So writes Jeff Cox (www.cnbc.com) in edited excerpts from his original article as posted on cnbc.com under the title Is the Dollar Dying? Why US Currency Is in Danger.
Cox goes on to say in further edited excerpts:
Dick Bove, vice president of equity research at Rafferty Capital Markets, uses several metrics to support his 5-10 year estimate. Focusing on the dollar as a percentage of total world money supply [he notes] that the total has plunged from nearly 90% in 1952 to closer to 15% now [with] the Chinese yuan, the yen and the euro each having a greater share of that total…[He goes on to say that:
“If the dollar loses status as the world’s most reliable currency the United States will lose the right to print money to pay its debt. It will be forced to pay this debt.”[Al]though the issue has fallen off the front pages as hopes for a sustained U.S. recovery have taken hold and the stock market has surged to near-record highs…the looming battle over budget sequestration in Washington could revive long-standing fears of fiscal stability.
Bove is not the only one sounding the reserve currency alarm.
Barry Eichengreen, a professor at the University of California, Berkley, warned in a Financial Times commentary late last year that:
“If (US dollars) no longer offer the safety that investors have come to expect, they:
- will not function as the stable collateral required by bank funding markets,
- will not be regarded as an attractive form in which to hold international reserves and
- will not be seen as a convenient vehicle for merchandise transactions.”
Christopher Vecchio, currency analyst at DailyFX, a trading firm says that:
“Despite the increase in risk to the U.S. dollar and Treasury, investors still feel safest at home [but,] longer term, countries are going to diversify away from the dollar if they can. There are more favorable investment opportunities out there if you can catch yield.”
Michael Pento, president of Pento Portfolio Strategies maintains that:
“The No. 1 security issue we have as a nation is the preservation of the U.S. dollar as the world’s reserve currency [and I think it could] become a particularly salient issue by 2015, 2016….When we’re spending 30-50% of our revenue on debt service payments, we enter into a bond market crisis. The dollar starts to drop along with bond prices. That would set off the whole thing.”
The dollar’s seemingly precarious status is why Pento remains bullish on gold and believes the dollar’s demise as the premier reserve currency could end much sooner than Bove predicts.
[Editor’s Note: The author’s views and conclusions in the above article are unaltered and no personal comments have been included to maintain the integrity of the original post. Furthermore, the views, conclusions and any recommendations offered in this article are not to be construed as an endorsement of such by the editor.]
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