Despite the prospect of a more than doubling of the U.S. annual budget deficit for each of the next two years, the dollar has held up reasonably well so far against the world's other major currencies, actually rising against the euro and British pound, while falling against Japan's yen. But a commodities guru says that won't last.
Commodities expert Jim Rogers says U.S. policy makers will devalue the dollar, undercutting the greenback's reserve currency status, according to Bloomberg News.
"They think that if you drive down the value of your money, it makes you more competitive, now that has never worked in history in the long term," Rogers said. He added that he is buying Japan's yen and started buying commodities, such as sugar, in October, calling low commodity prices "astonishing." (For full currency data, click here.)
Still, despite Rogers' superior performance predicting commodity cycles -- in 2006 he correctly predicted that oil would hit $100 and gold $1,000 -- not every economist is in agreement with his dollar devaluation thesis. Economist David H. Wang said that while the dollar will likely decline in value some, due to increased U.S. government borrowing, that does not guarantee a decrease in U.S. competitiveness.
"Contrary to Roger's analysis, the U.S may in fact become more competitive, as the cost of U.S. products to foreign buyers declines," Wang said. "China has demonstrated that lower prices for goods, combined with overall quality, can increase exports."
Further, currency trader Andrew Resnick took issue with Rogers' buy-the-yen strategy. "The yen will rise, for now, on the belief that Japan's banks will be less hurt by toxic assets, but when the global economic recovery starts, led by the U.S., the yen will fall," Resnick said. "The yen should only be viewed as a short-term trade of six months or less, but there's considerable risk in holding the yen for that short period of time." Resnick added that he was presently long with the dollar vs. the euro and British pound.
Monetary Policy Analysis: It's hard to argue with Rogers' forecast on commodity prices -- his track record has been very good, and commodity prices will eventually rise from current lows. But unless one is long-term bearish on the U.S., so will U.S. stock prices, in tandem with a U.S economic recovery. Further, U.S. short-term interest rates are negative, in real terms (after accounting for inflation), and they'll return to normal levels as the recovery starts. Those two factors -- rising stock prices and higher interest rates -- likely will bolster the dollar. Finally, it's difficult to predict shifts in the world's reserve currency status, as it involves a geopolitical power assessment, as well as an economic one.
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Reader Comments (Page 1 of 1)
11-25-2008 @ 3:09PM
Sheldon L said...
...and Jim's perspective comes to you all the way from Asia where he is hiding out.
11-25-2008 @ 4:08PM
Bill Daviau said...
We are creating 800 billion dollars today to shore up the banking community. That is in addition to the 700 billion dollar "bailout." Consider that the banks create money every time they make a loan, that is how the feral reserve system works, they need only 10% in assets to make any loan and the money is simply created out of thin air each time. Now that 10% is being provided by the government.
We are monetizing the debt, not only the government debt but also private debt. How can anyone doubt historic inflation and the long term demise of the dollar?
11-25-2008 @ 4:46PM
CARLLOVELACE said...
I'VE GOT AN IDEA!
HOW ABOUT THE "OBAMA"
IT WILL BE A NEW COIN, IT WILL BE ABOUT THE SIZE OF A PENNY (AND WORTH AS MUCH AS OUR CURRENT PENNY) BUT IT WILL REPLACE A $100 DOLLAR BILL. FROM THIS WE CAN CREATE A WHOLE NEW LINE OF CURRENCY. "THE CLINTON" WILL REPLACE A $1 DOLLAR BILL AND IT WILL BE WORTH $1,000 AND HAVE AS MUCH BUYING POWER AS TODAYS $1 DOLLAR BILL.
11-25-2008 @ 6:37PM
jo said...
At least OBAMA is trying to do something WHAT DID BOY GEORGE DO BESIDES GETTING US IN THIS WAR FOR HIS DADDY?
11-26-2008 @ 5:19PM
clarke ammerman said...
jo, with all due respect, it was congress,all parties that voted for the war. I guess you forgot we were attacked , which is an act of war. It was no different than the attack on Pearl Harbor , Dec 7, 1941, except the date was 9/11/01. Do your homework before spouting off and blaming one man. If it was'nt for the men and women in the armed forces you would not hae the freedom to express your opinions here, or anywhere else. SGT USMC (retired)
11-26-2008 @ 5:00AM
René Cohrt said...
We live in a financial chaos originally organized by criminals.
The mean survivaltime for papercurrencies 39 years.
In order to reestablish normal conditions in the currency and liquidity market you have to reintroduce gold in the system to 55000 dollars per ounce. Devalue US-dollars and euro by a factor of 12.
This to eliminate the astronomical debtburden.
Either you do that or see our civilisation disappear.
11-26-2008 @ 9:49AM
EMIL J KOVACH JR said...
Unfortunately, He Is WRONG, The Dollar Will Continue To Gain Strength, Over The Next 12 Months, Slow, But Sure, And Commodities, Will Stay Near Their Lows, For A While. The USA Will Be The First Economy, Back From The Dead, AMERICANS Are Spenders, Not Savers, As The Rest Of The World Is. SAUDI ARABIA Is Committed To Keeping CRUDE OIL, At The Fair Market Value, Which Appears To Be The 50.00 Dollar Mark,
For A While, THE FUEL SAVINGS ALONE, Has Returned Over 300 BILLION, Into The Pockets Of Americans, So Far, And The Rest Of the World, Has Benefitted Greatly, From The SAUDIS Policy, Of A Stable And Fair CRUDE OIL PRICE.
EMIL J KOVACH JR
11-26-2008 @ 11:21AM
ekrabs said...
I'm not into commodities or currencies, but I think Jim Rogers has a point here. Certainly, it is thought-provoking at the very least.
Thanks for sharing!
11-30-2008 @ 2:17PM
Bobi said...
clarke ammerman, there are still doubtsdid you been attacked or bloody theatered. But surely you didn't strike the correct respondent. It has been completely proved Saddam was not guilty for all the blames the war started.
12-28-2008 @ 4:55AM
Attila_EU said...
dont tell me your secret service never had an idea what is coming...again a goody trigger to move into the war with public back up, patriotism rocks in your country, respectful but used against you many times through history