About my view on the US dollar: you need to understand the role of a reserve currency in commodities.
Anytime you ship something, the two parties have to agree upon a currency for the transaction. This is the reason a while back Iran was hoping against hope that they could get the oil market on to the Euro and off the dollar.
The dollar, of course, has been the reserve currency of choice worldwide since the Second World War. That's the reason China has such an interest not only in pegging to the dollar, but also in physically owning dollars.
Folks who oppose the dollar's role as the reserve currency of choice have favored the Euro. Unfortunately, the Euro is on the verge of getting a ditch kicked in its head. Today's comments from the German government about Greece are not reassuring for the future of the Euro project. The Euro will survive in some form, but that's likely after several Eurozone countries default, drop the Euro and re-order their debt after returning to their various lira and drahkma and other Monopoly monies.
Bullish probably isn't the right term for how I feel about the dollar. I'm bullish on the world reverting to the dollar as the single global reserve currency.
As for the US government going into bankruptcy, forget about that ever happening. US debt as a percentage of GDP is manageable far into the future. The only threat to the dollar from the gov't itself is Republicans playing chicken with the spending cap. And, frankly, the outcome of the disaster relief bill indicates they've lost their taste for that game.
What will happen after 2013 is a Democratic Congress and President and the inevitable tax hike. So far, the Republicans have shown no intelligence with their campaign cash. They're wasting a lot of money betting on a group of losers in the primary. And whatever happens, no one in the GOP wants Romney. A lot of money is gonna go down the tubes between now and April to ensure that Mitt Romney doesn't become president. That's money that frankly would have been better spent on Congressional campaigns and holding the House to ensure Democrats can't raise taxes. Once the tax hike hits, the strong dollar policy of the Clinton era will roar back hard.
I see the end outcome being a full inversion of the Euro and the dollar. Where in the last few year it took a dollar-fifty to get a Euro, it will take a Euro-fifty to get a dollar. Oil in dollar terms will go down in the sixty dollar range.
As for the Euro, I think the Germans and the French don't understand that in a financial crisis, moralization is for the weak. The strong go all-in and solve the problem without regard for why it happened. That's why the Euro is for a serious beating.
I'd feel less bullish on the dollar if I had any faith the Germans and the French were going to stop moralizing and just defend their currency come hell or high water. Europe needs a "the buck stops here" moment. But, the dissolute leadership of Europe doesn't have the courage to go down hard in their elections and save the Euro.
The horrifying tragedy of this whole mess is that Merkel is electoral waste and so is Sarko. They're trading on nothing trying to calm their voters when their voters are already committed to sending them away. Frankly, both governments need to make peace with their coming electoral defeats and just do what needs to be done to save the Euro. That means bank recapitalizations everywhere and debt restructurings and write-downs in all the PIIGS countries to get those countries down to debt in the range of 60% of GDP. And that ain't gonna happen.
Anytime you ship something, the two parties have to agree upon a currency for the transaction. This is the reason a while back Iran was hoping against hope that they could get the oil market on to the Euro and off the dollar.
The dollar, of course, has been the reserve currency of choice worldwide since the Second World War. That's the reason China has such an interest not only in pegging to the dollar, but also in physically owning dollars.
Folks who oppose the dollar's role as the reserve currency of choice have favored the Euro. Unfortunately, the Euro is on the verge of getting a ditch kicked in its head. Today's comments from the German government about Greece are not reassuring for the future of the Euro project. The Euro will survive in some form, but that's likely after several Eurozone countries default, drop the Euro and re-order their debt after returning to their various lira and drahkma and other Monopoly monies.
Bullish probably isn't the right term for how I feel about the dollar. I'm bullish on the world reverting to the dollar as the single global reserve currency.
As for the US government going into bankruptcy, forget about that ever happening. US debt as a percentage of GDP is manageable far into the future. The only threat to the dollar from the gov't itself is Republicans playing chicken with the spending cap. And, frankly, the outcome of the disaster relief bill indicates they've lost their taste for that game.
What will happen after 2013 is a Democratic Congress and President and the inevitable tax hike. So far, the Republicans have shown no intelligence with their campaign cash. They're wasting a lot of money betting on a group of losers in the primary. And whatever happens, no one in the GOP wants Romney. A lot of money is gonna go down the tubes between now and April to ensure that Mitt Romney doesn't become president. That's money that frankly would have been better spent on Congressional campaigns and holding the House to ensure Democrats can't raise taxes. Once the tax hike hits, the strong dollar policy of the Clinton era will roar back hard.
I see the end outcome being a full inversion of the Euro and the dollar. Where in the last few year it took a dollar-fifty to get a Euro, it will take a Euro-fifty to get a dollar. Oil in dollar terms will go down in the sixty dollar range.
As for the Euro, I think the Germans and the French don't understand that in a financial crisis, moralization is for the weak. The strong go all-in and solve the problem without regard for why it happened. That's why the Euro is for a serious beating.
I'd feel less bullish on the dollar if I had any faith the Germans and the French were going to stop moralizing and just defend their currency come hell or high water. Europe needs a "the buck stops here" moment. But, the dissolute leadership of Europe doesn't have the courage to go down hard in their elections and save the Euro.
The horrifying tragedy of this whole mess is that Merkel is electoral waste and so is Sarko. They're trading on nothing trying to calm their voters when their voters are already committed to sending them away. Frankly, both governments need to make peace with their coming electoral defeats and just do what needs to be done to save the Euro. That means bank recapitalizations everywhere and debt restructurings and write-downs in all the PIIGS countries to get those countries down to debt in the range of 60% of GDP. And that ain't gonna happen.
