US Dollar Decline as China Becomes Importer in 2013-2016
Bloomberg - China will curb its reliance on exports sooner than the U.S. can cut its budget and external deficits, removing a support from the dollar that will unsettle currency markets, Morgan Stanley's Stephen Roach said. "In the next three or five years China will move aggressively to increase its private consumption and reduce its surplus saving," Roach, who is non-executive chairman of Morgan Stanley Asia Ltd., said in an interview in Oslo yesterday. China may post a trade deficit as early as this quarter as imports outpace sales abroad, the government said last month. The country's reliance on trade to fuel economic growth close to 10 percent is now fading as its consumers grow wealthier, removing a key incentive for China to support the dollar. At the same time, the world's largest economy estimates its budget deficit will swell to a record $1.5 trillion this year, as President Barack Obama channels stimulus to revive growth.
"If we don't move to address our deficit before China addresses its surplus then we are going to be facing some pretty significant external funding constraints," Roach said. "That would lead to a significant downward pressure on the dollar and/or higher long-term U.S. interest rates."
China aims to reduce its trade surplus to less than 4 percent of gross domestic product in three to five years, Deputy Governor Yi Gang said last year. Roach said the risk that China will cut its reliance on exports before the U.S. weans itself off external funding is greater than 30 percent.
Wall Street Journal’s Real Time Economics blog calls “an inferno.”
In a good economy, gradual is considered a good thing, but in tougher economic times, too much is a serious problem. Simply put, occurs when a currency has reduced buying power for goods and services compared to the past. How is measured? What is its impact on the average person? Salman Khan of the Khan Academy explains in a simplified example.
risk causes tomorrow’s dollar to be worth less than today’s; in other words, it reduces the purchasing power of a bond investor’s future interest payments and principal, collectively known as “cash flows.” also leads to higher interest rates, which in turn leads to lower bond prices. Inflation-indexed securities such as Treasury Protection Securities (TIPS) are structured to remove risk.
TIPS Hits All-Time High as Trumps Treasury Bonds
Signs indicate Treasuries could be a bubble about to burst
"Treasuries were for a long time an alternative to what was bubbling," Kendall says. "Now it's just an overbought market, primed for reversal."
Wilber Ross... "Long Term Bond Bubble Getting Ready To Burst"
CBO Says Treasury Can Fund Government. to Early-March
The U.S. Treasury will likely be able to continue funding government activities only as late as early March before requiring an increase in the federal debt limit -- nonpartisan Congressional Budget Office.
Gold and Silver possible through Feb. - Mar. of 2013