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Dollar Drops 10% in Two Weeks

By: Steve Johnson

12/18/2008 - 13 Comments

I have been talking about a drop in the value of the dollar for more than a year.  In the last two weeks, the dollar has dropped 10% - which is the largest drop in this short of time EVER.

Gold on the other hand is up 20% in the same time period. This could be the end of the fake dollar rally that began a few months ago with the global financial collapse.  The phony dollar rally has fools a lot of people into thinking that the dollar is going to be strong and safe.  Along with that, many people think that inflation is under control.  This is the craziest financial cycle that I have ever seen. 

Dollar drops 10% in two weeks.

The funny thing is that the dollar was extremely weak before the global meltdown started in August and since then the US economic fundamentals have drastically worsened, which has put the dollar in a much worse position. 

Do you realize that it takes $2 billion per day in borrowed money for the US government to continue to operate?  The global financial meltdown means that foreign nations can no longer afford to support the US.  Instead of buying US bonds, the foreign nations are going to be selling them like crazy and there is no one else in the world that can buy trillions of dollars worth of US bonds.  The bond market is a bubble that is about to pop and with it, the dollar will sink. (Just as Peter Schiff has predicted for some time now)

In the near term, I’m not sure if the dollar will continue dropping or not, but I cannot see how much longer it will be able to hold up as the global financial crisis continue to put pressure on the dollar.

The big question is what is going to happen when the dollar finally sinks?  The dollar is used as the Reserve Currency of the world and there are hundreds of trillions of dollars floating around the world.  Usually, when a currency loses value the nation that issues the currency takes the majority of the losses. But in this case, because dollars are used all over the world and many nations have trillions of dollars in reserve. The entire world will suffer the losses along with the devastation to the US economy. This is the reason that some say a dollar crisis will never happen, because it is in the interest of everyone to hold up the value of the dollar.   China and Japan, the two largest holders of dollars, have recently pledged to support the dollar but, there is little they can do facing this global financial meltdown. 

China has recently published an article describing their situation. Here is part of the article.

U.S. has plundered world wealth with dollar

"The United States has plundered global wealth by exploiting the dollar's dominance, and the world urgently needs other currencies to take its place, a leading Chinese state newspaper said on Friday."

“The U.S. dollar is losing people's confidence. The world, acting democratically and lawfully through a global financial organization, urgently needs to change the international monetary system based on U.S. global economic leadership and U.S. dollar dominance,"

Europe and Asia are contracting very fast and headed for a deep recession. They feel like a cornered rate, with few options and their finally starting to realize that America has plundered the wealth of the world by taking advantages of the dollar strength. America has been spending the savings of the entire world for decades, by convincing many of the world to invest their saving in America, much of which has been lost as assets are being repriced during the global financial meltdown.

Once the panic runs its course, foreign nations are not going to be investing in America anymore without asking for much higher interest rates to cover their risks. Then, they are going to sell dollars like there is no tomorrow, once they realize that the best customer - America consumers - are no longer their customers. Without America consumers, there is little reason for China and other nations to hold their pegs to the dollar.

UN warns of dollar collapse in 2009

Even the UN is now warning of a dollar collapse in 2009,

“The current strength of the dollar is temporary and the US currency risks a hard landing in 2009, according to a team of United Nations economists who foresaw a year ago that a US downturn would bring the global economy to a near standstill.

In their annual report on the world economy published on Monday, the economists said the dollar’s sharp rebound this autumn had been driven mainly by a flight to the safety of the international reserve currency as the financial crisis spread beyond the US.

The overall trend remained a downward one, however, reflecting perceptions that the US debt position was approaching unsustainable levels. An accelerated fall of the dollar could bring new turmoil to financial markets.

“Investors might renew their flight to safety, though this time away from dollar-denominated assets, thereby forcing the US economy into a hard landing and pulling the global economy into a deeper recession,” the report said.”

This could be the last chance to get your money out of dollar based assets, which includes US stocks and bonds. Just yesterday, I moved my 401k to foreign markets and precious metals.

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