Redmond, WA (PRWEB) October 29, 2009
David Ross, Chief Investment Officer of Radiant Asset Management, warns that continued record deficits risk collapse of the U.S. dollar, stagflation at home and civil unrest in China. In a white paper released today on China and the U.S. debt, Ross, an expert in U.S. Treasury securities, cautions that the world may abandon the dollar as a reserve currency unless the Federal Government takes decisive action to curb spending and control the dollar's collapse.
A collapsing dollar forces the Obama Administration to face three unpopular choices: cut spending sharply, raise interest rates to make U.S. debt more attractive, or default on the debt through inflation. Unless spending is quickly brought under control, the choice for the U.S. will be a sharp recession, runaway inflation, or both.
Internationally, a free-falling dollar would collapse the Chinese export industry. In his paper, Ross analyses the co-dependency dynamics that have developed between China and the United States, the demographic reasons why China will continue to purchase U.S. debt, and threat of Chinese civil unrest a collapsing dollar would bring. With so much of the world's reserves held in U.S. dollars, a sharp dollar collapse could trigger an exchange rate crisis and disruption of international trade, leading to a protracted world-wide recession or worse.
Once inflation becomes a serious problem - Ross foresees a 6% rate by 2011 if action isn't taken - hesitancy in cutting deficits or in raising interest rates risks a confidence crisis in the dollar internationally and spiraling inflation at home. Ross offers some positive news as well: these disruptions do not need to take place. Fiscal restraint on the part of the Congress and the Administration, and resolve on the part of the Federal Reserve to fight inflation will halt the dollar's collapse and restore international financial stability. Quick spending cuts and a rise in interest rates would give strong positive signals to the rest of the world that the U.S. does not intend a soft default on its debt through inflation.
The paper, "China and the Future of the Dollar: The Threat of Collapse and the Move Towards a New Reserve Currency", discusses the historical context of the rising U.S. debt, compares the level and scale of U.S. debt to foreign nations, analyzes key dynamics that drive China's savings rate and reliance and the dollar, and reviews the likely future of the dollar as it weakens including the possibility of a new global currency.
The white paper can be downloaded in its entirety here: http://www.scribd.com/doc/21696939.
For additional information, copies of the white paper or speaking engagements with David Ross, please use the above contact information.
Radiant Asset Management is a boutique investment management and sub-advisory firm based in Redmond, WA that offers investment strategies based on geopolitical and economic fundamentals, market dynamics and investor behavior.