Wednesday, October 24, 2007

Goodbye dollar, hello inflation

The dollar is no longer the world's reserve currency. This is the statement you heard twice in one day if you were checking out the news on Bloomberg over the past 24 hours.

First, we heard it from economist Clifford Bennett of Sonray Capital, who said the Euro was the world's new reserve currency and that this idea was now universally recognized.

Next we heard it from investor Jim Rogers, who has been bearish on the dollar and the state of the US economy/fiscal outlook for quite some time.

What's notable about Rogers' latest call on the dollar is that he's once again backed his convictions with his actions; yesterday, Rogers announced that he is shifting his personal assets out of the dollar and into the Chinese renminbi.

Here's an excerpt from, "Jim Rogers Shifts Assets Out of Dollars to Buy Yuan".

"Jim Rogers, chairman of Beeland Interests Inc., said he is shifting all his assets out of the dollar and buying Chinese yuan because the Federal Reserve has eroded the value of the U.S. currency.

``I'm in the process of -- I hope in the next few months -- getting all of my assets out of U.S. dollars,'' said Rogers, 65, who correctly predicted the commodities rally in 1999. ``I'm that pessimistic about what's happening in the U.S.''

Rogers, delivering a presentation late yesterday at an investors' meeting organized by ABN Amro Markets in Amsterdam, said he expects the Chinese currency to quadruple in the next decade and that he is holding on to commodities such as platinum, gold, silver and palladium."

If you'd like to listen to an excerpt from Rogers' presentation to investors in Amsterdam, it is reproduced here courtesy of Bloomberg.

What's the rationale behind these calls for the dollar's eventual demise?

As Marc Faber recently noted in a lengthy interview with Bloomberg (and in seperate interviews with CNBC), the recent widespread bearishness might represent a contrarian buy signal for the dollar in the short-term, but this does not exactly cancel out the US currency's long-term problems.

In summary, expect continued deterioration in the dollar's purchasing power and increases in inflation over the longer term. Inflation will not be confined to the US; it has appeared and will continue to appear in countries across the globe.

Every government will try their damnedest to paper over their monetary inflation with ridiculous explanations and reconfigured price indexes which purport to show "low inflation". Still, worldwide inflation is here and it is only a question of which fiat currency will depreciate at the fastest rate against relatively hard currencies and gold.

For more on inflation and government statistics, see FSN Broadcast of October 13, 2007 with guest John Williams of Shadow Government Statistics.

Keep reading Finance Trends Matter for more news and commentary.