I don’t know if you’ve followed my occasional posts over the last 2 years, partypup, but I have long advised readers to prepare for appreciation of the yen versus the dollar. I’ve made a good amount of money on that bet.
That won’t prevent the Federal Reserve from buying Treasuries. In fact, it will encourage the Fed to buy more, since the demand for Treasuries coming from foreign CBs is declining, while the US govt deficit is high and increasing.
Pressures are pushing domestic interest rates up, and the value of the dollar against foreign currencies down. Our government can influence how much of each occurs. It is clear that our government is committed to cheap money, so they will keep interest rates low by having the Fed buy lots of Treasuries and other assets, if necessary. That will leave the dollar open to depreciation against other currencies.
Will the dollar “collapse” and become “worthless”? Of course not. It may lose 10% of its value, or 20%, or 30%, or even 40%, over time. But it won’t become worthless, and it won’t lose enormous amounts of value overnight. And a reserve currency is not unique. It is only natural that other currencies will be used more than they are now as a reserve of value. Already the euro, and even the GBP, are reserve currencies. As the world becomes more diversified and dispersed and complex, we should expect that more and more currencies will be used as a store of value. But we’re not all going to wake up in 12 months and find everyone refuses to accept any dollars as payment for anything. That’s just exaggeration.
