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For decades, the U.S. dollar has been the reserve currency of the world. This has given the United States an extraordinary amount of economic power, but as the U.S. economy has started to come apart over the past decade, other nations have increasingly sought to move away from the U.S. dollar and find other alternatives. For a long time it was thought that the Euro would become the next great reserve currency of the world.

Now where others can take shelter ?

Let consider EURO !

Previously I wrote in my community that sovereign debt problem may can create a “ black hole ”, and it will eat all those countries. Greece is the beginning there are Italy, Portugal, Spain, Ireland and many more. Now who can save them as we have seen in case of Greece it is combination of many, but mostly EU. Germany the main leader of the EU who himself has a governmental debt that is close to 85 % of the GDP . already there is a talking going on that Germany may be going out of EURO.
Already France has given same kind of threat , that we may consider due to create pressure on Germany to give help to Greece but if we look at the debt to GDP % of these countries it is very shocking.

Countries                       Govt. debt as % of GDP (aprox)

Spain                                              74%

Germany                                         85%

Ireland                                            93%

U.K.                                               94%

Portugal                                          97%

Italy                                              130%

Greece                                          130%

So the question is which Euro country is going to help other members when they all are in the same boat which is sinking or close to it. Closing value of dollar against EURO is 1.2360 and it looks like it will be at par in coming days if not less.
In the weekend the 1 trillion euro package was announced but how much it can help to cope with the situation is very hard to say. One immediate solution looks like if PIGS countries are restricted to use  the EURO.
For the moment forget about the taking the shelter behind EURO. The picture of EURO’s existence is very much in questionable.

Now what about British pound !

Pound is not in a very good position because U.K. is facing a massive govt. debt crisis itself. The bank of England governor recently warned that public anger over the austerity measures that soon must be implemented in the U.K. will be so intense that the party wins the election will be out of the power for many times. Pound value against dollar is 1.4533 which itself shows many things.

Now what about Japanese yen !

There has been a move towards the Japanese yen in recent days, but the truth is that the Japanese debt situation is one of the worst in the world. Japan's gross public debt has reached 201% of GDP and Japan's battle with deflation dragged into its 13th straight month in March. No, the yen is not safe at all. We also cannot forget about the export market of Japan.

So does that bring back to the US dollar ?

No. There is a reason why nations all over the world have been wanting to get out of the U.S. dollar. The United States has piled up the biggest mountain of debt in the history of the world, and even official U.S. government reports admit that the U.S. government is on a financial path that is not even close to sustainable.
The U.S. debt-to-GDP ratio stands close to 90.1%-100% , and the projected 2011 budget deficit is $1.26 trillion or 7.1% of GDP. the new healthcare legislation is expected to add another $1 trillion burden on the economy.
Plus, the U.S. monetary base was ballooned and remains over $2 trillion. Are we absolutely sure governments are done printing money? How will government leaders react if bank failures continue? In January to April minimum 68 banks have failed in U.S.
Or commercial real estate crashes? Or state pensions begin to fail? Or unemployment remains in double digits?
It’s clear the U.S. dollar will suffer inflation due to high and growing debt-servicing costs, government payrolls, and unfunded entitlement promises. The U.S. can either default or inflate. At some point – and we think it is fast approaching – global investors will see that U.S. indebtedness has reached unsustainable levels and exit the dollar, which today means selling bonds. Interest rates will be forced higher, and the U.S. will face its own Greek Moment.

There are other currencies like Australian and Canadian dollar but those are not in a good position politically. As also China & our own Indian currency.

So, what about the reserve currency in future or we have to look on Gold for the answer ?

Time will say everything. But situation is not good at all.


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