The Disappearing Dollar.

[Taxloss]

How the ballooning US budget deficit will hurt the world and result in an American economic calamity.

AKA the US economy is dead. It just hasn't stopped moving yet.

From The Economist, no less.

http://economist.com/opinion/displayStory.cfm?story_id=3446249

Excerpts:

"America has habits that are inappropriate, to say the least, for the guardian of the world's main reserve currency: rampant government borrowing, furious consumer spending and a current-account deficit big enough to have bankrupted any other country some time ago."

...

"If the dollar falls by another 30%, as some predict, it would amount to the biggest default in history."

[Dzimbowicz]

1. I have the vast majority of my savings in Swiss Francs

I feel much safer with this.

[lectrobyte]

8. How do you do that?

[Dzimbowicz]

9. I opened an account while in Switzerland

and then I wire transfer money on a regular basis to this account. The currency conversion is done by the bank I use in Switzerland. Yes, there is a fee for the conversion and transfer, but it is reasonable.

[lectrobyte]

10. Thanks, that's something I'm considering...

It seems like if I'd just puy my savings account, such as it is, in Euros a year or so back, I'd be way ahead of the game.

[Dzimbowicz]

13. The Euro and Swiss Franc

are holding their value rather well as of late. Six months ago the dollar was worth about 82 cents against the Euro, today it is worth 74 cents. One good point about the Swiss Franc is that it retains its value against other currencies (but so does the Euro).

[sweetheart]

2. The economist explains all

So many times here on DU, i've tried to explain what will happen
if the dollar goes down, and the reserve currency status is lost.
The economist, being professionals at such explaining, do an excellent
job in this article.

The stealth-default, that the republicans think they're gonna shaft
their global investors with, will lash back as the reserve currency
status is lost. It is dangerous dangerous ice that these fools are
venturing out on.

[oc2002]

3. But what would this do to the NYSE?

would a weak dollar actualy boost stock prices or make them less desirable?

bonds would be crap with High interest rates.

[Squeech]

4. Good question

I think the market would take a huge hit just because interest rates would make it way more profitable to buy bonds.

But I think the profitability of the S&P 500 would stay pretty good, since most large-cap corporations are multinationals. After the original crash, I think most of the market would recover fairly soon. (Well, maybe not the NASDAQ.)

My opinion, and worth what you paid for it.

[info being]

5. Boost them. That's what's been happening all year.

[sweetheart]

11. supply and demand of dollars

According to the article, reserve currency status has foreigners
holding something over 10 trillion dollars "as reserves". The dollar
collapse will have those folks unwinding their positions to safer
haven currencies, likely a basket of several, rather than simply the
euro.

This surplus of dollars will lead to inflationary pressures and rising interest rates to hem in the money supply. This will make
bonds a more attractive investment than most equities, as the risk
premium of equity is the risk free rate PLUS the extra premium of
a private company, its potential bankruptcy and profitability.

Your statement "bonds would be crap with high interest rates." is
strange. Bonds "ARE" the high interest rates. You probably meant
that low coupon bonds (low interest rate) would not return much, but
they would be trading at a discount, those bonds, putting them on a
similar yield parity with later-issue high rate paper.

So will a shrinking money supply make the NYSE boom? Will cheap
goods abroad make up for the drying up of the investment capital
well on which the US has floated for 60 years? Likely it will be
more like the great depression, with the dust bowl being wall street.

The cosy relationship of payoffs and kickbacks that is wall street
will increasingly be under fire from folks like eliot spitzer, and
the wise investor will turn to safer havens, be they property, local
private equity, gold, oil and other safer reserves.

The heyday of american public markets like NYSE has passed, and will
never return. The whole financial world must adapt to the post
hegemony world, and NYSE is nothing but legacy code.

[tanyev]

6. This just in.

(With your indulgence. I posted this earlier on a thread that's not seeing too much action. It's appropriate for this topic, too.)


Secretary of the Treasury John Snow has announced a new plan to fight this country's growing deficit. "We are going to replace the question on all American's tax returns which asks if you would like to contribute $3.00 to the Presidential Campaign Fund. We will instead be asking if you would like to donate $3.00 to paying down the deficit. These funds will then be invested in Powerball Lottos nationwide. We expect the revenue generated to take care of the deficit within five years."

Snow responded harshly to some critics. "It is obvious from all of the corporations and very wealthy people clamoring to donate money to Republican candidates that federal funds are no longer necessary for our elections. And there is absolutely no truth in the accusation that this strategy will take money away from poor people. Let me emphasize that we will only be investing in jackpots that exceed $100 million. No poor person would know how to manage that much money anyway. After they buy a house, car, and a few restaurant meals, what else do they need?"

President Bush clearly approves of the new plan. "Yep, that's why Ol' Snowball gets to keep his placemat at the Cabinet Table a little while longer. I knew he had to have at least one good idea left in him," he yelled at reporters as he strode forcefully across the White House lawn to a waiting helicopter. After a pause to appreciate his own humor, he continued, "Naw, seriously, we're gonna look at using some of that lotto revenue to help out Social Security, too. Not that my plan needs any help, but maybe this will finally shut up those people that are still whining. What's that old saying? We can kill two birds with a bird in the hand." The president then gave a casual wave and vaulted athletically into the already ascending helicopter.

[Taxloss]

7. Satire.

I believe.

[tanyev]

12. Yes.

I suspected as much when I wrote it. ;)