China and Russia are unhappy that the Fed is engaged in the buy back policy. China has steadfastly refused to allow its currency to appreciate. The US solution is a good one... depreciate our currency against the Chinese... and for that matter, the Russians and Brazil.
But if you think the market will start using China remimbi or Russian rubles, we've got a long way to go. Whatever economic ills the US may have, it is still the investment of choice when it comes to T-Bills. The American dollar will be the reserve currency of choice for at least the next two decades... and probably much longer because the Chinese don't actually subscribe to free market principles, and Russia is corrupt.
SE, I can't disagree with anything you said, however I am not quite as optimistic regarding the prospect of the US dollar remaining the currency of choice for the next 2 decades. I am not an expert on this topic, however I suspect I know as much as the average person on the street.
The most troubling issue I have is the motive behind China's devaluation of their currency vs. the US motive to devalue the dollar. I am sure that you are well aware that China refuses to let the yuan appreciate because the Chinese central government is under constant pressure to generate jobs for its exploding population. When you need to create 25 million jobs, you have to be a large surplus exporter of goods. The best way to do that is by devaluing your currency so that it is cheaper for others to buy them as opposed to producing them domestically. China's devaluation of their currency ultimately becomes an investment in the development of their industrial base....ostensibly after the investment has paid off, they will be able to relax the pressure on the yuan and reap the benefits in out years.
The US on the other hand is devaluing its currency in order to finance deficit spending for social entitlement programs and also repay debt to China with dollars that are worth less than what they borrowed. We probably disagree on this point, but I don't see financing entitlement programs such as "Obama Care" as being an investment in our industrial base...as a matter of fact in my opinion it is quite the contrary in that it promotes a culture where people become further dependent on lining up at the "feeding trough" for their entitlements.
In my humble opinion, I see a clear dichotomy in the prospects of China's currency devaluation investment and the US position. This is the fundamental reason why I am not quite as optimistic as you on the long-term health of the US dollar.
