I am of the opinion that America deserves to be kicked in the balls as hard as possible as just desserts for its boorish financial behaviour. Plus, there's the added benefit of punishing those continuing processes of subprime globalization by hurting both American debtors and creditors alike. In this vein we have two noteworthy and promising developments. First, UBS recently polled central bankers holding a total of $8 trillion in reserves about the future make-up of these assets. It seems most are getting fed up with America as sentiment towards the currency is diminishing even further as the dollar approaches all-time lows on any number of indices. End result? Most see a movement towards a portfolio of various currencies quite soon:
The US dollar will lose its status as the global reserve currency over the next 25 years, according to a survey of central bank reserve managers who collectively control more than $8,000bn. More than half the managers, who were polled by UBS, predicted that the dollar would be replaced by a portfolio of currencies within the next 25 years.Good stuff. However, I am even more anxious to see an even swifter and harder kick delivered to Uncle Sam's (rather minuscule) nuts. For instance, I've covered some dire scenarios of what may happen if the US does not raise its $14.3 trillion debt ceiling and effectively defaults on its obligations. While unlikely--an undisciplined and unprincipled debt addict will never refuse a larger fix, just you wait and see--don't forget that America's creditors would also take a hit. Which, again, is part of the attraction since those who bankroll American debt addiction have it coming too.
That marks a departure from previous years, when the central bank reserve managers have said the dollar would retain its status as the sole reserve currency. UBS surveyed more than 80 central bank reserve managers, sovereign wealth funds and multilateral institutions with more than $8,000bn in assets at its annual seminar for sovereign institutions last week. The results were not weighted for assets under management.
And we don't have to wait for an outright credit event; a downgrade will do in financially waterboarding America's foolish creditors who fully deserve such treatment. McGraw-Hill estimates potential losses to US bondholders can amount to some $100 billion:
Investors in the US government bond market could face losses of up to $100bn if the largest economy loses its triple A rating, according to a research arm of McGraw-Hill, the parent of Standard & Poor’s. A ratings downgrade that results in higher bond yields and lower prices could also mean the US Treasury paying $2.3bn-$3.75bn a year more in interest on financing a $1,000bn annual budget deficit.As an American leader of recent vintage liked to say, bring it on. Time waits for no one; ask River Plate.
“If Standard & Poor’s or any of the other major rating agencies downgrade the US, Treasuries would likely drop in value, possibly by as much as $100bn,” said analysts at S&P Valuation and Risk Strategies, a research team separate from the agency.