Thursday, September 17

The Impending Doom of the US Dollar

Here's a fascinating story from Larry Edelson at Money and Markets about the US Dollar.  He writes from Asia:

We are now the laughing stock of Asia. Our dollars are no longer respected; our ambitions, no longer mimicked. Our way of life, often based on consuming far beyond our means, is being flat-out rejected.

I can’t even exchange a $100 bill on the street here anymore: Most of the street money changers will take euros, Singapore dollars, even Chinese yuan. But fearful of losing their shirt with sinking exchange rates, they don’t want U.S. dollars. Not long ago, I never traveled without my American Express card. Now, it sits in my office safe. Many in Asia no longer accept the card anymore. MasterCard and Visa are still OK, but they’re also losing market share to locally grown cards like Aeon.

The running joke in Singapore, Hong Kong, Bangkok, and Kuala Lumpur is that the U.S. is the place where even your pet could get a credit card or a home mortgage. So to Asians, the crisis we’re going through is our own fault. And although it was also caused by blunders in Western Europe and other regions, truth be told, they are mostly right.

When foreigners hold dollars, and those dollars lose value against their home currencies, then they lose purchasing power. The US Dollar has lost of 15% of its value since March. That means a street vendor who accepted dollars in March can now buy 15% less with those dollars than he could just six months ago. And what happened six months ago to trigger this decline? The Federal Reserve began dumping something north of $700 billion freshly created-out-of-thin-air dollars into their member banks.

The dollar is doomed unless the government slashes spending, but you can bet every last depreciating dollar you own that will not happen.

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