Taps for the Dollar

[marmar]

from HuffPost:





Michael Pento
Chief Economist for Euro Pacific Capital

Posted: March 2, 2011 04:24 PM
Taps for the Dollar


It now appears that the United States has finally succeeded in its efforts to destroy confidence in the U.S. dollar. Given the currency's reserve status, its ubiquity in financial markets, and the economic power and political position of the United States, this was no easy task. However, to get the job done Washington chose the right man: Fed Chairman Ben Bernanke. Thanks to Bernanke's herculean efforts, investors across the globe have now been fully weaned from their infantile belief that the U.S. dollar will remain the ultimate safe haven currency.

The proof of Ben's success can be seen in comparing how the foreign exchange markets reacted to the recent crisis in the Middle East with how they reacted to the financial crisis of 2008. Back then, investors looking for safety abandoned their foreign currency positions and piled into the U.S. dollar (the market for U.S. Treasury Bonds in particular). As a result of these fund flows, the U.S. dollar surged 20% from August to November 2008.

However, during this latest round of global destabilization the dollar experienced no such rally. In fact, the greenback shed about 5% of its value since the Tunisia revolution began in December of 2010. The reason should be clear; the Fed has placed international investors on notice that it will unleash even greater doses of dollar debasement at the first whiff of additional economic weakness, deflation threat, or dollar appreciation. Just this week, Bernanke once again made clear that despite what he considers to be a better growth outlook at home and abroad, and spreading global inflation, the United States will not pull back from monetary accommodation, even as other nations conspicuously do so. The architect of U.S. monetary policy has stated explicitly that dollar debasement will continue for the indefinite future.

Knowing this, why would any international investor seeking a "safe haven" choose to park assets in U.S. sovereign debt? If Bernanke is to be believed, continued economic weakness in the U.S. will cause low-yielding Treasuries to lose value due to inflation while the weakening dollar erodes the underlying value of the bond in real terms. This is a one-two punch that sane investors will seek to avoid. It is no coincidence that a record percentage of U.S. Treasury auctions are now being bought by central banks, for whom sanity is a lowly consideration. ..............(more)

The complete piece is at: http://www.huffingtonpost.com/michael-pento/taps-for-the-dollar_b_830313.html

[sharesunited]

1. The reason for the surge in the dollar in 2008 was at least partly because

so many margin calls needed to be settled with dollars.

A uniquely financial crisis not precisely comparable to the current middle east unrest.

[orwell]

2. The dollar topped...

...the day of Bush the Lesser's Axis of Evil state of the union address. It has been mostly downhill from there.

Dollar pessimism is now considered absolute truth. It probably means most of the bloodshed is over.

At least it helps our exports...

[Marblehead]

3. as planned

[formercia]

4. Controlled Demolition of the US Economy

Just controlled enough for them to loot it first.

[MedicalAdmin]

5. He's waging a holding action.

Bernanke is propping up the dollar while him and the uber rich he works for are pulling their investments out of US dollar vehicles. He's giving them time to loot.

[Name removed]

6. Deleted message

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