Jul 27, 2009 The US Dollar - A Global Currency Risk Bill Buckler 321gold ...s

The US Dollar - A Global Currency Risk

William (Bill) Buckler
Captain of The Privateer
Jul 27, 2009

US Treasury Secretary Tim Geithner and Secretary of State Hillary Clinton will host Vice Premier Wang Qishan and state council member Dai Bingguo in Washington on July 27-28. This is where principals meet their opposite numbers in regard to things fiscal, economic and diplomatic. This summit is called a Strategic and Economic Dialogue. Federal Reserve Chairman Bernanke will also brief the Chinese officials about how the US plans to keep inflation in check over the next few years.

China Gives Advance Warning:

During the week, Mr Zhou Xiaochuan, Governor of China’s central bank, has made this comment: “Over-consumption and a high reliance on credit is the cause of the US financial crisis. As the largest and most important economy in the world, the US should take the initiative to adjust its policies, raise its savings ratio appropriately and reduce its trade and fiscal deficits.” Economically, these facts are irrefutable.

The US Could NOT Care Less:

US federal spending in June surged 37 percent to $US 309.7 Billion while revenue fell 17 percent to $US 215.4 Billion. So much for the fiscal side in the US. The Fed’s ZERO to 0.25 percent monetary policy takes care of the notion that the US is not trying ignite yet another credit expansion.

Singly or combined, these two policies lead inescapably to the US trade and current account deficits which, in their turn, lead to an outflow of US Dollars and to the enormous and accelerating external debts of the US.

This is what China wants the US to stop and the US wants to continue.

Stop - We Have More Than Enough:

The People’s Bank of China has announced that its foreign reserves have reached $US 2,132 Billion. Official reserves in the second quarter climbed $US 177.9 Billion, including a monthly record in May of $US 80.6 Billion. This problem of the unstoppable (because the US does not want to stop it) US Dollar outflow is what China is taking to Washington. A huge geo-political and monetary collision lies ahead.

From China’s perspective, the first step is simple. It is simply to demand that if the US wants to borrow what China has saved - it MUST do so in Yuan. Instantly, the currency risk - the danger that the US Dollar will fall in value - is transferred to the US. A lower US Dollar means the US owes more in Yuan.

The US can’t agree to this. If they did, other nations would follow and the US Dollar would die.

William (Bill) Buckler
Captain of The Privateer
email: capt@the-privateer.com

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