WHEN WILL THE DOLLAR TOPPLE?

 

The dollar has been on an historic run straight up against all other currencies.  The reason being, of course because A) over the past 50 years the dollar has been the reserve currency due to the US prememinent financial and military might and B) while the Federal reserve has been tightening credit and raising rates with unprecedented speed, other central banks around the world have been more cautious in their tightening.  Interest rate diffentials and the perceived safety of the dollar has caused a rush of investors from around the Western World.

This has caused all commodities priced in US dollars to naturally decline.  As long as the Fed is tightening what can change this dynamic?

Quite a bit, actually.  Not immediately.  But inevitably.

A) the higher US interest rates climb, the stronger the dollar gets but the weaker the debt-laden US economy becomes.  Mortgage rates rise and housing falls. Home loans defaut. Car loans default.  Credit seizes up.  GDP contracts.  Zombie companies fail.  Marginal companies fail.  Unemployment mounts. Consumer spending contracts.  Banks that are on the hook for failing loans fail.

B) As rates climb, Debt service in the US becomes more and more onerous, while tax payments decrease.

C) The 90 trillion in unfunded US Transfer Payments (social security, medicaire) become harder and harder to fund, just as more and more boomers retire  

D) the 200 trillion in dollar denominated debt we've guaranteed around the world in the form of foreign aid is harder and harder for the foreign countries to pay off in their declining currencies and the US is on the hook for all defaults.

E) As credit inevitably seizes up here and around the world, global GDP commensurately declines.  A world where 2 percent is trend growth and inflation runs at 5-10 percent cannot tolerate a prolonged contraction.

And perhaps most important: CHINA, RUSSIA and much of commodity producing East and the Oil Producing middle east become less and less happy accepting unstable US dollars for their commodities.  

Yes, though the dollar is stronger it is commensurately less stable for all the reasons enumerated above.  So it is inevitable that a Commodity Backed Eastern currency will arise to challenge the dollar.  This is not a futuristic fantasy.  This is by all accounts CURRENTLY being devised by CHINA/RUSSIA and its sattelites.

The moment the dollar's rise loses momentum Gold and the entire Commodity Complex will regain domninance over the unstable Western Paper Regiem.

Count on it.