Dollar May Decline to 50 Yen, Lose Reserve-Currency Status, Sumitomo Says

Dollar to Hit 50 Yen, Cease as Reserve, Sumitomo Says (Update1)
By Shigeki Nozawa


Oct. 15 (Bloomberg) -- The dollar may drop to 50 yen next year and eventually lose its role as the global reserve currency, Sumitomo Mitsui Banking Corp.’s chief strategist said, citing trading patterns and a likely double dip in the U.S. economy.

“The U.S. economy will deteriorate into 2011 as the effects of excess consumption and the financial bubble linger,” said Daisuke Uno at Sumitomo Mitsui, a unit of Japan’s third- biggest bank. “The dollar’s fall won’t stop until there’s a change to the global currency system.”

The dollar last week dropped to the lowest in almost a year against the yen as record U.S. government borrowings and interest rates near zero sapped demand for the U.S. currency. The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, has fallen 15 percent from its peak this year to as low as 75.211 today, the lowest since August 2008.

The gauge is about five points away from its record low in March 2008, and the dollar is 2.5 percent away from a 14-year low against the yen.

“We can no longer stop the big wave of dollar weakness,” said Uno, who correctly predicted the dollar would fall under 100 yen and the Dow Jones Industrial Average would sink below 7,000 after the bankruptcy of Lehman Brothers Holdings Inc. last year. If the U.S. currency breaks through record levels, “there will be no downside limit, and even coordinated intervention won’t work,” he said. ............(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601109&sid=a_A5nqmw9Dq8

In 2007 when I last went to Japan, a dollar bought 120 yen. Now it buys 89.

anything from hyperinflation with rampant unemployment to basically Mad Max without any gas.

Shoring up the dollar needs to happen now.

at least, not in the US MSM.

1) Exit the recession
2) STOP SPENDING FUCKING MONEY WE DON'T HAVE. Require balanced budget +2%. If revenue is $2T then Congress can spend $1.96 with $40B going to pay down principle of debt.
3) Raise interest rates to a normal level - no more "free" or "ultra cheap" money.

However the US is addicted to two things, spending other peoples money and ultra low interest rates. The withdraw pains are going to be bad. The alternative is rates of federal debt skyrocket (as investors demand more and more risk premium) and interest on debt becomes larger and larger % of budget before US defaults and becomes a second world nation in terms of credit and access to capital markets.

Either way it is pretty simple concept that you can't spend more money than you have every year infinitely. Eventually you hit your credit limit (ours seems to be around $11T-$12T), default, or have to pay it down.

The last depression ended in WW2.