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Plotting Against the US Dollar

October 5, 2009

Take a trip to Europe and you’ll very quickly realize how far the value of the US dollar has fallen. Since the printing presses have been turned on full tilt in this country, talk of China and Middle Eastern countries moving away from the dollar as their reserve currency of choice has correspondingly gained steam. We’ve discussed this trend on numerous occasions here. The Independent is now reporting that secret meetings have been held between China, France, Arab states, and Russia to slowly move away from the US Dollar. Of course, such meetings are difficult to keep secret, but there is no reason they should come as any surprise.

True or not, one of the largest problems is we face is that the US consumer is decreasingly important in the world. Read the article and think about the pressure it will put on the FED to raise rates if the US dollar does in fact continue to weaken in the short to medium term, and loses its status as the main reserve currency (it will maintain its place in the basket). ┬áThat rise will likely further exacerbate distress levels in commercial real estate, and hopes for a meaningful recovery. The flip side is that we’re seeing solid gains in personal savings rate in this country which, in the short term puts some strain on the economy, but mid-to-long term is a must given where it had been.

Nonetheless, the panic shouldn’t be overblown – the future will very likely be bipolar, balanced out between China and the US – the rest are for the most part, fairly inconsequential.

[via Independent]

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