

Warren Buffett is now betting against the US dollar - ck2
http://www.washingtonpost.com/business/economy/the-dollar-less-almighty-big-investors-see-possible-long-term-currency-weakness/2011/04/19/AFxVaKLE_story.html

======
ra
I can't see one single indicator to suggest that the USD isn't in a long term
decline.

The only reason this isn't yet glaringly obvious to everyone, is that the Euro
and GBP are also stuck on a downward trend.

Speculatively, I believe the Euro and GBP will 'save' themselves out of
trouble within the next 5-7 years, whereas the US will practically have to
reinvent the earnings foundation of it's entire economy before it can break
out of this current downward spiral of excessive debt.

~~~
fauigerzigerk
Why does the US have to reinvent its earnings foundation and the EU and the UK
don't?

I believe the US dollar is in a long term downward trend because it is slowly
slowly losing its reserve currency status as the US is losing its economic
predominance. That's not a bad thing. It's just a reflection of Asia becoming
less bad economically, which is neither difficult nor surprising considering
how bad they used to be.

~~~
lupatus
The USA is not going to lose its reserve currency status because it will
continue being the world's sole superpower for the for the next 30 - 100
years, at least. For an in-depth analysis, see:
[http://www.singularity2050.com/2008/06/why-the-us-will-
still...](http://www.singularity2050.com/2008/06/why-the-us-will-still-be-the-
only-superpower-in-2030-v20.html)

~~~
fauigerzigerk
I don't doubt the strength of the US economy or its military power, but in
relative terms the US is slowly getting less important. The article doesn't
dispute that. It just says that it will take a long time until anyone will
surpass the US. Also, the article works on the assumption of linear
development, which is kind of questionable, but that's a different story.

The US used to be the biggest user of commodities, so it was pretty logical
that the dollar should be the currency in which commodities are priced. Today
China is the biggest user of commodities and it is only logical that countries
like Brazil are going to take a little more RMB in exchange for their iron ore
than they used to. And considering they import a lot of stuff from China as
well, why should they sell their RMB for USD immediately? They won't.

Exchange rates are not based on absolutes but on relative strength. So the
question is not wether the USD will or will not lose its reserve currency
status. The question is how fast. My totally scientific characterization of
that pace was "slowly slowly".

~~~
lupatus
The USA, however, isn't exactly "declining". As the article I linked to above
noted, the USA is continuing to grow across a broad spectrum of measures. Yes,
China and the EU may be growing at a faster rate in some of those categories,
but the USA has such a great initial advantage that it will be a long, long
time until another country catches or surpases the USA in even one of those
categories.

So, let us take your simplified example and expand it a little to see a
broader macroeconomic picture that illustrates why Brazil and China would want
to do that trade in dollars. Let's say that Brazil wants to use the cash from
that commodity sale to improve the living conditions of their citizens and
purchase some Catepillar brand forest-clearing bulldozers and some crude oil
to refine into gasoline for those bulldozers because their local sugar-cane
ethanol would wear-out the engines too quickly. Well, Catepillar is a American
company so it makes sense for them to bill Brazil in USD instead RMB. The
middle east oil exporter also charges Brazil in USD because the US Navy
protects their shipping lanes and the CIA and State Dept maintains (or
doesn't) the internal stability of that country. Last, China has USD coming
out of its ears and is more than happy to trade pieces of paper for real
assets like Brazillian ore.

Now, why would the Chinese want Brazil to pay them in USD for some Chinese
goods? The Chinese are smart and recognize that if the USD sank too far in
value that the manufacturing jobs in China would return to the USA. This is a
problem for the Communists because they do not have a sufficient internal
economy to continue employing hundreds of millions of peasants. And, that
would be a dangerous political problem for the Communist leadership in China.

Now, I will agree that this assumes linear development, but it would take a
situation like WWII to knock the USA out of reserve currency status, and I
don't think that is very likely.

In conclusion, welcome to Pax Americana; you should learn to love it.

~~~
fauigerzigerk
First of all, Brazil is a major oil producer itself and doesn't need middle
eastern oil, but that's beside the point. I don't disagree with a lot of the
things you say. I'm not saying the US will decline in absolute terms nor do I
think that the dollar will necessarily go down further in the short term. It's
true that the Chinese don't want that.

What I'm saying is that over the coming decades, the importance of the US is
declining in relative terms and that trend is affecting the reserve currency
status of the USD. Countries are diversifying out of the dollar. It makes
sense for China and Brazil to hold some of their foreign currency reserves in
each others currency instead of dollars, now that they are such close trading
partners.

What you describe is the status quo. What matters is the trend and the rate of
change.

------
espeed
To understand what's going on, make sure you read the last sentence on the
first page, continue on to the second page, and then watch this Charlie Rose
interview with Gordon Brown (<http://en.wikipedia.org/wiki/Gordon_Brown>)
where he also talks about the US/China "currency wars" and the "race to the
bottom" (<http://www.charlierose.com/view/interview/11343>).

China artificially lowers its currency so its goods are relatively cheaper
("it's pegged to the dollar"), which keeps its foreign trade prices down and
therefore boosts its exports. So how does the US "compete" with an
artificially-lowered foreign currency to discount its debt and keep its
exports up? Or, in other words, how does the US devalue its own currency in a
"race to the bottom"...?

~~~
ck2
Reducing the value of the dollar overseas to sell more sounds like madman
logic to me - it only makes the wealthy, more weathy, not the average
consumer.

We don't reduce the subsidies to those exporting more, so they will do fine.

But for the average person it will just make all your goods and services more
expensive.

~~~
mdemare
Nonsense. A cheap currency promotes exports and reduces imports, and will
strongly stimulate job grows, which is exactly what the U.S. needs now.

Job growth is also the reason why China is keeping its currency cheap: mass
unemployment means instability.

~~~
ck2
Ah okay, trickle-down economics 2.0

So, give the wealthy the opportunity to ship twice the number of widgets at
half the profit and they'll just have to give someone a job, regardless if
it's the lowest possible paying jobs that will only be temporary anyway until
the cost to make the widget also increases because of the supplies they need
will now also cost twice as much.

Then when China out-deflates us to make the widgets even cheaper, all that
temporary labor will be on unemployment and need taxpayer provided benefits
and health care. Win-win for the factory owner.

~~~
espeed
A key point, as discussed in the Charlie Rose/Gordon Brown interview (above),
is in the next 10-20 years when China's emerging middle class becomes
consumers.

If the US is still in a position where its technology is superior and China's
~600 million new consumers demand and buy US technology, then it will result
it massive US exports, windfall profits, and the perceived debt problem goes
away. Part of the US strategy is to make sure it's in a position where China's
new middle class demand and buy US technology.

------
mmaunder
A weaker dollar is marketed as a bad thing in the USA. But many don't realize
that a strong dollar benefits the rich and a weak dollar benefits
entrepreneurs and companies who don't yet have large dollar reserves they need
to protect, but are exporting services and competing in a global market place.

~~~
larrykubin
The majority of the population aren't the rich people with tons of money in
the bank or entrepreneurs starting companies. The price of gas and basic food
items increasing rapidly is devastating to many people.

~~~
mmaunder
Then you have to consider what is more devastating: Being unemployed because
your job was shipped to a country with a weaker currency, or being employed
but paying more for imported goods because our currency is weakened.

A weak dollar will create more jobs in the USA as it becomes more expensive
for companies to outsource to other countries. In the short term, imported
goods will increase in price, but longer term they will readjust to levels
that reflect their real value as production moves back on-shore.

~~~
richcollins
Worked like a charm in Zimbabwe

------
bootload
_"... He also pronounced post-earthquake Japan “a buying opportunity, ..."_

There was a block of trades in Tokyo Electric reported by the NYT, 18th April:
_"Mysterious Trades in a Big Block of Tokyo Electric Shares Draw Regulators’
Interest"_ ~
[http://www.nytimes.com/2011/04/19/business/global/19tepco.ht...](http://www.nytimes.com/2011/04/19/business/global/19tepco.html)

The Times noted the following:

 _"... Japanese regulators and executives of the Tokyo Electric Power Company
are asking questions about a seemingly coordinated series of stock purchases
two weeks ago that led to an undisclosed buyer or buyers acquiring a large
block of the utility, which owns Japan’s dangerously damaged nuclear power
plant. ..."_

Wonder if this was a Buffett (or inspired) move? This is after the first loss
in 28 year, April 30th, Bloomberg, _"Tokyo Electric Has First Loss in 28 Years
on Shutdown"_ ~
[http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a...](http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a7TSwanL7qHg&refer=asia)

------
csomar
Reading through the comments, I found that some HNers suggest that a weaker
currency will boost exports. But I have a question that is looping in my mind:
If currency weakness is due to inflation, won't the product price inflates? If
I have a product that is worth $100 and tomorrow there is a USD inflation of
10%, won't the product be worth $110?

~~~
j2d2j2d2
I think you're conflating two ideas.

First, inflation internal to the US manifests itself, often enough, as higher
prices.

Second, the reason this is good for exports is because it usually also takes
less of the foreign currency to purchase our goods.

~~~
nerfhammer
inflation is defined as higher prices

~~~
j2d2j2d2
That is correct. However, the purchasing power of non monetary items is not
effected by inflation.

------
Symmetry
An entire article about the dollar losing value, but not a word about how this
relates to US monetary policy? The article was singularly uninformative and
misleading.

~~~
adestefan
It has very little to do with monetary policy. Instead it's the threat of
Congress not raising the debt ceiling.

~~~
crikli
Can you explain how Congress refusing to raise the debt ceiling contributes to
devaluation of the dollar?

(Serious question, no snark intended at all.)

~~~
ck2
I think it has to do with a reduced credit rating if they don't raise the
limit (because they could then default on existing loans) which makes the
interest on the debt higher, which makes US currency worth less?

~~~
JonnieCache
As I understand it, the US dollar's status as the human race's reserve
currency is based on the fact that the US is perceived as always paying it's
debts. If they default, countries and banks around the world will suddenly
change their reserves into euros, plunging the value of the dollar.

Take all that with a handful of salt though.

~~~
rgraham
It's not quite that simple. If you're holding dollar denominated assets and
you want to 'suddenly' switch to Euros you'd better be happy to sell/exchange
those assets for pennies on the dollar. Flight from an asset causes prices to
crater. Sudden flight and causes crises and panic.

------
daed
Any investment ideas stem from this? Where's a safe place for one's money? It
seems as though the price of gold has more or less adjusted for this already.
Right now I've got a bunch stashed in Inflation Protected T-Bills...

~~~
nerfhammer
Bond prices should always contain the market's inflation expectations. If you
think markets can usually anticipate inflation correctly then investing in
bonds should be an effective inflation-neutral store of value.

------
jscore
Advice for someone with a sizable IRA denominated in dollars who wants to move
it into other currencies?

~~~
GoodIntentions
I get foreign exposure with a combination of ADRs and ETFs. Approx 55% of my
portfolio is non North American at the moment. About 2/3 of the foreign
portion is in ADRs, but I am fairly risk tolerant. They aren't for everyone.

------
fexl
Within a few years I expect to see legislation which mandates a minimum level
of participation in U.S. government debt for all retirement accounts and
pension funds.

------
bgray
My question is, how can we (normal people, inside the US and outside) take
advantage of the situation?

~~~
triviatise
get as much fixed rate debt as possible

you can keep bank accounts in foreign currencies at a bank like everbank.

------
simpsond
I should start charging N ounces of gold per hour.

~~~
fexl
You should indeed. A couple of possibilities are <http://www.gsfsystem.ch/>
and <http://goldnowbanc.com/> . Or just delivery in person for local business.
Go ahead and quote a rate in silver while you're at it.

