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Why the The Dollar Will Remain the World’s Reserve Currency

Written by Gary North on November 2, 2011

Because the eurozone is staggering.

The euro is the only competitor to the U.S. dollar internationally today. It is the 700-lb gorilla, and it is going to go back up to 800 lbs.

The euro is threatened by the default of Greece, Spain, and Italy. The banks of Europe  are at risk.

The only solution that any Keynesian economist has is for the European Central Bank to create money and buy PIIGS government bonds, either directly (unconstitutional) or through the IMF. But inflating the euro will lower its long-term value in relation to the dollar, at least until U.S. banks pull money out of excess reserves at the Federal Reserve and start lending to the public.

Whenever there is a crash in European stocks, as there was yesterday, investors buy the dollar, meaning U/S. government bonds. So, the dollar rose. Gold and stocks fell.

The euro is nowhere near stability. No one thinks it is. But investors still hope that the bailout is coming, that there will be good news, that another summit will be held, that there will be a positive press release from the summit. In short, they invest in stocks based on total blindness.

The eurozone has no permanent solutions, only press releases. The Eurocrats have no Plan B to implement to deal with the PIIGS. This is why the dollar is in better shape than the euro.

The fate of the dollar is in the hands of commercial bankers. Until they start reducing excess reserves, the U.S. economy will stay flat, but so will prices. It will look better than the euro.

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