• 204 days Could Crypto Overtake Traditional Investment?
  • 209 days Americans Still Quitting Jobs At Record Pace
  • 211 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 214 days Is The Dollar Too Strong?
  • 214 days Big Tech Disappoints Investors on Earnings Calls
  • 215 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 217 days China Is Quietly Trying To Distance Itself From Russia
  • 217 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 221 days Crypto Investors Won Big In 2021
  • 221 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 222 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 224 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 225 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 228 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 229 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 229 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 231 days Are NFTs About To Take Over Gaming?
  • 232 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 235 days What’s Causing Inflation In The United States?
  • 236 days Intel Joins Russian Exodus as Chip Shortage Digs In
Michael Pento

Michael Pento

Pentoport

Michael Pento produces the weekly podcast "The Mid-week Reality Check", is the President and Founder of Pento Portfolio Strategies and Author of the book "The…

Contact Author

  1. Home
  2. Markets
  3. Other

De-Crowning The Dollar

The gradual erosion of the U.S. dollar's status as the world's reserve currency has been greatly hastened of late. This is due not only to the perpetual gridlock in D.C., but also our government's inability to articulate a strategy to deal with the $126 trillion of unfunded liabilities.

Our addictions to debt and cheap money have finally caused our major international creditors to call for an end to dollar hegemony and to push for a "de-Americanized" world. China, the largest U.S. creditor with $1.28 trillion in Treasury bonds, recently put out a commentary through the state-run Xinhua news agency stating that, "Such alarming days when the destinies of others are in the hands of a hypocritical nation have to be terminated." In addition, Japan (our second largest creditor holding $1.14 trillion of U.S. debt) put out a statement through its Finance Minister last week saying, "The U.S. must avoid a situation where it cannot pay, and its triple-A ranking plunges all of a sudden." It is both embarrassing and hypocritical to be lectured by Japan about an intractable debt situation. However, the sad truth is we have become completely reliant on these two nations for the stability of our bond market and currency.

We arrived at this condition because our central bank has compelled the nation to rely on asset bubbles for growth and prevented the deleveraging of the economy by forcing down interest rates far below a market-based level. For example, instead of allowing debt levels to shrink, the Fed's virtually-free money has now caused consumer credit to surge past the $3 trillion mark by Q2 2013; that is up 22% in the past three years. And of course, the Federal government massively stepped up its borrowing beginning in 2008, piling on over $6.8 trillion in additional publicly traded debt since the start of the Great Recession.

While most are now celebrating the end of government gridlock (however ephemeral it may be), the truth is few understand the consequences of our addictions. The real problems of government largess, money printing, artificial interest rates, asset bubbles and debt have not been addressed at all. Rather, Washington has merely agreed to perpetually extend its lines of credit and to have the central bank purchase most of that new debt.

Instead of placating the fears of our foreign creditors we have cemented into their minds that the U.S. dollar and bond market cannot be safe repositories of their savings. The eventual and inevitable loss of that confidence will ensure nothing less than surging prices and a complete collapse of our economy.

The fear of an economic meltdown was the genesis of a constitutionally-based third-party political movement. The Tea Party was formed to prevent runaway inflation and an economic depression resulting from a crumbling currency and devalued debt. It appears by the absolute and universal vilification of its members by both republicans and democrats indicates that U.S. citizens are not yet ready to undergo the pain associated with the removal of our pernicious addictions. Since there appears to be no political solution is site it would benefit investors to take steps now to protect their portfolios from the de-crowning of the U.S. dollar as the world's reserve currency.

 

Back to homepage

Leave a comment

Leave a comment