Comment 16: Who will not sell Dollar. Who will sell Dollar. (March 04, 2005)

There are a group of economic entities which are determined to supress the value of their currencies versus US Dollar so that they can enjoy a large amount of exports to The United States of America. This is their only economic policy and the obsession of their economic policy makers. Those economic entities must continuously buy and hold Dollar, if not by their private parties, then by their governments. It does not matter whether they hold those Dollar in the form of US Government treasuries, US agency debts like the ones issued by Government chartered mortgage companies, US corporate bonds, stocks of US corporations, real estates located within USA, or takeover US companies as a whole, those activities are equivalent to lend to US consumers to help US consumers to sustain their borrow and spend boom. Only exception is to hoard Dollar bills and store them in warehouses; this kind of activities will take those Dollar out of circulation and does not amount to the lending to US consumers for spending. Those economic entities not only cannot afford to sell their Dollar holdings, but must continue to buy Dollar when there are selling presuures of Dollar against their currencies in the market, since if those governments sell Dollar for other currencies or do not counter the desire of the currency market to sell Dollar for their own currency by buying up those Dollar, their currencies will appreciate against Dollar, and their only economic policy will be ruined. Those economic entities include Japan, China, Taiwan, South Korea and so on.

Oil rich parties like Russia, and Middleeast countries do not care whether their currencies appreciate against Dollar or not. In the general environment that Dollar inevitably will fall against other major currencies due to the unsustainable US trade deficits, it is advantageous for thoes entities to diversify their foreign currency reserves away from Dollar into gold, Euro and Yen. Other weak economic entities which are bothered by the falling value of their currencies against Dollar should also hold appreciating currencies and gold as their foreign currency reserves to help their teetering currencies.

Recently there have been rumors that China will refrain from holding more Dollar, or it may sell Dollar outright for Euro or Yen. Then there have been erroneous rumors that South Korea has been selling Dollar, and then so has been Taiwan, causing one day turmoil in the global markets. We can be assured that those rumored parties are exactly those parties that are not capable to stop buying Dollar, left alone of selling any Dollar holdings since their economic policity makers cannot think of anything other than supress their own currencies to boost their exports. Only economic novices will dance with those false rumors. However, the arguments here does not mean that those parties bound to Dollar will and can sustain their Dollar buying forever since lending money to US consumers for consumption in the form of their trade surplus and US trade deficit inevitably means to put their own consumers in an austerity mode. It will be the day of reconing for Dollar and for this globalization monster when those parties are not capable of buying more Dollar; then the whole world will enter into a great depression. Fortunately the time for such a global crisis is still not on the horizon. It may come within a decade, or may come after a few decades. If such a crisis does not come and Dollar buying can be sustained for a very long time, then a situation called "globalization utopia"(for US consumers) as discussed in Article No. 7 of this website will become the reality.

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