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posted by King Minos in Money / Career

Run On the Dollar?

January 17, 2013

The New York Fed stores the German gold without cost on the theory that the presence of foreign gold supports the dollar’s status as the global reserve currency. A spokesman for the New York Fed declined to comment.

http://www.nytimes.com/2013/01/17/business/global/german-central-bank-to...

The news that Germany is planning to move some its its gold back home could have implications for the value of the USD. As noted above, the dollar's status as a "reserve currency" is bolstered by the presence of so much foreign gold in vaults beneath the New York Fed.

One wonders if other countries might be considering repatriating their gold, back home?

In addition, we have the fast approaching potential debt ceiling political meltdown; though I see it as HIGHLY unlikely, the political gridlock in DC could mean U.S. Treasury Bond holders miss a payment on interest, and principal.

If THAT happened, the credit rating for U.S. debt would likely be cut significantly; in return, the U.S. Treasury might have to hike the interest it pays to borrow funds to keep the government operating.

Would THIS development spawn a "dollar crisis?"

Well ... on the other side of the "dollar crash" idea is all the foreign countries that hold U.S. currency in reserve including Japan and China and other major trading partners; if they move to dispose of these holdings, then the value of their assets -- U.S. dollars -- and 'our' assets -- U.S. dollars in our pockets -- would likely decline significantly and quickly. Nobody wishes to see THAT!

Furthermore, let's not forget the reason trading partners hoard U.S. currency: By doing so, they impose an artificial "demand" for USD that bids up the price and value of the USD. In turn, a "high" dollar means U.S. EXPORTS are overpriced; and that foreign IMPORTS are "under priced" in the U.S. consumer market. Needless to say, the Chinese and Japanese want things to STAY that way! (And U.S. authorities must cooperate because they are a reckless, spendthrift bunch who MUST borrow domestically and from abroad to maintain their political power! In other words ... the de industrialization of the U.S., loss of middle class "living wage jobs," and the outsourcing of so many American jobs is the price WE the people pay (and have paid) to keep our esteemed political LEADERS in power ...)

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