moneycentral.msn.com
Day by day, your dollar buys fewer and fewer euros or yen. If you think you don't care, just wait. You will.

...Currently, with the dollar each day seeming to hit new lows against the European Community’s euro and Japan’s yen, the news for U.S. consumers is uniformly bad.

The effect of a weak dollar has been muted so far, Hoyt says, because a major U.S. trading partner, China, has pegged its currency, the yuan, to the dollar through a series of central bank interventions. Should the Chinese let the yuan trade freely, and there are signs they will, you will feel the pinch. Economists, bankers and currency traders believe that the yuan, allowed to float, would rise 15% to 40% against the dollar.

...Beijing has signaled its intention to decouple the currencies for competitive reasons, and when it does, the trillions of dollars in U.S. Treasurys it holds will begin to lose value.



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$ 120,248,160,823.07 (over $120 billion for October, November and December, the first 3 months of Fiscal Year 2005)
$ 321,566,323,971.29 (in 2004)

www.uwsa.com...
www.federalbudget.com...
www.publicdebt.treas.gov...

Economist.com
AS THE dollar hit another new low against the euro, briefly breaching $1.30 on November 10th, an increasing number of economists are asking how far the greenback might fall and how its slide will affect the world economy. One of the most alarming answers comes from Paul Volcker, Alan Greenspan's immediate predecessor as chairman of the Federal Reserve. He recently said that he thought there was a 75% chance of a currency crisis in the United States within five years.

China has lost faith in the stability of the U.S. dollar and its first priority is to broaden the exchange rate for its currency from the dollar to a more flexible basket of currencies, a top Chinese economist said at the World Economic Forum.
Chinese economist says his country wants to diversify out of the dollar and source #2

Economists, politicians and business executives voiced deep unease about the imbalances in the global financial system, which are reflected in the dollar's steep fall against the euro and other currencies.
But most expressed skepticism that the Bush administration would reduce the trade and budget deficits, which have fed those imbalances. The White House has said that it does not view these issues as a major problem…

"The U.S. current-account deficit is a problem for the whole world," said Jacob A. Frenkel, a former governor of the Bank of Israel. But, he said, "I don't see the budget deficit being taken seriously."
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"There's nobody home on economic policy in America right now," said Stephen S. Roach, the chief economist at Morgan Stanley. The twin burdens of household and public debt in the United States, he said, are unsustainable.
Sinking Dollar Dominates Davos Debate and source #2 - requires login

It is important to note that unpegging the Chinese currency from the dollar is not the great blessing that the US Treasury and NY Fed suggest. It will most certainly trigger the wholesale dismemberment of America's middle class and amount to a class war of extermination against the poor. These developments (Chinese unpegging/dollar dumping) -- when they happen -- will be the financial equivalent of a nuclear first strike that will "mysteriously" leave the US financial and political elites untouched. - FTW Editorial
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Here in Malaysia, for example, Prime Minister Abdullah Ahmad Badawi recently said he is seeking ways to reduce the economy's reliance on the dollar for trade. Indonesia has mentioned it is considering trimming its holdings of U.S. Treasuries. The same goes for Thailand, according to the Financial Times.

China also has been in the news as traders speculate that Asia's No. 2 economy may pull the plug on dollar-denominated debt. Such a move by the second-biggest holder of U.S. Treasuries after Japan could send shockwaves through global markets.
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Confidence in the dollar wasn't enhanced this week by President George W. Bush's record budget deficit forecast of $427 billion for this fiscal year. It belied assurances that the White House will bring one of the world's most worrisome economic imbalances under control.
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All this has investors turning to the euro. Once Asian central banks do, the dollar's woes will worsen. By buying vast amounts of Treasuries, Asian central banks are delaying the rise in U.S. yields that would typically accompany a falling currency. If Asians pull the plug, U.S. rates could skyrocket.

Asian central banks like China's have become America's bankers, financing its excesses through good times and bad. It's now up to Asia to decide whether to extend the U.S.'s line of credit. The U.S. should be warned that the odds are moving less and less in its favor.
If China Shuns Dollar, Look Out U.S. and original source