There are rumblings that the US Dollar may loose it's membership in a very exclusive club, that of the "World's Reserve Currency". You're thinking "Big deal, who cares?" You should.
If the US Dollar looses it's reserve currency status then we wouldn't have to print $1 more to have massive inflation. What Reserve Currency means is that other countries are using the US dollar to back up the value of their money. For example, one of the reasons the Ruble has value is that Russia has 401 Billion dollars sitting in the back room. It's like gold but much more papery. As best I can tell there is about 6 TRILLION US Dollars locked up in back rooms.
A comparison to Global Warming would be apt. Right now there are giant Polar ice caps made out of US Dollars. As long as the economic environment doesn't change they basically are going to stay put, with some yearly variation of course. As we speak it is getting uncomfortably warm. These ice caps are melting. Countries are looking at our current debt and national deficit and migrating away from dollars.
TIC Flows, flows of funds from other countries into the US Treasury, is one of the best ways to make "Polar Ice", unfortunately the demand is starting to slow down. Drip, Drip, Drip.....
From Mortgage Daily News:
TIC Flows Show Foreign Demand for US Debt Waning
The Treasury’s latest measure of international capital flows failed to match the optimism in economists’ forecasting charts.
Foreign demand for long-term Treasuries was just $15.3 billion in July, a quarter of what analysts were expecting. Total figures including short-term securities showed an outflow of $97.5 in the month versus -$56.8 billion in June.
“An optimist might note that long-term U.S. securities purchases by foreigners in July were better than two of the prior four months, but beyond that silver lining there wasn't much to cheer about in the latest TIC Flow report,” said Eric Lascelles, chief rates and economics strategist at TD Securities.
Lascelles noted the total outflow figure was the “worst outcome since January,” and downward revisions to the prior month’s data only poured salt into the fresh wound.
Appetite for Treasuries was still robust among the United States’ two biggest clients. China increased its holdings by $24.1 billion in July and Japan absorbed $12.7 billion.
So while I could personally care less whether corn & crude oil are priced in US Dollars, Euros, Rubles or Real at the end of the day if we loose our Reserve Currency Status the Polar Ice will end up returning home as a Tsunami of Dollars. Hello $7 gasoline?!?!
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