Potential Collapse for the US Dollar

Yields on 10-year US Treasuries - generally seen as the benchmark for long-term interest rates - rose above 3.73 %. Before the crisis this looked low, but all has changed: at the end of last year, the yield on the 10-year Bond fell to 2.06 %. In other words, long-term rates have risen by 1.67%  - in economic jargon 167 basis points - in the period of just five months. In relative terms, that represents an 81 % increase.

Moreover the stimulus packages only account for a part of the massive deficit the US federal government is projected to run this year. Borrowing is forecast to be $1,840bn -- equivalent to around half of all federal outlays and 13 per cent of GDP. A deficit this size has not been seen in the US since WWII. According to the Congressional Budget Office: “A further $10,000bn will need to be borrowed in the decade ahead.” Even if the White House's over-optimistic growth forecasts are correct, that will still take the gross federal debt above 100 per cent of GDP by 2017. “And this ignores the vast ‘off-balance-sheet’ liabilities of the Medicare and Social Security systems.”

Most analysts were unnerved by this development that coincided with warnings about the fiscal health of the US.
"The Federal Reserve is not really sure what is driving the sharp rise in long-dated bond yields,” Reuters News reports. "Do rising U.S. Treasury yields and a steepening yield curve suggest an economic recovery is more certain? Meaning less need for safe haven government bonds and a healthy demand for credit? Or does the steepening yield curve mean investors are worried about the deterioration in the U.S. fiscal outlook, or the potential for a collapse in the U.S. dollar as the Fed floods the world with newly minted currency as part of its quantitative easing program?"


Apparently no more than in the logic of the feds a nation can sustain itself by purchasing its own bonds with a currency that the nation prints for itself. -‘LAUGHING’- This process is completely stupid, and doomed to failure. The world simply does not work this way, no matter whether strategists argue the contrary.

“Current policies by the American government and the Fed are potentially wildly inflationary,” asserts Jean-Marie Eveillard, the head of the First Eagle Overseas Investment Fund. Nations do not generate or sustain wealth by printing currency. Neither do they generate or sustain wealth by amassing debts. Nations generate and sustain wealth by producing goods and services that the rest of the world desires.”

Quantitative easing is a ferry tail, in which the Chinese certainly don't believe. Every day the Chinese announce some new initiative to reduce or eliminate exposure to dollars, as trading in their own currency for imports, and spending as much of their dollar reserves to buying abroad minerals, land, companies whatsoever comes or is on sale, just to get rid of as much dollars as possible against the higher value of today than in the future.

The Fed’s quantitative easing policy is nothing but a fraud – a multi-trillion-dollar Ponzi scheme. Simply translated: AAA credits -read US debt- are not repaid with currencies printed for themselves; the US must repay their debts from the proceeds of profitable capitalistic enterprises. It looks that like this is not going to happen.

Reuters writes: “An obvious culprit for the move in bond yields is the country's record fiscal deficit, which will generate a massive amount of new government issuance. The U.S. Treasury must sell a record net $2 trillion in new debt in 2009 to fund a $1.8 trillion projected fiscal deficit, resulting from falling tax revenues, the economic stimulus package and sundry bank bailouts.”

Reuters, is an International news agency. So this story will have been published into the Chinese press as well. The Chinese, along with every other major American creditor, will continue devising ways to move away from a dollar based economic model, with at last a collapse of the same!

It’s better people –the electorate- wake-up now, because the US dollar is world’s reserve currency and its collapse will have severe implications for all of us.