No. of Recommendations: 12
For currencies, the US dollar is likely to remain pre-eminent in terms of liquidity and financial use, but seems very likely to lose some purchasing power, perhaps quite a lot. The Euro has some structural flaws but looks like it will endure. There may be another crisis or two, but it will survive those. I'm holding my cash largely in sterling at the moment, with some others.
...
You have the "opportunity" to move your money around to different countries and currencies. I put opportunity in quotes because I'm not sure if that is advantageous or not. Maybe like the opportunity to dance across a minefield?
I wouldn't suggest that my moves make me financially safe. But one does what one can.
Right now I see a sign on the road that says "minefield ahead", so I'll change direction. You can at least pick the road that isn't already clearly signposted as likely being fatal.
The interesting point is what will happen to the US dollar. The US consumes very much more than it produces. US consumers (including the government) are able to consume as much as they do solely because non-US investors plow an incremental net ~$100 billion a month into US securities, mainly stocks and bonds. There are other things going on, but those two are by far the largest and explain each other, the rest of the capital account being a macro sideshow by comparison. The arriving money sloshes around the US, which is not short of entrepreneurs, so there are lots of profitable companies, keeping the investment attraction high, along with the US dollar and US asset valuation multiples and US consumer spending power. What happens if $100 billion a month in incremental net new foreign capital turns into (say) merely $80 billion a month? One of two things, I assume: either (a) US consumption falls (lower current account deficit, lower aggregate borrowing, fewer Barbies at Christmas), or (b) some mix of lower dollar and lower prices for US investment assets, sufficient to make them cheap enough to attract the missing $20bn a month. (some people posit a third approach, which is more or less to steal the difference). Do the asset prices have to be even cheaper the next month, and cheaper again the month after?
These are hard questions. But I don't think the prospect of a big fall in US asset prices and the purchasing power of the US dollar is something that is dodged based on where you live.
Jim
