International Forecaster Weekly

The US Dollar Heads Relentlessly Down

The US dollar heads relentlessly down ... silence on the torture in Guantanamo... TSA gone sex mad frisking breasts and crotches... the war for the 'Hearts and Minds' in Iraq is now lost... looking for a repeat of 1987 or 1929... Putin calls Bush administration a 'dictatorship coated in beautiful psuedo-democratic phraseology'... More than 181,000 dead people listed on the voting rolls in swing states for Bush... school grades down unemployment up... The Imperial Pax Americana rolls forward, crushing all in its path in its quest for world domination.

Bob Chapman | December 11, 2004

The US dollar heads relentlessly down so there has to be many official sellers; China, India, South Africa, Mexico, and Russia, etc. Japan is stuck. They made their deal after WWII and they are stuck with the deal and the dollars, all $720 billion of them, although the master-slave relationship could begin to fray. It already has come apart to an extent in Asia with the exception of Taiwan, which is essentially a US protectorate similar to Canada. One of the lessons to be learned here is to make sure your trade imbalances do not get too far out of line. Asians think life is a one-way street. On the other hand, US elitists never complained when cheap Asian goods kept US inflation down during the last ten years. The Asians also printed currency to buy dollars to keep the value of their currencies down. Thus, there is plenty of blame to go around. This attitude has expedited. US borrowing from abroad this year is $620 billion, a record 5.7% of all economic activity. As a result, foreigners, particularly Asians, have been left holding the dollar bag. This is 49% of American governmental debt. China may be only holding its debt having only purchased US Treasury securities of $16.4 billion this year. That will cause higher interest rates, a slowing US and world economy that will shortly lead to recession then depression.

Whether Japan likes it or not their yen is headed to 80 to the dollar. They have been playing the same game as China and others for years, keeping their currency cheap. Now they all will incur 30 to 50% losses on their US dollar holdings. You are only seeing a trickle of dollars now, but wait until it picks up and wait until panic sets in. Many may sell and cut some losses or the majority of losses, but China, Japan, Taiwan, Hong Kong and South Korea are in a tough spot. Business-wise it cuts just as deep. For every one yen appreciation, Toyota loses $195 million.

All these nations are looking for US fiscal reform, a reform that will and cannot ever come. It is financially and politically not feasibly. The world is headed for an economic and financial purge that has to come. There it is in spades. Read it and weep. Thank goodness, at least you have been forewarned.

There were rumors last weekend that the US would not interfere in the currency markets until the dollar reached $1.45 to the euro. Sources said it helped to underscore the markets belief that the US had no plan to stop the dollar