Decline of the Dollar

By: Ernie Fitzpatrick

What we are witnessing currently is the decline of America's economic power and leadership in the world. The ramnifications that will come from the wholesale dumping of the US$ will pile up over the next couple of years. The US$ is being totally trashed and the only thing that can stall the free-fall is a world wide recession of major degree. Otherwise, there's no real end to the economic reverberations. Meanwhile the Dow dropped 361 points after a 363 point drop last week.Is anyone smelling the coffee?

With the price of a barrel of oil at $100 we just might get that recessions!

The new giant in the neighborhood (can you say planet?) is China so is there any doubt that they are fueling the fires of dolalr burning? Cheng Siwei, vice chairman of the Standing Committee of the National People's Congress, was quoted by wire services as saying China should shift more of its $1.43 trillion of currency reserves into "stronger currencies," such as the euro, to offset "weak" currencies like the dollar.

Imagine that!

Too rapid of a move that would result in the appreciation of the Chinese yuan is not necessarily the right move either. American goods could begin to look very lucrative (helping our imports) to other nation spurring economic growth within our borders. But, even the speculative talk sent the beleaguered dollar to new lows against the euro, with the shared currency surging as high as $1.4703.

As if ballooning U.S. credit-housing crunch data, back-to-back Fed cuts and soaring oil prices weren't enough to stun the U.S. dollar, now we have the specter of central bank reserve asset diversification out of U.S. dollars to contend with. The dollar has been weak over the last few months as the Federal Reserve has slashed interest rates by three-quarters of a percentage point due to the credit crunch. The euro during August traded as low as $1.3417.

We're swimming in shark-infested economic waters!

Worse yet, we put the sharks in the water by our own accord.

Foreign Exchange
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