The Value of the Dollar

The central bank of China announces they are going to “diversify” their holdings meaning they are going to dump lots of US dollars on the global market.

Reserve Diversification Continues To Lead Dollar Down: For those who missed out, yesterday afternoon the central bank head of China Zhou Xiaochuan stated that the country’s reserve plan continues to include further diversification away from US dollar based assets and into other assets carrying a higher rate of “safety, efficiency and liquidity”. The announcement becomes a notable concern for the world’s largest economy as the Chinese country holds $1 trillion in foreign exchange reserves, with a whopping 72 percent being sectioned for US dollar denominations. As a result, the sheer weight of positioning holds negative for the dollar as the statement coincides with recently similar announcements by the Russian central bank this year and the South Korean central bank last year.

Supply and demand works with money as well as with products and services so it is prudent to expect to pay more dollars for foreign stuff purchased with dollars.

The Weak Dollar and You: Let me simplify -- or oversimplify -- the economic effects of a weak American dollar to you: As the dollar gets weaker, it costs more to buy foreign goods, including oil. Thus, the price of everything America imports increases, as does the cost of shipping and energy. That means the raw materials and supplies for your business get more expensive. Because the dollar isn't as attractive as other currencies to foreign investors, and America depends on such investors, banks have to offer higher interest rates. That means upward pressure on interest rates for all loans, including loans to small businesses.

The timing of the Chinese action within days of a power shift in Washington is probably simple coincidence, but people who strategize economic warfare are clearly aware of the utility of currency manipulation.

America's Acupuncture Points: One of the pillars propping up US superpower status and worldwide economic dominance is the dollar being accepted as the predominant reserve currency. … What is frightening for the US is the fact that China, Russia and Iran possess the power to cause a run on the US dollar and force its collapse.

Economic globalization has happened. Period. Done Deal. All the traditional maneuvers national governments use to control national economies, protect industries, salaries and jobs are increasingly ineffective. Politicians with nostalgia for a lost past are going to be worse than useless. America needs smart leadership developing adaptations to the new reality. Business Week spells it out in detail.

Can Anyone Steer This Economy? Because for the past 70 years, Washington has been the 800-pound gorilla, more powerful by far than any other force in the U.S. economy. That's not true anymore. The federal government remains plenty influential, but the global economy is more so. This will come as a rude shock to Representative Nancy Pelosi (D-Calif.), the presumptive Speaker of the House, Charles B. Rangel (D-N.Y.), the likely chairman of the House Ways & Means Committee, and other newly enfranchised leaders in the Democratic Party.

China, Russia and Iran have common ground in wanting a weakened United States. The cost of military action is more than even the Mullahs probably want to pay, but there are other ways to sap the strength of the mighty. Clip the hair of Samson or nick the heel of Achilles for example.