Less than a week in office, and Barack Obama isn’t wasting any time. He’s pushing forward on all fronts, and regarding the stimulus package on particular. Despite the plan being helpful for the American economy, it will be very unhelpful for the US dollar.
Obama’s $825 billion plan is huge: it is meant to help Americans maintain a normal standard of living during bad times, build infrastructure across America (like Roosevelt’s New Deal), and allow working Americans to spend more money – via tax cuts.
All this government spending means borrowing more money, or printing it. More US dollars out there means a lower value for the greenback. And printed money is overprinted, the hard currency becomes more valuable.
The price of gold is soaring despite a fall in all other commodity prices. Gold over $900 means that gold is the prefer ed reserve currency of the world. The US dollar is gradually losing its position as the world’s reserve currency.
So, I think that Obama’s stimulus package, which is due to be approved by the Congress very soon, isn’t good fro the dollar. Despite being good for the economy in the long run, and an excellent plan to tackle the terrible global crisis, it will hurt the dollar in the medium term.
The US, like any economy, has the interest to have a devalued currency – in order to help exports.
And which currencies will benefit?
Well, Obama’s designated secretary of Treasury, Timothy Geithner, suggested that the Chinese government is manipulating the Yuan to keep it high. So the Chinese Yuan will probably benefit.
And also south of Asia, in Australia, AUD will benefit from rising prices of gold. Also, the Japanese Yen and the New Zealand dollar will gain.
And who won’t gain? The British pound. More and worse data from the UK suggests that the pound will suffer. The latest bad news from Britain is that British banks were about to collapse on October 10th 2008. Quite scary!
Jim Rogers, one of the world’s leading and veteran investors, states that the “sterling is dead“:
“I would urge you to sell any sterling you might have. It’s finished. I hate to say it, but I would not put any money in the UK.”
He also supports my opinion that GBP/USD will reach parity in 2009.