Let's Get Realistic About the Dollar, Eh?

Thursday, August 20, 2009 , , , , 4 Comments

There's nothing like waking up to the headlines and seeing Getting ready for the dollar’s fall in huge letters across Reuters' front page. Could it be? Is the mainstream media finally embracing reality?

Nah, it's commentary. But still.

Curtis Mewbourne, a portfolio manager at PIMCO, has suggested that investors diversify away from the dollar and to move into other currencies, especially those in emerging markets.

“And while we have not yet reached the point where a new global reserve currency will arise, we are clearly seeing a loss of status for the U.S. dollar as a store of value even in the absence of a single viable alternative,” he wrote in an article published on PIMCO’s website.

Notwithstanding its big bounce during the financial maelstrom last year, the dollar has been on downward trajectory for most of this decade. The U.S. dollar index, which currently stands around 78, once traded well above 100. In the early days of the dollar’s decline, currency traders worried about general diversification where central banks with big dollar reserves would begin to shave off a small portion of their holdings and exchange them for something else like euros.

The financial crisis, however, woke the world up to just how vulnerable those squirreling away dollars — like China and Russia — were to the fortunes of the United States. The bulk of the world’s currency reserves are in dollars, with the euro still a distant second. Foreign central banks, however, could hardly start selling dollar-denominated assets to limit their exposure because such sales would cause prices on their remaining holdings to fall further.

Personally, I am surprised the dollar has lasted so long.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.


Jr, why do I read totally contrary commentary from the the cool media like Bonner, Mish, and Denninger who offer opinions on the dollar that go from hyperinflation to dollar=gold? I believe the dollar is going to plummet but I am highly less learned (that's learn-ed as Homer would say) then those folks. So why is this prediction so all over the map?


I don't actually have to answer that, right?

*you* know what's up
*I* know what's up
*Denninger* knows what's up

As for these Reuters folks? LOLZ!


jeff said...

so what is up? I'm no accountant, but I'm also not one to buy into conspiracies...how can anything be up when deflation has just begun? Just askin'.

malus Diaz said...

Jeff: when asset values goes down, it forces the currency to strengthen.

S&p500 -> Up = Dollar -> Down

S&P500 -> Down = Dollar -> UP

In a deflationary enviroment, a dollar tomorrow is worth more then a dollar today. IE the value of the dollar goes up, or inversely, the value of goods does down (Both are deflationary.)