The decline and fall of the US dollar?


This little bit of economic news seems to have quietly slid out of the papers here fairly quickly.

FMG’s trade in renminbi expected to be followed

 

Fortescue minerals group is a medium sized player in the Australian iron ore market, it appears they have more confidence in the stability of the renminbi (Chinese currency) rather than the US dollars traditionally used for international commerce.

Tie that in with the US treasuries attempts to inflate away their domestic currency crisis and we may be looking at a severe downgrading of the prestige and value of the US currency as a unit of international trade.

A resources analyst says a decision by Fortescue Metals Group to trade using the renminbi signals a shift towards widespread transactions in the Chinese currency.

Yesterday, Fortescue Metal’s boss Andrew Forrest announced his group had completed its first ever deal using renminbi.

It is understood FMG is the first Australian company to trade in the currency rather than in US dollars.

The first, Mr Forrest is a pretty canny bloke, it remains to be seen if his business sense is right on this one.

The Chinese currency currently has its value pegged to the US dollar, if the dollar was to freefall it would be insane for the Chinese to allow it to take their currency down as well.

What would they then peg their currency to? The Euro?, British Pound?, The Yen? risky. Its difficult to see any other currency with the same “weight” to peg against.

He said he expects other Australian companies to follow suit.

“I don’t think it’s just Australian miners, it’s the Australian economy will definitely follow this move,” he said.

“It will start the flood because it makes it much easier now to do business with China, it’s part of China’s opening up and China becoming more efficient in global engagement.” Analyst Peter Strachan says the trade makes financial sense with China the region’s dominant economic and political force.

“They’re standing up and saying it’s our time,” he said.

Mr Strachan says many Australian companies will soon be trading with China using the renminbi.

“It’s not just going to be in iron ore, it will be in jocks and socks, through to refrigerators and whatever else comes through the door.”

The US government is printing money at a record rate, in all likelihood the US dollar is overvalued due to its reserve currency/trade currency status. If it were to lose even a large percentage of that just how much could the US dollar crash?

On the upside it would make exporting US products more competitive.

On the downside….everything else.

Now Im not a clever man, but I can see the US crippling itself in an attempt to ride out a downturn. Printing currency to inflate toxic losses is WORSE than the pricing correction trying to happen will be.

11 Responses to “The decline and fall of the US dollar?”

  1. J.M. Heinrichs Says:

    Except that Chinese economic figures are about as reliable as an Obama speech. Gut feel mostly, but I would be hedging any renminbi deals.

    Cheers

  2. thefrollickingmole Says:

    J.M. Heinrichs
    Ive got a horrible feeling it applies to most currencies at the moment. I might turn into a “gold bug” yet..

    http://en.wikipedia.org/wiki/Gold_bug

    • minicapt Says:

      No, most currencies have outside analysis and people ready to pounce on mistakes; an example would be Soros’ plundering of the pound in the early nineties. There is no such coverage of the Chinese financial system, their finances are seen as inscrutable yet highly reliable, no one can trace where their money goes, companies get bilked out of billions but stay in the market, empty cities are built but no one senses a problem, their’s is a free market economy where the major/senior companies are controlled by members of the Politburo families or the Army …

      Cheers

  3. minicapt Says:

    Also: http://www.smalldeadanimals.com/archives/017258.html

    Cheers

    • thefrollickingmole Says:

      Good article, I read in a book “How the west was lost” by this lady, http://www.dambisamoyo.com/ , the most shocking thing I read in the whole book was the part she explained how those computor programmes were being written to “just beat” the market and take out 1/100th of a cent profits in stocks.

      I actualy questioned if a system that allowed that to happen deserved to exist. I still dont think so, that section on having to hold poitions for a minimum time sounds reasonable to me.

  4. Mick Gold Coast QLD Says:

    I cannot pretend to understand the shift from one currency to another and the relative merits however … it seems to me the US Boy King is hurtling down a mad path to major enduring diminution in how the US dollar stands, when the only way to strengthen and maintain is to cut the idiotic public sector borrowing for spending on non income producing public sector populist puff to win votes for his now 3 year continuous campaigning. They badly need an all powerful “razor gang” to nuke the myriad of programs that are offering nothing of value to growth & substantial employment. I cannot remember a more irresponsible abdication of fiscal responsibility in the US & it is not as if they could not anticipate the exponential strengthening of the Asian economies – at their expense.

    • bingbing Says:

      A razor gang. I read that almost half of the US economy goes to funding its bureaucracy. If true, that’s insane.

      http://rogueoperator.wordpress.com/2011/07/14/socialism-american-style/

  5. Mick Gold Coast QLD Says:

    Further, Andrew Forrest has done okay to date but recent history has many fast trackers who over-reached – I can recall them all the way back to Poseidin NL in the early 70s – rocketing up ever so impressively and crashing spectacularly when they forgot the business that best suited their skills

    • thefrollickingmole Says:

      You are right there, theres been a line of Aussie businessmen come undone by their own cleverness.

      It will be wise to wait and see if a trend emerges with the big players doing the same.

  6. J.M. Heinrichs Says:

    http://www.cbsnews.com/8301-503543_162-20077124-503543.html

    Cheers

    • bingbing Says:

      Interesting. Funny (not) how any speculation was quickly rubbed out by censors. Don’t let Bob Brown get wind of that article. He’d jizz in his pants.


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