization of such holdings. An anti-dollar coalition would be the first step for the creation of an anti-war coalition that can help stop the US' aggression.

Unsurprisingly, Sergey Glazyev believes that the main role in the creation of such a political coalition is to be played by the European business community because America's attempts to ignite a war in Europe and a cold war against Russia are threatening the interests of big European business. Judging by the recent efforts to stop the sanctions against Russia, made by the German, French, Italian and Austrian business leaders, Putin's aide is right in his assessment. Somewhat surprisingly for Washington, the war for Ukraine may soon become the war for Europe's independence from the US and a war against the dollar.

Source: Grant Williams, Things That Make You Go Hmmmm..., Mauldin Economics, 23 June 2014, pp. 33-34.
Here is an interesting diagram.


Source: JP Morgan

This shows the countries whose currencies served as effectively the global reserve currency (although obviously not always called that) and indicates how long they lasted in that role (in the US case, so far). Which country do you think might be next?
In an article critical of the adoption of fiat monetary systems, Nick Jones of dailyreckoning cites the USD decline since 1913. Note that he calls fiat currencies toilet paper money. (He obviously doesn't know how expensive good toilet paper can be.) ;)

So what’s in the future for the dollar?

Some, myself included, might say that the dollar has already failed. It has lost over 92% of its value since its initial issuance in 1913. After the revaluation in 1934, the dollar dropped another 41%. In my opinion, it already is toilet paper money, but for the above-mentioned characteristics, which are alarmingly similar to the circumstances that led up to the eventual collapse of the dollar’s toilet paper predecessors, I believe that we have seen only the tip of the iceberg of the dollar’s inevitable path toward becoming toilet paper money.
Source: http://dailyreckoning.com/fiat-currency/
AusDoc said:
Here is an interesting diagram.


Source: JP Morgan

This shows the countries whose currencies served as effectively the global reserve currency (although obviously not always called that) and indicates how long they lasted in that role (in the US case, so far). Which country do you think might be next?

OK, so this is very short term...



Source: Colin Twiggs, Trading Diary, incrediblecharts.com, 10 July 2014

But don't you just love his confidence? ;)
In a 24 paragraph Morningstar article giving the daily global market roundup, paragraph 3 appears as something of an aside. It is the interesting part in the piece though. This is it:

Separately, the Congressional Budget Office released a report that warned of a long-term fiscal crisis if U.S. debt continues on its current trajectory.

Source: http://www.morningstar.com.au/Stocks/OSReport [for Tuesday 15 July 2014]

If the US cannot reign in its debt... you know what happens.
"Separately, the Congressional Budget Office released a report that warned of a long-term fiscal crisis if U.S. debt continues on its current trajectory".

I could just imagine the complex models the Congressional Budget Office would have been running.....

the abacus would've been smoking.
Where are US 30 year bonds headed? ...and why?

The attached is an easy to read discussion paper by Hoisington & Hunt. Well worth a read for the economics literate. They conclude:

With U.S. rates higher than those of major foreign markets, investors are provided with an additional reason to look favorably on increased investments in the long end of the U.S. treasury market. Additionally, with nominal growth slowing in response to low saving and higher debt we expect that over the next several years U.S. thirty-year bond yields could decline into the range of 1.7% to 2.3%, which is where the thirty-year yields in the Japanese and German economies, respectively, currently stand.

And what happens to the USD when U.S. thirty-year bond yields decline?


  • Hoisington Investment Management – Quarterly Review and Outlook, Second Quarter 2014.pdf
    337.3 KB · Views: 56
OK, so this is short-term stuff again. But in the interest of fair reporting, given the short-term post above, here is Twiggs again on the USDX. Looks like at least a bounce.


I'm sure there will be plenty of upwards movement on the long-term decline, like always.
Fine to be a dollar bull for now but just in case you think the dollar looks "strong," here's a reminder that everything is relative in this business.


Source: Linda Raschke's Market Structure video available here:

Some of us remember these levels. They were the days when the USD was really worth something, now very much just history. Yes, that's a $1.65 high on that chart, double the latest highs.
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