In the past 10 weeks alone on the foreign exchange, our revered greenback has shed another 10% of its worth. Look at the steady decline on this next chart:
[Blockierte Grafik: http://www.lemetropolecafe.com/img2004/dva1215B.jpg]
The average American, if he thinks about currency crises at all, thinks about them only in terms of highly indebted Third World nations, such as Argentina, Brazil, etc. What poor Joe Sixpack doesn't realize is that Uncle Sam is now the world's largest debtor, and his debts are growing exponentially. Will poor Sam be forced to deal with his debts the way his Third World neighbors often do—by defaulting on them? I wouldn't rule it out.
So who cares if the dollar charts' internal indicators point to a possible rally? The dollar has staged periodic rallies all the way down for the last three years.
To say the dollar is "heading" toward a crisis would be like the captain of the Titanic saying after his ship hit the iceberg that it was facing a "potential" disaster. That's crazy. The disaster was the collision itself. The ship was in crisis the moment that block of ice ripped a hole in her hull.
To stay with the overused analogy, the Good Ship Dollar has already struck a drifting mass of ice, which is comprised of the triple deficits and an uncontrolled Greenspan money machine. So the damage is done. The crisis is already upon us. See what I mean? The only real difference between this country and a banana republic is that our President and his treasury secretary aren't running around in sombreros! (Maybe they can't afford them. If sombreros are anything like oil, food, natural gas and other basic commodities, they're probably getting fairly pricey.)
My point is that a dollar crisis is not "coming." It's already here. We're up to our indebted necks in it.
Some people declare, "The market never does the obvious." They ask, "Isn’t anticipating a dollar rout the ‘crowded’ trade? If almost everyone believes a dollar crisis is inevitable, can it really happen? Can a couple of billion dollar holders possibly be right?"
To which I reply, "You're damned tootin' they can!" The only thing getting ‘crowded’ is the exit. In fact, the very thing that will continue exacerbating the dollar debacle is the fact that it is indeed obvious and that there are so many dollar owners watching their money continue to devalue.
This isn’t sour pessimism. It’s just a willingness to acknowledge what IS. People everywhere—including some pretty powerful foreign central bankers—are starting to unload their dollars precisely BECAUSE they see what's coming. I doubt they're convening with their colleagues and concluding, "We don't have to worry. The crisis is so obvious, there's no way it can happen."
Besides, what could they do to stem the dollar's decline? Buy even more of them!?? Get real. I mean central bankers may be sinister and power-hungry...perhaps even stupid. But they're not masochistic. And they always look out for number one. They will offload their excess dollars into every rally, thus ensuring that no rally will last. Smart citizens will do likewise before the exits become jammed and the crowd becomes an unruly mob.
In summary, Bill, it seems to me that until the U.S. shows some fiscal restraint and begins living within its means—a foreign concept to most Americans—I believe only one reasonable conclusion can be drawn: The U.S. dollar is heading for a disaster of Titanic proportions.
Watching as the hold fills with water,
Derek
