Is the dollar in danger of collapse?

With the better performance of the stock market, one would think that the dollar is already pulling out of danger. However, the Treasury Department and the Federal Reserve is silently putting together a dollar devaluation that will cause it to decline gradually rather than suddenly collapsing.

This is what the Bush administration is actually hoping for, according to professional econometrician, John Williams. They in fact put everyone on the economic strategy team on a plane to China for a dialogue with their government. The delegation, led by Chairman Ben Bernanke of Federal Reserve and Secretary of Treasury Henry Paulson, looks forward to getting a positive response with China, in order to prevent the collapse of the dollar.

According to Williams, the money supply measure of the Federal Reserve is fast approaching a 10% rate, from a low 8% in the first few months of this year. They want the US economy to be more liquid, which may the reason for this increase. Unfortunately, these data is on a need-to-know basis.

China is known to be in possession of foreign exchange reserves reaching a trillion dollars, which is unprecedented until now. They made an announcement last year, during Thanksgiving. They wanted to make a diversification of the foreign exchange. This announcement has resulted in the drop in the value of the dollar in the currency international market, and it has been dropping ever since.

Williams commented even further that the markets during Thanksgiving traded very thinly. The bankers worldwide already had an inkling on how the dollar will be trading and they were wary about it.  They didn’t want to begin a panic on the dollar and yet they didn’t want to be left out.

The Federal Reserve

The Federal Reserve now has their hands tied. They couldn’t raise the rates since it will definitely lead to a recession. And it can’t be raised quickly when the dollar does go down.

There is a possibility that the dollar will collapse, according to Williams. However, the Federal Reserve is doing its best to slow down the inevitable, to make it last more than a year or a couple more years. They are striving to handle the increasing inflation rate and thinking of ways to jumpstart the growth of the economy. Unfortunately, it seems to others that what they are not doing enough. In fact, the present GDP growth of the US has been seen to be 1.6% as of the third quarter. This figure is actually the lowest rate in over three years.

People are wondering if this situation can bring down the trade deficit of the US with China. Williams explains that as long as the contract between these two countries constitutes China having the more favorable position, it will not change the situation. But they are hoping for a change soon to be able to save the plight of the dollar. They are clamoring for the return of the money supply measure as a tool to check the economic condition. However, nothing on this has been done yet.