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And its spiral ever lower is accelerating.

From FT Alphaville:

We’ve posted this before - but as the ailing US currency drops through $1.47 against the euro and $2.10 against sterling, it merits a second (and updated) airing.

The chart comes from Sempra Metals, who make a couple of additional points:

   * The US dollar has now lost more than a third of its value (-35%) against a basket of major currencies since Feb 2002.
   * The decline is accelerating. The USD has shed 2.5% of its value in the last year, 3.5% in the last month, and 1.5% in the last week alone.

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The impetus for this morning's fall was comments overnight indicating that China might further diversify its reserves away from the US dollar.

It didn't help that supermodel Gisele Bündchen now refuses to be paid in dollars!

Gold is up near $850 an ounce, oil is nudging $100 a barrel, and just about every currency on the planet is appreciating against the shrinking dollar.

It is difficult to express just how serious this is for global financial markets built on leverage, deregulation, accounting tricks, ill-transparent pricing and massive infusions of central bank liquidity.

I am advising central bankers next week on strengthening their preparedness.  I will be telling them to abandon any focus on capital adequacy requirements.  It's far too late for that to have any effect on the fall out.  They should focus instead on reviewing and modernising their bankruptcy laws, enabling transfer of customer accounts and nominee assets from failing banks to healthy banks, providing for rapid auction of failed bank businesses and assets, and other practical measures for limiting loss, contagion and debilitating paralysis in the markets.

It is going to be very ugly, but there are steps which if taken now can make it surviveable.

I was a central banker and market supervisor during some of the period of deregulation.  In retrospect it was a mistake to let Citibank and Goldman Sachs define what a good market or a good regulation might be.  But there will be lots of time to learn the lessons of the coming collapse once it is past.

Originally posted to LondonYank on Wed Nov 07, 2007 at 03:39 AM PST.

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