Curious Capitalist

Foroohar: Chaos in DC Is Taking Its Toll on the Dollar

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The shutdown is over; the U.S. dollar remains the world’s reserve currency. But for how much longer? At what point will foreign creditors and the markets at large begin rethinking their asset allocation, and moving slowly away from the dollar and U.S. Treasury bills, and into other safe haven assets? That’s a question that analysts are already asking in the wake of a debt deal that merely kicks the can down the road into early next year. “The prospective framework looks to be one of hopping from one short-term fix to another shot term fix, with each ‘fix’ being accompanied by a potentially disruptive political process and 11th hour negotiations,” says Michael Purves, chief global strategies for institutional broker Weeden & Co. “While future debt ceiling wrangling will more than likely not lead to default, this type of process takes its toll on US credit perceptions.”

Indeed, it’s telling that gold is sharply up following the debt ceiling resolution. While investors didn’t turn to gold, which is a safe haven asset, during the debt ceiling fights, the fact that they did so post deal means that the markets aren’t completely happy with an agreement that simply brings us another, similar fight in a few months time.

(MOREWall Street Is Over Washington Dysfunction)

It will be even more interesting to see what Chinese T-bill purchase data—which is released a couple of months after the fact—tells us about what our largest foreign creditor was thinking during the shutdown. Back in August of 2011, Chinese T-bill purchases slowed during the debt wrangles, but then picked back up quickly afterwards. But the global environment then was quite different. Europe was in an even bigger debt crisis (a real one, involving serious economic rather than political issues), and emerging markets were slowing. Now, Europe seems to be getting its act together, and China has averted a hard landing, at least for the time being. It could be that this is the moment when foreign creditors being looking to diversify their assets.

Last week Xinhau, the official Chinese government news agency, publicly commented that “it is perhaps a good time for the befuddled world to start considering building a de-Americanized world.”

Of course, that’s easier said than done. It will be decades before the Yuan is truly a global currency. And existing safe haven currencies, like the British pound and the Swiss franc are too small as markets to replace the dollar. But even major shift in the global currency system happens slowly, over time. It took decades and two wars for sterling to be replaced by the dollar. But eventually, it happened. As other nations rise, and our political dysfunction continues, we may look back to the fall of 2013 as the beginning of the post-dollar era.

4 comments
JohnDavidDeatherage
JohnDavidDeatherage

The Federal Budget is approximately 3.8 trillion dollars.  The 24 billion referred to is less than the rounding error on the petty cash account.   [24,000,000,000 / 3,800,000,000,000 = 0.00631578947%]

Mickiee
Mickiee

Just send the bill for this shutdown debacle to Mr. Ted "Pied Piper" Cruz.  His own party criticized him for this obvious "failed from the start" attempt that only succeeded in debasing America's economy & costing the U.S. $24 billion according to Standard & Poors.

See if he can talk is way out of this one.

ThomasHall
ThomasHall

By now even the dullest, most bigoted working class GOPeons should recognize that the GOP has historically NEVER represented the working class whom they con, incite, manipulate, and exploit while the GOP picks their pockets. 

Remember the standard GOP spin of "jobs and the economy" well,  the GOP are compulsive liars. The GOP as all the studies have shown are job killers at over three million since 1/09 (on top of the 9 million lost during the GOP's enabled subprime mortgage bankster fraud and the five million manufacturing jobs shipped overseas or to Mexico under Bush-Cheney). The non-stop GOP obstructionism and the GOP's intentional lurch from crisis to crisis designed to tie-up Congress and to block or delay any legislation including their all-time record of 430+ blocked bills, blocked appointments, and 60-vote super majority filibusters.

The GOP are despicable, consistently, like the recent fed shutdown shows, put partisan politics ahead of the country. Nothing patriotic about that. By now, even the dullest, most bigoted working class GOPeon should realize that the GOP has historically NEVER represented the working class.

AlishaGraves13
AlishaGraves13

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