The dollar fell against the euro by more than a cent overnight after it became known that the Korean central bank is
rebalancing its reserves away from the dollar and in favor of a basket of other currencies. Korea is the 5th largest US creditor, owning $69 billion of our US Treasury debt. That they've acknowledged selling dollars leads to a suspicion that others also have - and more will follow.
On top of this, George Soros opined yesterday that the dollar's fall was precipitated by oil exporters moving away from the dollar, explicitly warning of a "tipping point" if the dollar falls too quickly.
Severe disruptions to financial markets usually lead to recession or even depression. It also leads to war as formerly strong countries seek to re-establish their dominance and formerly weak countries seek to leverage new prominance.
JEDDAH, Saudi Arabia, -- Moves by Middle East oil exporters and Russia to switch some revenue from dollars to euros lie behind the U.S. currency's weakness, and a further rise in crude prices could prompt more declines, billionaire investor George Soros said Monday.
Soros told delegates to the Jeddah Economic Forum that the dollar's fall should help to lower the U.S current account and trade deficits, but warned that a fall beyond an unknown "tipping point" would severely disrupt markets.
The dollar's fall has many implications, but the most fearful to me is the potential for geopolitical instability of an America increasingly impoverished by its own foolish past profligacy. The US has a huge military and no reluctance to use it to economic ends. Invading countries to enrich Americans is a fixed pattern of our history and nothing I see today leads me to think America has changed.
I feel sorry for countries like Venezuela which are likely to be in the cross hairs of an America hungry for cheaper oil than it can buy on global markets with its diminishing puny dollars. If you've all wondered why I cover Venezuela, that is the reason. I see Venezuelans as the next victims of the new era of oil war. It will be pitched as spreading freedom, countering terrorism and protecting national security, but - just as in Iraq - the war/coup/counterinsurgency/whatever will really be to steal their oil.
Previous Dollar Dump Diaries:
Dollar Dump: Central Banks Shun US Assets
Weak Dollar = Weak Exports: Because We Hate America
Dollar Dump: Chinese Dump Treasuries (Maybe)