South, the Euro is far from âthe answerâ to the dollar. The days of one nation being the worldâs reserve currency are ending. But since the world is loaded with gobs of new money, America losing its status as the worldâs reserve currency will not mean a collapse in the dollar. What I see is a major rotation from the Euro-zone to Latin, Canadian, New Zealand, and Australian, and African Rand currencies, as well as gold. Incidentally, a lot of these countries have large uranium reserves. Combine that with gold, and you have a hedge against the growing uncertainty over the geopolitics of oil and the stability of oil-based economies.
. Burtakus: That does it. SA has me convinced that I need to leave the US and move to Europe. Any ideas on where the best locale is? ******** December 10, 2005 SouthAmerica: Depend on what turns you on. For my taste Italy would be on top of my list, I would love to move to a place such as the Tuscany area including Florence, Siena and so on. Or France â including Nice, Cannes, Saint-Tropez, and so on. ******* Sam123: The days of one nation being the worldâs reserve currency are ending. But since the world is loaded with gobs of new money, America losing its status as the worldâs reserve currency will not mean a collapse in the dollar. ******* SouthAmerica: In July of 1999 I wrote an article about the âEuroâ which was published on a number of newspapers and magazine. Below I am quoting from that article. But as you can see I said in July of 1999 that when you added the official reserves of countries from around the world the US dollar represented 60 percent of the market share of official reserves. The currencies of the Euro group represented only 20 percent of the market share of official reserves in July of 1999. Today if we make the same type of analysis the share of the Euro group would have increased substantially, and the share of the US dollar has declined. By the end of 2009, it is possible that my prediction will materialize as follows: U.S. Dollar = 35 percent of market Euro Group = 35 percent of market New Asian Group = 25 percent of market Notice that the shift of US dollars in world reserves from 60 percent of the market share as of the end of 1998 to 35 percent share of the market as of the end of 2009 â it has to affect the value of the US dollar in a negative manner. There are many economic reasons for this shift, and involves an astronomical amount of money â we are talking about trillions of US dollars. This shift is already under way. Here is part of the article that I wrote in July 1999: *** âOn January 1, 1999 the rules of the game for international currency speculation have changed in a drastic manner with the birth of the euro. The number of currencies which international currency speculators can invest and play their speculative games has been reduced by 10. In the past, we had the currencies of eleven European countries; today these currencies are being replaced by one the "euro." In the near future the remaining members of the European Economic Community including such countries as England and Sweden will adopt the Euro as their currency and become members of the new European Monetary Union (EMU). Today the amount of money that international speculators have under their management is becoming mind-boggling. The amount of daily currency transactions in global markets is over $ 1.5 trillion dollars. The magnitude of daily currency transactions is a major contributing factor for many countries losing their capability to defend their weak currencies from foreign attack of these international money speculators. These countries donât have the economic reserves necessary to defend their currencies from foreign speculative attacks. It is getting easier for these international speculators to destroy the entire economy of countries such as Russia, Indonesia, Malaysia, Thailand, South Korea, and Brazil. All they have to do is destroy their currency and the economies undergo a complete collapse. It is a form of modern economic warfare. The Euroâa historic turning point We are at a turning point in history. The U.S. dollar is in the same position today in which the Pound Sterling was at the end of the First World War. The U.S. dollar replaced the Pound Sterling as the dominant currency in the following twenty-five years. The best choice among the major currencies of the future is the euro. In a few years there will be three major currencies: (a) U.S. Dollar, (b) Euro, (c) Yen (or some other new Asian currency) and the currency of most countries will not be able to survive with their independent currency policies, including England with the Pound Sterling. The new European Central Bank under the leadership of the Germans will be recognized as a new leader in international money matters, and the euro will qualify in short order as a strong international currency. Markets will recognize the strength and stability of the European Unionâs economy, and in the future the euro will be one of the major reserve currencies in the world. It will not take twenty-five years this time around for this process to develop. This will occur at a very fast pace. It would be a smart move for Brazil to apply for membership in the European Union and to adopt the euro immediately as the new currency in Brazil. Today, countries around the world have official reserves as follows: Percentage share by currency: U.S. Dollar = 60 percent of market Euro Group = 20 percent of market Yen = 6 percent of market Other = 14 percent of market Most people should not be surprised if in ten years the breakdown of official reserves of the countries around the world will be as follows: U.S. Dollar = 35 percent of market Euro Group = 35 percent of market New Asian Group = 25 percent of market Other = 5 percent of market The decline of the U.S. Dollar. The U.S. dollar and the U.S. economy will encounter many problems in the near future related to the bursting of the Wall Street bubble, the costs of taking care of an increasing number of elderly citizens, and its cumulative government debt.â .
. Jem: Before I rip I will say I learned some fascinating things about slavery from his article on a website. Ricardo has researched some interesting things. ***** December 10, 2005 SouthAmerica: I did a lot of research about the subject of slavery for two reasons: First, when I was doing research about my book about the life of Jose Bonifacio de Andrada e Silva. Jose Bonifacio de Andrada e Silva, and his brother Martim Francisco did write various articles against the institution of slavery â these articles were published on major European magazines of the time (early 1800âs) Then when the Andrada Brothers were writing the first Brazilian Constitution â the day Jose Bonifacio was supposed to present his paper to end slavery in Brazil â Don Pedro I - The Brazilian Emperor closed the Constituent Assembly in 1823 â and sent the Andrada Brothers to exile in France. The long paper that Jose Bonifacio was going to present to the Constituent Assembly was published in England in 1826 and became the basis and one of the major documents that eventually helped end the slavery system in Brazil. Jose Bonifacio de Andrada e Silva (The Young) â he was the son of Martim Francisco which had married his niece the daughter of Jose Bonifacio ( The Patriarch of Brazilian Independence). Jose Bonifacio (The Young) received his name in honor of his famous grandfather. Jose Bonifacio (The Young) could have been anything he wanted in Brazil including Prime Minister, but instead he chose on his career as a senator to fight to end slavery in Brazil â he was a major literary figure on his day, a very well known lawyer and he is among the leading abolitionist in Brazilian history. And he was my great-great grandfather. Jose Bonifacio (The Young) - his father Martim Francisco wrote a very important document in Brazilian history. In the United States Thomas Jefferson is the author of the document "The Declaration of Independence of the United States." In Brazil Martim Francisco Ribeiro de Andrada is the author of the document "The Declaration of Independence of Brazil." Second, when I worked on a project for the government of Angola I learned a lot about that country and its connections to Brazil â slavery. You can read the article about Brazil and Angola in the following website: June 2003 â âBrazil and the Angolan Connectionâ http://www.brazzillog.com/2003/html/articles/jun03/p133jun03.htm ***** Jem: But, he is a very conflicted. He is a socialist, marxist who wants to be recognized. He wishes the world to know he is from Brazils "Greatest Family". This conflict is manifested in this thread. ***** SouthAmerica: I have no idea where you get these ideas that I am a socialist, and a Marxist. I have friend who came from Guiana, in South America (Guiana is a socialist country according to my friend). He is a socialist and he does not believe that I am a socialist after reading many of my articles and based on our personal discussions. Usually the people who make these statements â that I must be a socialist or a communist â usually these people are the ones who love George W. Bush and think that he is a great president. Regarding my family you probably saw the following articles among others in the web: January 2003 - âThe Brazilian Ruling Classâ http://www.brazzil.com/content/view/2149/27/ July 2000 â âThe Greatest Man in Brazilian Historyâ http://www.brazzil.com/content/view/6955/73/ ***** Jem: Anybody who trades for a living knows predictions are like assholes, every dope has one. ***** SouthAmerica: That is a very interesting statement. I assume you are not a dope â then you donât have an asshole? Very Interesting â I never met anyone without an asshole â for any chance do you have one of these plastic tubes that are connected into your intestines and comes out directly to a plastic bag? I am sorry to hear that, if that is the case. ***** Jem: People with conviction do not predict they trade. ***** SouthAmerica: I have seen my old friend Sir John M. Templeton on the Rukheiser â Wall Street Week show at least 20 times over the years. Mr. Templeton has a lot of conviction about his theories on investments and he used to share his predictions with the public all the time. By the way â he was not a trader. Mr. Templeton is the real deal. I know a lot of people who made a lot of money over the years by investing their money â many of them became millionaires. I donât know a single person that became wealthy as a trader â but a know a number of people who used to be traders and all of them have lost their shirt over a period of time until they gave up on daily trading. I understand investing in the mode of John Templeton and of Warren Buffett, but I could not make a living as a daily trader. Daily trading is not my cup of tea. .
. April 24, 2006 SouthAmerica: If you have been reading my postings and articles then you know that I have been predicting that the Fed Funds rate would reach 5 percent by May/June 2006. When the Fed Funds reach the 5 percent level we need to take a break and take a real hard look on many things that are going on before we know what will happen to the Fed Funds rate next. American companies will be able to repatriate their foreign earnings at an special tax rate until October 2006 when that tax break expires â I have no way of knowing how much earnings are going to be repatriated by that deadline. That is one reason to push the value of the dollar up against the euro â otherwise the US dollar probably would be losing its value against the euro. I donât know how many countries started switching their buying of oil â having the transactions priced in euros instead of US dollars. I donât know when the stamped out of the US dollar will start â but there many things that can trigger the spark, and that can turn very fast into a major international monetary crisis â something not seen for a long time. If you have been reading my postings then you know that I predicted that the Fed Funds rate would reach 5 percent and the price of gold would reach $ 600 per oz - in 2006. I also predicted the decline of the US dollar in 2006, but that is also on schedule and will happen before the end of the year. But right now there is too much risk in the market, and if I was a trader I would stay in the sidelines until I could see thinks a little clear. Things to keep a close watch: 1) US/Iran crisis â which could escalate very quickly and get out of control. 2) A terrorist attack on Saudi oil terminals. 3) The assassination or overthrow of the current dictator of Pakistan â there is a real possibility that Al-Qaeda or Osama Bin Ladden could get control of Pakistanâs nuclear weapons. 4) Another major terrorist attack on US soil. Conclusion: This is not a good time to take risks â the best strategy right now is to stay in the sidelines until better opportunities are available for investments. Here is another sign that finally central banks have started to reallocate their central bank foreign exchange holdings from the US dollar to a safer currency or even gold. . If many central bankers start getting rid off their us dollar positions â the US Federal Reserve will not have another alternative other than continue raising the Fed Funds rate in the United States even if the US economy start heading south into a recession or even worse. If the Fed does not keep increasing the Fed Funds rate then the US dollar will take a dive in world currency markets with the potential of starting a major âInternational Currency Crisis.â Mismanagement eventually catches up with you if you are a corporation or even a country as is the case here in the United Statesâ and then you have to pay the price for your mistakes. We are at a point in the economic cycle which it is hard to look at the crystal ball and figure out were the Fed Funds rate is heading after it reaches the 5 percent level â but if central bankers from around the world decide it is time to start dumping their US dollar positions before the heard also start doing it â then the answer is easy â the Federal Reserve will be forced to continue raising the Fed Funds rate to avoid a US dollar collapse in world markets. ********** The Financial Times â UK April 23, 2006 Foreign Exchange Reserves: The world's oldest central bank is proving to be among the most proactive in managing its foreign exchange reserves. In the past month, Swedenâs Risksbank, founded in 1668, has reduced its dollar exposure by 17 percent, largely in favour of the euro. As well as the size and speed of the shift, the reallocation is notable for its change of focus. â¦The venerable Risksbank may hold lessons for Asiaâs more youthful central banks. .
. April 24, 2006 SouthAmerica: If you have been reading my postings and articles then you know that I have been predicting that the Fed Funds rate would reach 5 percent by May/June 2006. ** Jayford: You and 90% of the World's economists. Good job! ******** April 25, 2006 SouthAmerica: I did forecast that the Fed Funds rate was going to reach 5 percent about 18 months ago - when the rate was only 2 percent and many of you guys from Wall Street called me an idiot at the time. On November 30, 2004 when I published my Predictions for 2005 for the US economy I said: the US Federal Reserve would need to raise the Fed Funds rate to a level between 4 and 5 percent by the end of 2005. When I made that prediction the Federal Reserve had just increased the Fed Funds rate to 2 percent in: November 2004. **** On December 8, 2005 when I posted on this message board my âEconomic Forecast for US Economy for 2006 and Beyondâ I said: 1) After Ben Bernanke, the new Fed Chairman, stops raising the Fed Funds rate in 2006 - when the rate reaches the 5 percent level - The US dollar finally will start its fast decline against the Euro and other currencies. 2) The price of Gold should increase in 2006 - from the current price of $515 per oz to a new high of around $ 600 per oz. Just a reminder: In November 2005 the Fed Funds rate had just been increased to 4 percent and many forecasters were saying that the fed was almost done increasing the fed funds rate at that level. And again some of you gave me a hard time about my forecast and want to see how I came to that conclusion â and some were asking me for mathematical equations and so on to back up my forecast. I am not a Monday morning quarterback â I make the predictions away ahead of time of the actual event and they usually come to past. And when they do many people like you tell me that everybody knew that that was going to happen and they dismiss my forecast as nothing of the extraordinary. On February 17, 2005 my article was published on my blog and also on Brazzil magazine and I still believe the predictions that I made over one year ago will become reality by December of 2008. At that time you probably will be among the people who will tell me that 90 percent of the worldâs economists also were saying the same thing that I said on my article dated February 2005. But since I wrote that article I donât know of anyone who wrote a similar economic scenario for the United States for the period from January 2005 to December 2008. âThe First Great Depression of the New Millenniumâ By Ricardo C. Amaral http://firstgreatdepressionofnewmillennium.blogspot.com http://www.brazzilmag.com/content/view/1424/49/ .
. April 27, 2006 SouthAmerica: As I have been saying all along some smart central bankers will adjust their US dollar holdings before the heard realizes what is happening. It is nothing new: as usual the âSuckersâ will be left holding the bag. In the meantime, China and Japan are stuck with their US dollar holdings since they have so much of it. But a lot of smaller countries from around the world can start dumping their excess US dollar holdings and let the big guys hold the bag for them for a change. Why wait until the last minute when you already can hear the noise made by the stampede? ************ RGE Monitor - April 27, 2006 A Roubini Global Economics Service âThe Emirates, Sweden, and Qatar Reduce Dollar Exposure: Is It a Trend Yet?â Finally, higher oil prices mean more money for oil producers to invest in global markets. That may not mean more Petrodollars, though. Recent market chatter has focused on signals that the UAE and Qatar are diversifying their foreign exchange reserves away from dollars and into Euros. They arenât alone â Sweden certainly has pared back its dollar holdings. More generally, there is growing chatter in policy circles suggesting that central banks need to focus less on accumulating reserves and more on generating higher risk-adjusted returnsâ¦. .
. April 28, 2006 SouthAmerica: Here is what I wrote on this message board a few days ago on April 24, 2006, and what Ben Bernanke said yesterday April 27, 2006. It seems to me that we are on the same wavelength. **** April 24, 2006 SouthAmerica: If you have been reading my postings and articles then you know that I have been predicting that the Fed Funds rate would reach 5 percent by May/June 2006. When the Fed Funds reach the 5 percent level we need to take a break and take a real hard look on many things that are going on before we know what will happen to the Fed Funds rate next. ************* April 27, 2006 AP â Associated Press âBernanke: Fed May Relax Rate-Hike Campaign.â By Jeannine Aversa, AP Economics Writer Associated Press - Keeping his options open, Federal Reserve Chairman Ben Bernanke signaled Thursday that after one more interest rate increase the central bank may take a break -- perhaps only temporarily -- from a rate-raising campaign aimed at keeping inflation at bay. In his most extensive comments yet on the possible path of monetary policy, Bernanke also suggested that interest rate decisions could become less predictable than they have been as Fed policymakers rely more heavily on barometers of economic activity and inflation. The Federal Reserve, which has raised rates 15 times at policy meetings over the past two years, "may decide to take no action at one or more meetings" in the future while waiting for economic information, Bernanke told Congress' Joint Economic Committee. "Of course, a decision to take no action at a particular meeting does not preclude actions at subsequent meetings," he addedâ¦. .
. May 11, 2006 SouthAmerica: I enjoyed reading Martin Wolfâs column on The Financial Times of London on May 10, 2006 regarding the coming decline of the US dollar. He is among a hand full of economists who I respect his opinion. My predictions about the Fed Funds rate and the price of gold has come to past. My only prediction that has not materialized as yet is in regard to the value of the US dollar in relation to the euro. I said that the US dollar would trade in the range of US$ 1.40 - US$ 1.50 to $ 1.00 Euro - most likely before the end of 2006. The decline is on schedule and the one variable that might slow a bit the pace of the US dollarâs decline is the volume of profits being repatriated to the United States from US companies to take advantage of the repatriation tax break that expires in October 2006. Other than that the US dollar is heading south folks. ************ âLet the dollar fall or risk global economic disorderâ By Martin Wolf Published: May 10 2006 The Financial Times - UK Last week, I had the pleasure of moderating a governors' seminar on global payments imbalances at the annual meeting of the Asian Development Bank in Hyderabad. The discussion made even clearer than before how far the irresistible force of US desire for exchange-rate movement - well expressed by US Treasury undersecretary Timothy Adams - meets the immoveable object of Asian resistance. As a result, I fear, the chances of a row even worse than the one accompanying the end of the Bretton Woods exchange-rate system in the early 1970s grow ever bigger. In Hyderabad, Yong Li, China's vice-minister of finance, referred to "rumours that the US dollar might depreciate by 25 per cent" as shocking. Similarly, Sadakazu Tanigaki, the Japanese finance minister, warned the ADB seminar that "overemphasising realignments of exchange rates could invite market speculation and deal a blow to the global financial markets". If the US Treasury now labels China a currency manipulator in its semi-annual foreign exchange report due today, the tension will increase still further. Even if the US does not issue such a judgment, the day of reckoning will only be postponed. After all, China's foreign currency reserves grew by $680bn (£364bn) between January 2001 and January 2006, in a successful attempt to keep the value of the renminbi down. Yet April's communiqué from the finance ministers of the Group of Seven leading high-income countries stated explicitly that "in emerging Asia, particularly China, greater flexibility in exchange rates is critical to allow necessary appreciations, as is strengthening domestic demand, easing reliance on export-led growth strategies and actions to strengthen financial sectors". Singling out China in this way was a bold move. Judged by the rhetoric of its policymakers and the scale of its interventions, China is not about to concede to such pressure. Consequently, the dollar is weakening largely against the floating currencies. Since the middle of April, the Federal Reserve's broad trade-weighted dollar exchange rate has lost 3 per cent of its value, while the currency has fallen by 5 per cent against the euro. The big question, however, is whether the Chinese, Japanese and others are right to believe that a large fall in the dollar can be avoided. In addressing this question, I put to one side two other questions; whether, properly measured, the US has a large current account deficit and whether, if it does, it is sustainable. The question here is a different one, namely, whether it is possible to reduce the US deficit substantially without exchange-rate changes. The answer is that it would be possible, but catastrophic for all participants, because it would demand a deep US recession, which would almost certainly end the US commitment to liberal trade. The point emerges in a simple way from examination of the trends in exports and imports as a share of US gross domestic product (see chart). It has been made more rigorously by Maurice Obstfeld of the University of California at Berkeley and Kenneth Rogoff of Harvard.* A very simple description of the current state of the US economy would be as follows: total demand is 107 per cent of gross domestic product; total output of tradeable goods and services is about 25 per cent of GDP; total demand for tradeable goods and services is 32 per cent of GDP; and total demand and supply of non-tradeables is 75 per cent of GDP. The difference between supply and demand for tradeables, by definition, equals the trade deficit. Now assume a reduction of only 3 percentage points in the ratio of the trade deficit to GDP. This is just under 10 per cent of total demand for tradeables. Assume, for simplicity's sake, that the incremental demand for tradeable goods and services is proportionate to that for non-tradeables. Without any shift in relative prices, overall demand in the economy needs also to fall by just under 10 per cent to deliver the desired reduction in the trade deficit. This would generate a fall of about 7 per cent in GDP, all of which would fall on industries producing non-tradeables. But such a deep recession would create misery, while contributing nothing to the desired improvement in the external deficit. To avoid the massive recession that expenditure reduction alone would generate, the price of non-tradeables has to fall substantially relative to that of tradeables. Such a shift is a decline in the real exchange rate. This should move spending towards non-tradeables and potential supply towards tradeables. Under plausible assumptions the real exchange rate changes needed to shift the economy in the desired direction are large. The quicker the adjustment, the bigger they must be. That is a good reason for making those adjustments slowly, which is also a reason for avoiding postponing them indefinitely. Could these changes in real exchange rates be achieved without moves in nominal exchange rates? The logical answer, again, is yes. But that would require a fall in the nominal price of non-tradeables in the US - in other words, outright deflation in that country - and a rise in the price of non-tradeables in the exporting countries - in other words, rapid inflation there. The former is inconceivable, while the latter is apparently unacceptable. So nominal exchange rates must move. If surplus countries resist this, there will be no adjustment. They are then gambling the wealth of their citizens on rapidly growing holdings of US liabilities. They are also gambling that US protectionist pressure can be contained as the deficit soars. Economists working for Deutsche Bank have called the present informal exchange-rate arrangement "Bretton Woods 2". Remember that the US destroyed Bretton Woods 1 in 1971 by imposing an import surcharge and forcing currency appreciation. This led to a decade of monetary disorder. This disastrous outcome was the result of resisting adjustment too long. The surplus countries must not assume that the present course is benign. On the contrary, it is very dangerous, politically and economically. It poses a great threat to a trading system, already imperilled by the looming failure of the Doha round of trade negotiations. Nothing is more understandable than the wish to stop currency adjustment. But it is a big mistake, all the same. *The Unsustainable US Current Account Position Revisited,November 30 2005; Source: http://news.ft.com/cms/s/f18abd20-dfc1-11da-afe4-0000779e2340.html .