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Oil producers shun dollar
FT ^ | December 10, 2006 | Haig Simonian, Javier Blas, Carola Hoyos

Posted on 12/11/2006 5:20:09 PM PST by GodGunsGuts

Oil producers shun dollar

By Haig Simonian in Zurich and Javier Blas and Carola Hoyos in London

Published: December 10 2006

Oil producing countries have reduced their exposure to the dollar to the lowest level in two years and shifted oil income into euros, yen and sterling, according to new data from the Bank for International Settlements.

The revelation in the latest BIS quarterly review, published on Monday, confirms market speculation about a move out of dollars and could put new pressure on the ailing US currency.

Market liquidity is traditionally low in December, and many traders have locked in profits, potentially reinforcing volatility.

Russia and the members of the Organisation of the Petroleum Exporting Countries, the oil cartel, cut their dollar holdings from 67 per cent in the first quarter to 65 per cent in the second.

Meanwhile, they increased their holdings of euros from 20 to 22 per cent, the BIS said. The speed of the shift may help to explain the weakness of the dollar, which recently fell to a 20-month low against the euro and a 14-year low against sterling.

The BIS, the central bank for the developed world’s central banks, is customarily cautious in its language. However, it noted: “While the data are not comprehensive, they do appear to indicate a modest shift over the quarter in the US dollar share of reporting banks’ liabilities to oil exporting countries.”

The review shows that Qatar and Iran, whose foreign exchange policy has sparked widespread market speculation, cut their dollar holdings by $2.4bn and $4bn respectively.

Such shifts may be modest compared with the total assets held, but they provide a crucial indication on future thinking.

Currency switches are likely to be progressive, subtle and discreet, as untoward attention could hit the dollar, lowering the value of depositors’ remaining dollar-denominated assets.

The last time oil-exporting countries cut their exposure to the dollar – in late 2003 – it pushed the euro to an all-time high against the dollar. Eighteen months ago, the exposure to the dollar of oil producing countries was above 70 per cent.

BIS data is the best guide financial markets have to the currency investment trends of oil producers, which otherwise do not provide figures. The rise in oil prices since 2002 means oil producing countries have amassed a current account surplus of about $500bn, according to the IMF. This is 2½ times the current account surplus of China.

Overall, Opec’s dollar deposits fell by $5.3bn, while euro and yen-denominated deposits rose $2.8bn and $3.8bn, respectively. Placements of dollars by Russians rose by $5bn, but most of their $16bn additional deposits were denominated in euros.

The dollar has suffered weakness because of concerns about global imbalances and the future course of the Federal Reserve’s interest rate policy.

Additional reporting by Peter Garnham in London


TOPICS: Business/Economy; Extended News; Foreign Affairs; News/Current Events
KEYWORDS: budgetdeficit; dollardepreciation; goldbugs; skyisfalling; trade; tradedeficit
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1 posted on 12/11/2006 5:20:10 PM PST by GodGunsGuts
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To: expat_panama; ex-Texan; Pelham; winodog; durasell; RobRoy; simon says what; GSlob; headsonpikes; ...

This post is for all those who seem to think the budget deficit and trade/current account deficit doesn't matter.


2 posted on 12/11/2006 5:25:17 PM PST by GodGunsGuts
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To: GodGunsGuts
Russia and the members of the Organisation of the Petroleum Exporting Countries, the oil cartel, cut their dollar holdings from 67 per cent in the first quarter to 65 per cent in the second.

I guess shunning must be some form of 'newspeak' that resembles hedging.
3 posted on 12/11/2006 5:25:41 PM PST by kinoxi
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To: kinoxi

You are right. Hedging for now. But down the road, unless we fix our massive deficits, it could turn into a full-fledged route.


4 posted on 12/11/2006 5:27:20 PM PST by GodGunsGuts
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To: GodGunsGuts

That's terrible, why do I care?


5 posted on 12/11/2006 5:28:08 PM PST by Toddsterpatriot (If you agree with EPI, you're not a conservative!)
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To: Toddsterpatriot

When the value of the dollar goes down, everything costs more.


6 posted on 12/11/2006 5:35:36 PM PST by prov1813man (While the one you despise and ridicule works to protect you, those you embrace work to destroy you)
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To: prov1813man

So, is that bad?


7 posted on 12/11/2006 5:37:16 PM PST by Toddsterpatriot (If you agree with EPI, you're not a conservative!)
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To: GodGunsGuts
The depreciation of the dollar actually lowers our deficit in 'real value' comparatively. If someone owed you ten dollars ten years ago it would be worth more then (ten years ago) in real value due to inflation for instance. I don't approve of this numbers game BTW but it happens to be true.

The Euro's appreciation (dollars depreciation) has lowered any debt incurred at the beginning (strong dollar portion) of the cycle by a proportionate amount. A lower dollar also increases American manufacturer's competitiveness globally on average. It's kind of a double edged sword and historically speaking the Euro is too young of a currency to say whether this is normal or not.

8 posted on 12/11/2006 5:38:17 PM PST by kinoxi
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To: GodGunsGuts
You are right. Hedging for now. But down the road, unless we fix our massive deficits, ...

funny, a lower dollar is perfect for that.

9 posted on 12/11/2006 5:39:40 PM PST by the invisib1e hand (* nuke * the * jihad *)
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To: Toddsterpatriot
So, is that bad?

Yes.

10 posted on 12/11/2006 5:40:06 PM PST by FreedomCalls (It's the "Statue of Liberty," not the "Statue of Security.")
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To: FreedomCalls

Why?


11 posted on 12/11/2006 5:40:51 PM PST by Toddsterpatriot (If you agree with EPI, you're not a conservative!)
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To: the invisib1e hand

How about cutting government spending instead? The last thing we need is for all those international US dollars to come marching home.


12 posted on 12/11/2006 5:40:59 PM PST by GodGunsGuts
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To: GodGunsGuts
...it could turn into a full-fledged route.

Maybe even a rout!

13 posted on 12/11/2006 5:41:35 PM PST by Petronski (I just love that woman.)
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To: prov1813man

Not to mention what will happen if all those dollars come marching home.


14 posted on 12/11/2006 5:41:42 PM PST by GodGunsGuts
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To: kinoxi
It's kind of a double edged sword and historically speaking the Euro is too young of a currency to say whether this is normal or not.

Right. However, europe has been around plenty long enough to judge its relative value as an engine of economic growth. It has none.

Europe is monetizing its dollar denominated assets. Brilliant scheme. It will be countered.

15 posted on 12/11/2006 5:42:00 PM PST by the invisib1e hand (* nuke * the * jihad *)
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To: GodGunsGuts
The last thing we need is for all those international US dollars to come marching home.

I thought the current account deficit was bad? You said so yourself.

16 posted on 12/11/2006 5:42:13 PM PST by Toddsterpatriot (If you agree with EPI, you're not a conservative!)
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To: Petronski

Maybe he meant a NAFTA highway, losing our sovereignty route?


17 posted on 12/11/2006 5:43:06 PM PST by Toddsterpatriot (If you agree with EPI, you're not a conservative!)
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To: GodGunsGuts

Remember the old prayer: "The strength to change what I could, the fortitude to endure what I have to, and the wisdom to distingush between the two?" Ditto here. Not much one could do about it, besides piling into Janus Overseas mutual fund [TM]. Up 45%YTD.


18 posted on 12/11/2006 5:44:50 PM PST by GSlob
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To: the invisib1e hand
I wouldn't be surprised to see a few countries opt out of the Euro in the next decade or so.
19 posted on 12/11/2006 5:45:27 PM PST by kinoxi
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To: kinoxi
The problem is, by shifting our debt burden to the world, we are screwing our trading partners and threatening the status of the USD as the world's reserve currency. We receive innumerable benefits from this privilege. And if the world turns its back on the greenback, they will have no choice but to dump their worthless dollars into US assets, which will cause domestic prices to skyrocket.
20 posted on 12/11/2006 5:46:26 PM PST by GodGunsGuts
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To: kinoxi
I wouldn't be surprised to see a few countries opt out of the Euro in the next decade or so.

Italy won't last a decade.

21 posted on 12/11/2006 5:46:41 PM PST by Toddsterpatriot (If you agree with EPI, you're not a conservative!)
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To: Toddsterpatriot

Well, the thing is, all those dollars going overseas has kept inflation low, and rates down, if this reverses, think Jimmy Carter.

To me, that's bad.


22 posted on 12/11/2006 5:47:26 PM PST by prov1813man (While the one you despise and ridicule works to protect you, those you embrace work to destroy you)
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To: Toddsterpatriot
It is bad. But losing the privilege and stabilizing influence of the USD as the world's reserve currency is far worse. We need to make massive cuts in spending and stop doing business with our enemy, Communist China!
23 posted on 12/11/2006 5:48:53 PM PST by GodGunsGuts
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To: prov1813man

All I hear on FR is whining about cheap foreign goods. You mean expensive foreign goods are worse?


24 posted on 12/11/2006 5:49:04 PM PST by Toddsterpatriot (If you agree with EPI, you're not a conservative!)
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To: GSlob
I prefer the original version:

"God, grant me the serenity to accept the things I cannot change, the courage to change the things I can, and the wisdom to know the difference."
25 posted on 12/11/2006 5:50:26 PM PST by Enchante (America-haters and Terrorists Around the World Embrace Chamberlain Democrats)
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To: GSlob

Monty Guild (one of my favorite investment gurus) agrees:

http://www.financialsense.com/editorials/guild/2006/1208.html


26 posted on 12/11/2006 5:51:14 PM PST by GodGunsGuts
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To: Toddsterpatriot

No, I mean (and believe me I am often wrong) inflation hits our domestic economy cause rates go up (Carter 20%), housing crashes, gas is $5 a gallon, etc

I am not a doom and gloomer by any means, but you asked what was bad about dropping dollar value and i am just pointing out some things that come to mind.

Generally, we are resourceful and find a way out of these things, but they do happen from time to time and the upcoming band of traitors are inherently bad for us, so will probably screw up money almost right away.


27 posted on 12/11/2006 5:54:21 PM PST by prov1813man (While the one you despise and ridicule works to protect you, those you embrace work to destroy you)
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To: GodGunsGuts
The problem is, by shifting our debt burden to the world, we are screwing our trading partners and threatening the status of the USD as the world's reserve currency. We receive innumerable benefits from this privilege. And if the world turns its back on the greenback, they will have no choice but to dump their worthless dollars into US assets, which will cause domestic prices to skyrocket.

It could be argued that they initially shifted their debt burden to us and this is a naturally occurring 'balance' being found. The chicoms (Yuan) have been intentionally undervaluing their currency (shifting the debt burden to the US) for instance. The EU is digging a financial disaster for itself due to socialist policies and thus cannot in the short term replace the dollar. I don't see this situation as critical yet.
28 posted on 12/11/2006 5:56:31 PM PST by kinoxi
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To: Toddsterpatriot

Because then people have to spend more on essential items and have less for disposable income which causes companies specializing in such items to go out of business which then causes people to lose their jobs.


29 posted on 12/11/2006 6:04:27 PM PST by FreedomCalls (It's the "Statue of Liberty," not the "Statue of Security.")
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To: kinoxi

the bottom line here is - China must be broken, their peg must be broken, it is the reason why the currency market cannot reach a natural equilibrium. this is why you see such an unprecendented high level delegation going to china.


30 posted on 12/11/2006 6:05:49 PM PST by oceanview
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To: oceanview

I agree. Their refusal to allow natural currency valuations is ridiculous and destructive, not to mention dangerous.


31 posted on 12/11/2006 6:12:20 PM PST by kinoxi
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To: kinoxi; GSlob; Toddsterpatriot; Mase

Greenspan is telegraphing a major fall in the USD. He is even warning us what to do about it:

Greenspan says expects more dollar weakness Mon Dec 11, 1:02 PM ET



Former U.S. Federal Reserve Chairman Alan Greenspan said on Monday he expected the dollar to stay weak for the next few years and will continue to drift down, weighed by the U.S. balance of payments deficit.

"I expect that the dollar will continue to drift downwards until there will be a change in the U.S. balance of payments," Greenspan told a business conference here via video-link from the United States.

"There has been some evidence that OPEC nations are beginning to switch their reserves out of dollars and into euro and yen," Greenspan said.

"It is imprudent to hold everything in one currency," he said, adding that at some point the dollar will be moving lower.

"That will be the experience of the next few years," Greenspan said.

Greenspan said markets were so sophisticated it was very difficult to forecast the short term direction of the dollar.

http://news.yahoo.com/s/nm/20061211/bs_nm/usa_greenspan_dc_1


32 posted on 12/11/2006 6:51:02 PM PST by GodGunsGuts
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To: GodGunsGuts; Mase; expat_panama; Petronski
and will continue to drift down, weighed by the U.S. balance of payments deficit.

Really? There is a balance of payments deficit?

I don't think that Greenspan said that. I think the reporter went to the same school as the guy would insists on counting the "triple deficits".

33 posted on 12/11/2006 7:33:26 PM PST by Toddsterpatriot (If you agree with EPI, you're not a conservative!)
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To: prov1813man
No, I mean (and believe me I am often wrong) inflation hits our domestic economy cause rates go up (Carter 20%), housing crashes

Actually, if inflation hits 20%, hard assets, like housing, would go up.

I was kidding about the dollar. I'm tired of the clowns who say cheap goods are bad. Tell the people who need to save money for their kids college education that they need to pay higher prices.

34 posted on 12/11/2006 7:39:13 PM PST by Toddsterpatriot (If you agree with EPI, you're not a conservative!)
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To: Toddsterpatriot

Apparently, everybody heard the same thing (except you...as usual):

GLOBAL MARKETS-Greenspan rattles dollar, but Asia shares up

"I expect that the dollar will continue to drift downwards until there will be a change in the U.S. balance of payments," he said...

http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=81f697c6-7a8d-4eb8-be3d-96764de5739f


35 posted on 12/11/2006 7:52:01 PM PST by GodGunsGuts
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To: GodGunsGuts
Apparently, everybody heard the same thing (except you...as usual):

Everybody heard that there is a balance of payments deficit? Then everyone who heard that is stupid, as usual.

until there will be a change in the U.S. balance of payments

Is the balance going to go from a deficit to a surplus? LOL!

36 posted on 12/11/2006 8:00:26 PM PST by Toddsterpatriot (If you agree with EPI, you're not a conservative!)
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To: Toddsterpatriot

Dollar Little Changed After Greenspan Expects Further Decline

By Min Zeng

Dec. 12 (Bloomberg) -- The dollar was little change against the yen, after falling from a two-week high yesterday when former Federal Reserve Chairman Alan Greenspan said the U.S. currency will keep dropping until the current-account deficit shrinks.

http://www.bloomberg.com/apps/news?pid=20601101&sid=aTMNnHEXciZ8


37 posted on 12/11/2006 8:06:27 PM PST by GodGunsGuts
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To: Toddsterpatriot

Greenspan's predictions cause dollar to fall

December 11, 2006 18:50
The dollar fell against the euro today after former US Federal Reserve Chairman Alan Greenspan warned that he expected a few years of greenback weakness, causing US stocks to give up some gains.

Greenspan said it would be 'imprudent to hold everything in one currency'. He added that he expects the dollar to continue to drift down, weighed by the US balance of payments deficit...

http://www.rte.ie/business/2006/1211/dollar.html


38 posted on 12/11/2006 8:10:11 PM PST by GodGunsGuts
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To: Toddsterpatriot

CURRENCIES

Dollar mixed ahead of Fed meeting

Yen hits record low vs. euro on diminishing rate-hike hope
By Wanfeng Zhou, MarketWatch
Last Update: 4:27 PM ET Dec 11, 2006


NEW YORK (MarketWatch) -- The dollar fell against the euro Monday after former Federal Reserve chief Alan Greenspan warned that he expects the dollar to be weak for a few years to come.

Earlier the U.S. currency had made gains on speculation that the Fed, which is due to meet on Tuesday, will refrain from signaling that a rate cut is in the cards for early 2007. Speaking via remote connection to a conference in Tel Aviv, Greenspan said that the dollar will keep falling until the U.S. current account deficit narrows and that it would be imprudent to "hold everything in one currency." ...

http://www.marketwatch.com/news/story/story.aspx?guid=%7B1FB37FF2%2D7F38%2D458A%2D8444%2D04145E575C1A%7D&dist=rss&print=true&dist=printTop


39 posted on 12/11/2006 8:12:57 PM PST by GodGunsGuts
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To: GodGunsGuts
Yes, I get it, the dollar could rise, the dollar could fall, that doesn't change the utter stupidity of saying there is a balance of payments deficit. By definition, the balance of payments is balanced.

How many times do I have to repeat it before you understand? Is it going to take 3 months, like it did for you to realize that "triple deficits" double counted the trade deficit, which made "triple deficits" so inaccurate as to be useless.

40 posted on 12/11/2006 8:18:44 PM PST by Toddsterpatriot (If you agree with EPI, you're not a conservative!)
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To: GodGunsGuts
``The dollar is heading where the current account deficit goes,'' said Tim Mazanec, a senior currency strategist at Investors Bank & Trust Co. in Boston. ``A widening deficit will cause the U.S. more pain.''

Maybe you can explain to me why, if a foreigner takes his dollars and buys U.S. stocks or bonds, that will cause the U.S. pain, but if he takes those same dollars, earned from selling goods to America, and buys U.S. goods, that won't cause the U.S. pain?

41 posted on 12/11/2006 8:23:16 PM PST by Toddsterpatriot (If you agree with EPI, you're not a conservative!)
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To: GodGunsGuts
I think the falling dollar is caused by the recent election results. Results were anticipated somewhat before the actual election. Current events are continuously monitored to see just how far Left we will go.

America's socialist party won. Let's consider the possible economic implications. A) We will not take full advantage of domestic oil. B) We will not take further advantage of nuclear energy. C) The government may place more emphasis on affirmative action for women, blacks, homosexuals, etc., regardless of their office productivity. D) Price controls on drugs. E) Possible take over of medical industry. F) Hikes to the minimum wage (cutting off bottom rungs of ladder of success). G) Higher taxes. H) More regulation. I) Greater unionization. K) More government giveaways. L) Printing more money M) Anti red lining legislation to criminalize those who act on differential loan default rates. N) Demonizing and criminalizing business and businessmen. I'm sure there is more. That is just off the top of my head.

Much of the world is poor because they have socialism. The U.S. is/was different in having relatively secure laws. People could become rich in proportion to their contribution. The sky was the limit. That may just go away.

The smart money is watching, as always. Will the left go hog wild and sink this country? Will the Dems display some new found economic centrism? Will Republicans hold fast to free market principles?

I don't think foreign trade or free markets are the cause of recent declines in the dollar. Political markets are, as usual, the culprit.
42 posted on 12/11/2006 8:49:15 PM PST by ChessExpert (Reagan defeated America's enemies despite the Democrats. I hope Bush can do the same.)
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To: ChessExpert
I agree with all your points, except for one. The dollar has been falling for years. It is being pushed down by our massive deficits, which seem to keep growing no matter who is in office. Tax cuts are good. But we need spending cuts even more. Something both the Republicans and the Demorats have not addressed for decades. Tax cuts without corresponding spending cuts often just turn out to be tax deferments.
43 posted on 12/11/2006 8:54:49 PM PST by GodGunsGuts
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To: ChessExpert
"America's socialist party won. Let's consider the possible economic implications. A) We will not take full advantage of domestic oil. B) We will not take further advantage of nuclear energy. C) The government may place more emphasis on affirmative action for women, blacks, homosexuals, etc., regardless of their office productivity. D) Price controls on drugs. E) Possible take over of medical industry. F) Hikes to the minimum wage (cutting off bottom rungs of ladder of success). G) Higher taxes. H) More regulation. I) Greater unionization. K) More government giveaways. L) Printing more money M) Anti red lining legislation to criminalize those who act on differential loan default rates. N) Demonizing and criminalizing business and businessmen. I'm sure there is more. That is just off the top of my head."

What a GREAT list!!! May I borrow it with proper attribution? I know a thread where this fits right in, right now!!!

44 posted on 12/11/2006 9:07:21 PM PST by SierraWasp (Proud "100 percenter," wanting CA & US sticking with winning "core" conservatism 100% of the time!!!)
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To: GodGunsGuts
I went to the following source:

http://www.x-rates.com/d/EUR/USD/graph120.html

As I see it, the US Dollar started falling relative to Euro in mid October. I also looked at the following currencies: English Pound, Japanese Yen, Australian Dollar, South Korean Won. The US dollar started to fall relative to all these currencies starting in mid October 2006. Before that, the pattern was mixed. The US dollar did pretty well going back to mid June 2006. I don't have any charts that go back further. Maybe someone can give me a good link. But from what I've seen, the free-fall in the dollar started in mid October when the possibility of Democratic takeovers of House and Senate was no longer so remote.
45 posted on 12/11/2006 9:12:25 PM PST by ChessExpert (Reagan defeated America's enemies despite the Democrats. I hope Bush can do the same.)
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To: SierraWasp

Sure. That's the great thing about FreeRepublic. We share ideas/facts.


46 posted on 12/11/2006 9:13:32 PM PST by ChessExpert (Reagan defeated America's enemies despite the Democrats. I hope Bush can do the same.)
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To: ChessExpert

OMG!!! I'm so happy I don't have to pay you royalties everytime I copy and paste it... It's so danged good. Thank you ChessExpert. You put this list together so well, it's no wonder you're a "Chess Expert!" I want you on MY side, everytime!!!


47 posted on 12/11/2006 9:19:30 PM PST by SierraWasp (Proud "100 percenter," wanting CA & US sticking with winning "core" conservatism 100% of the time!!!)
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To: ChessExpert
Here's a couple of charts that show the dollar index vs. gold (notice how long the dollar has been falling) and a foreign exchange loss chart vs. our major trading partners:


48 posted on 12/11/2006 9:26:36 PM PST by GodGunsGuts
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To: ChessExpert

http://tinyurl.com/vsdgw

longer

http://preview.tinyurl.com/y6548w


49 posted on 12/11/2006 11:18:30 PM PST by jwh_Denver (Until Republicans learn why they lost the election they will continue to lose them)
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To: kinoxi
The EU or better the european countries are not a real player in this game.

The Euro countries did not really changed their dollar reserves and compared to the overall numbers we talk about these reserves do not really matter. The dollar is no reserve currency for most of the european countries and has never been in the last years or even decades.

The asians bought dollar and secured the dollar position with their reserves. Looking at the US current account deficit a dollar decline was more than clear and widely expected.

The Euro or Europe had and has no influence here beside the fact that it is natural for foreigners (to some degree) to buy euros if they want to lower their dollar reserves.

Someone posted here that countries might leave the Eurozone. I can assure you no country will leave the eurozone just the opposite will be true. In the long run all countries (including the UK) will have the Euro or at least will pack their currencies to the euro ( this would have the same result in the end).

The simple reason is that trade is much much easier, cheaper and with a lower risk within the Eurozone and so companies save a lot of money here.
And the pressure to adopt the ECB policy for EU countries that do not have the euro will increase over the years.

The same was true with the german mark. While countries like austria, the netherlands, belgium but also france and others still got their own currency they had to follow the policy of the german bundesbank because of the dominating position of the german mark ( the so called D-mark Block).
50 posted on 12/12/2006 3:21:40 AM PST by stefan10
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