China and Russia to Drop U.S. Dollar

This is headline news on drudgereport.com today.  This article says that China and Russia have agreed to use their own currencies in trading with each other, instead of using the U.S. dollar as they have done in the past.

This action in itself is not really significant.  But it is another sign that the dollar is losing its status as the world’s reserve currency.  The U.S. government has gotten away with much more than it could have because of the dollar’s status.  It has allowed the U.S. government to run up debt more than it otherwise could have without interest rates rising.  Countries like Japan and China have been buying U.S. government bonds and have kept interest rates lower and allowed the Fed to buy less.

This news of Russia and China, slowly turning away from the U.S. dollar, is bearish for the dollar.  We can expect the dollar to go down in relation to other currencies in general.  Of course, anything can happen in the short-term.  The Euro may weaken due to the problems with Ireland and Greece, with Portugal and Spain possibly following.  A severe downturn in the economy here could also strengthen the dollar as it did in the fall of 2008.  But overall, the trend is down for the U.S. dollar.  It will continue to lose its status as the world’s reserve currency and the Fed will continue to inflate the money supply.

In the long run, you should have a good portion of your investments in hard assets.  This could include stocks, but why bet on the performance of companies?  A better speculative play is commodities that are almost sure to do well with a weakening dollar.  Look at gold investments, silver investments, oil investments, and maybe even real estate down the line.  The party is over for the dollar and it is soon to be over for the U.S. empire.

Happy Thanksgiving everybody!

One thought on “China and Russia to Drop U.S. Dollar”

  1. US is already facing tough times financially. Its currency value has dropped more than significantly and countries are loosing confident in its potentials. Hence the decision by China and Russia to trade with its own currency.
    Bonds investments 2010

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