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 Why the Euro Can't Replace the US Dollar

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Registration date : 2007-07-01

PostSubject: Why the Euro Can't Replace the US Dollar   Wed Oct 03, 2007 10:42 pm

Pol/Econ: Why the Euro Can't Replace the US Dollar
Wednesday, 03 October 2007 Written by Dan Denning

Every crisis brings its own opportunity. Australia really is lucky.
Though it has a housing boom bought with funny money, it’s also become
the company store for China—where the dragon goes for all its raw
material needs.

The iron ore stocks listed in New York went nuts on Monday as the Dow hit a new all-time intra-day high. BHP’s (ASX:BHP)
US listing was up over 4%. Brazilian iron ore darling CVRD rose over
6.5%. It’s as if the market has decided to revalue the mining stocks as
growth stocks…in just a few short weeks. It’s breathtaking really.

But can it last? Pritchard says the US dollar’s decline has put the euro in an unsustainable bull market.
“Until now, the euro has served as the “anti-dollar”, the default
choice for Asians and petrodollar powers wary of US assets. This cannot

“A rate of US$1.43 (it was 83 cents in 2000) will
combine, after a one-year lag, with deflating property bubbles in the
Club Med bloc to cause a crisis in 2008. It will then become clear that
the needs of the Germanic and Latin zones are incompatible and that a
coin with no treasury, debt union, or polity to back it up cannot
displace the dollar — if it survives at all.”

Yes, it is
shaping up to a bitter year for advocates of government-sponsored paper
money that isn’t backed by tangible wealth. And though markets don’t
operate on the principles of Newtonian physics, there is a reaction to
every action, even if it is not opposite and equal. The reaction
continues to be bullish for gold and resources.

It is October,
though. Strange things have been known to happen in this month. You
could argue they already have, with 30-year lows in the US dollar and
30-year highs in commodities. If this were a normal market, we’d expect
a dollar rally. It is not, however, a normal market.

Dan Denning
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