GREENBACK /dollar/ SPADA W PRZEPAŚĆ
SANKCJE OKAZAŁY SIĘ NIEWYPAŁEM
RUBEL-YUAN IDĄ OSTRO W GÓRĘ
Uncommon Wisdom Afternoon Edition
Aug. 7, 2014
Greenback Falling
into Abyss
Wall Street is getting nervous about the dollar’s future
Sanctions backfire …
‚Waging Financial War’
Ruble-Yuan volume climbing …
The greenback isn’t as good as gold anymore, but it is still the world’s reserve currency. Our own government’s economic sanctions on Russia may hurt the dollar and help competing currencies.
Wall Street once shunned people who questioned the dollar’s rock-solid future. Now the Street is having second thoughts.
Bloomberg News featured this headline on Wednesday, Aug. 6:
Russia Sanctions Accelerate Risk to Dollar Dominance
The article by Rachel Evans is the same solid reporting everyone expects from Bloomberg. However, what’s remarkable is Bloomberg thought readers would want to read it. This isn’t good news.
If you are at all concerned about the future of the U.S. dollar, I suggest you click the link above to read the full article. Here is how it begins:
„U.S. and European Union sanctions against Russia threaten to hasten a move away from the dollar that’s been stirring since the global financial crisis.
„One place the shift has become evident is Hong Kong, where dollar selling has led the central bank to buy more than $9.5 billion since July 1 to prevent its currency from rallying as the sanctions stoked speculation of an influx of Russian cash. OAO MegaFon, Russia’s second-largest wireless operator, shifted some cash holdings into the city’s dollar. Trading of the Chinese yuan versus the Russian ruble rose to the highest on July 31 since the end of 2010, according to the Moscow Exchange.
„While no one’s suggesting the dollar will lose its status as the main currency of business any time soon, its dominance is ebbing. The greenback’s share of global reserves has already shrunk to under 61 percent from more than 72 percent in 2001. The drumbeat has only gotten louder since the financial crisis in 2008, an event that began in the U.S. when subprime-mortgage loans soured, and the largest emerging-market nations including Russia have vowed to conduct more business in their currencies.
Waging Financial War
„‚The crisis created a rethink of the dollar-denominated world that we live in,’ said Joseph Quinlan, chief market strategist at Bank of America Corp. U.S. Trust, which oversees about $380 billion. ‚This nasty turn between Russia and the West related to sanctions that can be an accelerator toward a more multicurrency world.
„Such a transformation may take as long as 25 years, with the dollar remaining „top of the heap” even as other currencies play a greater role, Quinlan said, speaking by phone on Aug. 4 from New York.
I want to zero in on the third paragraph. „While no one’s suggesting the dollar will lose its status as the main currency of business anytime soon.”
Actually, some people are suggesting this. I don’t fully agree with them yet, but I concede the possibility. The fact that no one is, or only a few people are, suggesting something is not evidence that it won’t happen.
On Sept. 10, 2001, no one suggested the world would change the next morning.
In 2006, only a small number of cranks said the easy availability of subprime mortgages would cause problems for the banking system.
In 2013, very few people thought Russia and the U.S. would spiral into a trade war and edge closer to real war.
I’ve been saying for months that the U.S. and European Union’s Russia sanctions were a mistake. See Europe’s Edgy Stalemate, West Punches, Putin Rolls and Dan Hassey’s Why Europe Just can’t Afford to Punish Putin.
By refusing to trade with Russia, we’re forcing Russia to trade with other countries. What currency do you think will change hands in those deals? I doubt it will be dollars.
Once the rest of the world figures out how to buy and sell whatever it wishes while bypassing the U.S. Dollar, the greenback will lose its luster. I don’t know when it will happen. I think the „as long as 25 years … ” line in the Bloomberg story is overly optimistic.
What do you think? Can the dollar stay on top of the heap? Will the ongoing confrontation with Russia accelerate the process? Click here to send me your comments.
***
Let’s look at a few headlines before we sign off for the evening …
U.S. stocks fell, sending the Dow Jones Industrial Average to the lowest level since April, as concern that the Ukraine conflict is escalating offset better-than-estimated earnings and a drop in American jobless claims.
Healthcare companies tumbled 1.2% as Aetna (AET) dropped 4%.
Tyson Foods (TSN) slid 2% after Russiabanned billions of dollars of food imports from the U.S. and other nations in retaliation for sanctions.
Twenty-First Century Fox (FOXA) climbed 5% as „X-Men: Days of Future Past” and „Rio 2″ led to a jump in income at its film business.
Good luck and happy investing,
Brad Hoppmann
Publisher
Uncommon Wisdom Daily