Oct 232013
 

Published: Tuesday, 22 Oct 2013 | 11:23 AM ET

By:  | President of Pento Portfolio Strategies

De-crowning the dollar, and the ‘collapse’ ahead

CRISIS, PRIVATE DEBT, RISING, CORPORATE LOANS, CONSUMER CREDIT, FEDERAL RESERVE, PETER SCHIFF,

INFLATION, QE, TEA PARTY, KARL DENNINGER, NETNET, US: NEWS, BUSINESS NEWS

CNBC.com | Tuesday, 22 Oct 2013 | 11:23 AM ET

The gradual erosion of the U.S. dollar’s status as the world’s reserve currency has been greatly
hastened of late. This is due not only to the perpetual gridlock in D.C., but also our government’s
inability to articulate a strategy to deal with the $126 trillion of unfunded liabilities.

Our addictions to debt and cheap money have finally caused our major international creditors to call
for an end to dollar hegemony and to push for a “de-Americanized” world.

China, the largest U.S. creditor with $1.28 trillion in Treasury bonds, recently put out a commentary
through the state-run Xinhua news agency stating that, “Such alarming days when the destinies of
others are in the hands of a hypocritical nation have to be terminated.”

In addition, Japan (our second largest creditor holding $1.14 trillion of U.S. debt) put out a statement
through its Finance Minister last week saying, “The U.S. must avoid a situation where it cannot pay,
and its triple-A ranking plunges all of a sudden.”

(Read more: Fed in ‘monetary roach motel,’ won’t taper: Schiff)

It is both embarrassing and hypocritical to be lectured by Japan about an intractable debt situation.
However, the sad truth is we have become completely reliant on these two nations for the stability of
our bond market and currency.

We arrived at this condition because our central bank has compelled the nation to rely on asset
bubbles for growth and prevented the deleveraging of the economy by forcing down interest rates far
below a market-based level.

For example, instead of allowing debt levels to shrink, the Fed’s virtually free money has now caused
consumer credit to surge past the $3 trillion mark by the second quarter 2013; that is up 22 percent in
the past three years. And of course, the Federal government massively stepped up its borrowing
beginning in 2008, piling on over $6.8 trillion in additional publicly traded debt since the start of the
Great Recession.

(Read more: It’s back with a vengeance: Private debt)