Tuesday, March 9, 2010

Euro vs. Dollar?

This post on OilPrice.com explores what I consider a grossly overlooked question.  Sure, Greece (and the rest of the PIIGS) make the euro a scary prospect these days, but are we in the U.S. so much better off?  I appreciate the value of having the world's reserve currency, but how long can that last, and does it merely make our leaders more reckless in the meantime?

Am I glad I earn in dollars vs. euros?  Yes.  Do I want to store wealth in dollars in this environment?  Not so much.
How then can the USD be seen as a safe haven from the Euro? The two currencies have similar sized economies and there is no trenchant difference in their health when viewing GDP and inflation data. Yet the debt situation in the US is worse than in Europe and the USD is the most over-owned currency on the planet.

Selling Euros to buy dollars is sort of like exchanging your ticket on the Titanic for a ride on the Hindenburg. The answer is not to sell one sinking currency and jump on another one that is drowning as well.  The only truly safe currencies are those that can act as a store of wealth, that cannot be diluted by fiat and whose purchasing power cannot be corrupted by a government. Investors the world over should seek the safer harbor that is derived from owning commodities and precious metals rather than to believe the USD can offer any real protection.

This is not to say that the dollar can't or won't do well short-term.  Who could predict that to a certainty?

I am confident that the dollar wil suffer long-term.  Can anyone name a fiat currency that hasn't?

PS  Don't you love the Titanic/Hindengerg quote?



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