Running From The Dollar

“Our currency but your problem” U.S. Treasury Secretary Tim Geithner response to developing countries.

Investors are fleeing the U.S. in search of higher earnings and sustainable growth to places like South America and Asia. The incoming wall of money is causing big problems to developing countries. So much in fact that The IMF endorsed guidelines last week for it member countries to “protect themselves” from the “spillover effects” of the mismanagement of the U.S. dollar and it’s eroding financial leadership.

China is allowing more trade to be done in the yuan and the idea has been floated at a recent meeting of the developing countries, the BRIC, that a “broad based international currency” that is stable be used and they were not referring to the dollar. These countries are now having to resort to capital controls to stop the inflow of the dollar. In the third quarter of 2009 turkey saw a 6.9% inflow of capital as a percentage of their GDP. The list goes on. Commodity prices that fired up places like Egypt and the middle east are now spilling over to this country. Utah is taking steps to make gold the de facto currency.

The decline of the U.S. economic credibility can be laid at the feet of Ben Bernanke, the Federal Reserve and President Obama. Fiat money has run its course and in a perverse move the Fed has encouraged the world to invest in hedges against the falling dollar. Geithner, Bernanke and the administration have pursued a policy of unprecedented monetary stimulus to reflate the economy and it’s a global failure.