Is the Dollar dying? Ignore at your own peril…
It was a week that the average American would have ignored. Perhaps because everything seemed to be going fine. Unemployment was slightly lower, down below 8% (although the official unemployment figure has vast inaccuracies and flaws in its own right) the housing market seemed to be showing decent strength, and overall there was the anticipation of the election of either Obama or Romney.
Overseas, however – there was a change of tides which marked the decline of the dollar over the next century…
1. Key Banks officially decide not to comply with the Hire Act.
In case you didn’t know – the US wants every single bank and foreign financial institution or “FFI” as they refer to them, to spy and report to the IRS on all customer accounts, several banks have said – Enough!
Why should we bear the expense and the obligation to monitor your citizens and taxpayers who do business or hold bank accounts abroad? Because as it stands, the United States banking system is by far the most powerful in the world, and routinely when money is wired around the world, it must first pass through a beneficiary bank in the United States
Why Uncle Sam has scared many banks into compliance
Say for instance you want to send some money between Mongolia (where you can get a CD that yields well over 10%) and Panama (which also has fantastic banking options. The Mongolian bank would not have the capabilities to fully facilitate the wire transfer at this point in time, and would use an intermediary to wire the money.
However, if the banks are willing to work to find a solution to scoot around this problem, then they technically would no longer need to rely on the beneficiary banks of the United States.
This may not seem like a big deal (a single bank tells the US that they won’t abide by their rules) but make no mistake, this marks a changing of the tides where large banking institutions may try to find an alternative route around the US system. I’ve spoken to fund managers and bankers who have felt this is a growing trend, as there is an anti American sentiment around US clients and due to the increased procedural burden for the global black sheep – American clientele.
2. Hot money from the US flows into Hong Kong
QE3 – Quantitative Easing is well underway. As a refresher, this is Ben Bernake essentially manipulating the price of the Dollar by buying treasury bonds. It’s a vicious cycle and short-term fix that will have dramatic long-term repercussions for the dollar, and a correlative impact on the future of the US economy.
Q3 in layman’s terms means there is a TON (i.e. trillions) of dollars flowing into banks and being loaned out at near 0% interest rates. Financial institutions and large funds such as sovereign wealth, private equity and hedge funds don’t want to hold the rapidly depreciating asset (American dollars). So they trade these “hot dollars” for another currency – in this case, the HK dollar, and they do this essentially risk-free.
How could a trade be risk free?
Because currently the HK dollar is pegged to the US dollar, meaning that if there is a price increase or decrease, the Monetary Authority of Hong Kong (the de facto central bank of HK) will buy or sell dollars accordingly, in order to maintain the peg of the Dollar to the Hong Kong dollar between 7.75 and 7.85
On four separate occasions this week, the Monetary Authority of Hong Kong sold off massive reserves totaling over a billion dollars in order to maintain the proper trade threshold. Some may speculate if the HK dollar will remain pegged to the US dollar, and traders with billions of hot dollars and nowhere to put them are placing that bet. If the peg is removed, the HK dollar could absolutely skyrocket overnight.
The trend that you could bet on, is that currencies around the world remove a peg from the dollar. This would represent a major sign that the Dollar is losing its status as the world’s reserve currency. This hasn’t happened – yet – but if or when it does, the U.S. dollar will be devastated by deflation.
If you hold your savings primarily in any one currency, your wealth may be in danger.
What can you do if you find yourself fully dependent on one country, one government, one currency?
The options are plenty, and utilizing Flag Theory as a method provides a concise roadmap to worldwide diversification.
Check out the Flag Theory Foundation, open up a gold backed debit card, start an offshore company or trust. Buy physical land abroad. Start a Company in Myanmar, Phillippines, Thailand, Singapore or Hong Kong.