It’s what makes the world go ’round. It has allowed trade between nations and the fact that it’s what the entire world uses for the majority of their “reserves” has allowed the U.S. to do things it otherwise could not. In fact, because the dollar was accepted as the reserve currency the U.S. has been given a far longer financial leash than otherwise would have been allowed. Without the dollar, the U.S. would have already been called on the rug, shut out of credit markets and forced to restructure everything from production, consumption and everything financial.
It is not like the U.S. is the only one in the world that has followed crazy monetary and fiscal policies, we aren’t. But, it is as if we were viewed as the healthiest horse in the glue factory…that is until recently. The “dollar” as measured by the DXY contract has recently begun to weaken (in particular versus the Euro). We have broken the “80” level to the downside and are hovering just above 79; a break here could cause another 4 point +- drop to the 74-75 level. I think it is best to think of nations’ currencies as their “stock” which will trade up and down based on a country’s fundamentals and the perception of that country by the rest of the world.
When I mentioned “perception” above, you can substitute the word “confidence” and be absolutely correct. You could also put in place the word “credibility” and be just as correct. This is now the problem. As I have written about several times before, we are losing more credibility each and every day and credibility is apparently all that we have left. The latest “scandal du jour” in Washington is that of NSA spying on the rest of the world. This includes the leaders of some 35 countries.
Before going any further I would ask you this question, how would you feel if you found out that your next door neighbor had installed cameras in your bedroom and bathroom? You’d be a little (probably a lot) ticked off right? You might get violent or maybe not if your neighbor was a big guy. There is no telling what you’d do but it is safe to say that if you could, you would do something, somehow, someway to shut this guy down and make him pay for breaking your trust and privacy.
So, that said, how do you think the Germans feel? They find out that Mrs. Merkel has been tracked and spied on since 2010…AND were told earlier this year that THEIR gold which we hold will take 7 years to deliver! Our explanation you ask? Well, Mr. Obama didn’t know about the spying and the gold is just too heavy to ship all in one year. First off, Venezuela got their 200 tons that they repatriated last year over a period as I recall of about 3-4 months; the German gold is 100 tons more. Are these “extra heavy” tons and require far more time to move? Secondly, Mr. Obama didn’t know? I find that hard to believe but assuming that it’s true then why hasn’t someone been fired? Why hasn’t someone been arrested? Why hasn’t that department been shut down with profuse and public apologies made? Simple, because it IS policy. This was not some “rogue action” by a couple of people, this was done and darn the law(s).
So why do I even write about this? Because we are on the verge of isolating ourselves from the rest of the world. I should rephrase that, we are in the process of “being” isolated from and BY the rest of the world because their neighbor has lied to them and been perverted enough to spy on them. The “benefit of the doubt” that has been given to the U.S. since the end of WW II is now nearly no longer. We were the shining light of freedom, the absolute bastion of honesty; we were the most powerful military in the world with production and innovation unrivalled anywhere on the planet. Slowly at first then a little bit quicker and now on a daily basis we display our dishonesty, paranoia, laziness, largesse and weaknesses financially and morally for everyone to see.
We tell the world “not to worry,” we will print a new $85 billion per month but this is a “good” thing. We tell the world “not to worry” because our deficits will be smaller, never mind that the Fed is now the buyer of final, last and only resort. “Don’t worry!” When all is said and done, it doesn’t work like this. “Trust” must be earned. “Respect” must be earned. “Admiration” must be earned. We have forgotten one small caveat. Trust, respect and admiration can be lost overnight. They are very easy to lose and quite difficult to regain once lost. We are living in the “past” and on past laurels while the rest of the world is living in the present and now. The only thing standing between “normal” and disaster is the dollar and we are doing everything in every way possible to undermine our own currency. Talk about suicidal!