market? Indeed, that would be an especially tough sell given that the U.S.
central bank has held this economy’s benchmark interest rate at the ridiculously
low level of 2%, and has effectively excused Americans from the conflict.
Since we can’t count on any help from our friends, the only option would be
for the U.S. Treasury to intervene unilaterally. However, the U.S. government
should think twice about bringing a knife to a gunfight. The Treasury only has
about $75 billion in foreign currency reserves with which to intervene. That
“war chest” would make about as much difference as adding a raindrop to the
Atlantic Ocean.
To put that U.S. currency-reserves figure in some perspective, consider that
Poland has $77 billion, Turkey has $78 billion, and Libya has $79 billion. On
the other end of the spectrum, China has $1.7 trillion (not counting Hong Kong’s
own $150 billion), Japan has $1 trillion, and Russia has $550 billion. India and
Taiwan each have about $300 billion. Singapore, a nation with fewer than 5
million people, has $175 billion.
In fact, the United States holds just about 1% of the world’s $7.6 trillion
of foreign currency reserves, and our total position amounts to just 2.5% of the
total daily volume of foreign exchange trading. Talk about Bambi vs. Godzilla!
Here’s the bottom line: If the U.S. dollar is going to fall, the U.S.
Treasury is completely powerless to do anything to stop it.
