At the end of a long post in which the point is also correctly made that the US has ZERO ability to unilaterally “devalue” its currency, Mish puts very well the idea that other currencies must fall too:

A watched pot may boil, but it’s not likely to explode, especially when everyone watching the pot expects an explosion any second.  Indeed, it would be fitting if the Ridiculous Hype Over Secret Oil Meetings, helped form a bottom on the US dollar. Yet, it’s easy to see that a financial crisis is brewing.  Somewhere, something is going to blow sky high, but from where I sit, it’s as likely to be in the Yen, the Swiss Franc, the British Pound, or something no one is watching at all as opposed to the US dollar specifically.

We agree.  In crisis, the dollar will still likely be a safe haven.  Everyone now agrees the dollar is doomed. We will be the contrarian. The US is exporting its monetary inflation and there are some big creditors who don’t want to be paid back with dollars of lesser value.

Famed Elliot Waver, Bob Prechter is “quite sure the next wave down is going to be larger than what we’ve already experienced,” and take major averages well below their March 2009 lows.

Bloomberg reports that RBC is calling China’s stockpiling of commodities its “new sovereign wealth strategy”:

“It’s part of an overall desire to decrease its exposure to dollar assets,” said Brian Jackson, senior strategist at Royal Bank of Canada in Hong Kong, in an interview today. China fears the hundreds of billions of dollars the U.S. is spending on bank bailouts and stimulus will cause “higher inflation and a weaker dollar,” he said.

“Increased spending on commodities represents a reallocation of China’s sovereign wealth away from the accumulation of financial assets,” Jackson said in a May 15 research note.

China, the world’s biggest consumer of iron ore, boosted imports of the material to a record 57 million metric tons in April. China’s purchases of copper and copper products reached a record 399,833 metric tons last month, compared with 374,957 tons in March.

…China, the world’s second-biggest energy-consuming country, increased crude imports by 14 percent in April.

As the FED engages in at least $300B of QE (probably much more before they are through), it’s buying Treasuries from the market that China can sell into the market (or at least not buy) without prices changing substantially.  The big fact in this article is this:

Without this stockpiling of strategic commodities, China’s trade balance likely would have risen in the first quarter instead of falling $51.8 billion to $62.51 billion…

That’s $50 or $60B per quarter of commodity stockpiling…in another 4 or 5 quarters, China will have up to $300B in commodity reserves… So what else are the Chinese buying?   Ambrose Evans-Pritchard reports:

“There is a significant shift taking place in China. They are concerned about the stability of the global financial system so they are not going to sell US bonds they already have. But they are still accumulating $40bn of fresh reserves each month, and they are going to be much more careful where they invest it,” he said.

Hans Redeker, head of currencies at BNP Paribas, said China is switching into hard assets. “They want to buy production rights to raw materials and gain access to resources such as oil, water, and metals. They know they can’t keep buying bonds,” he said

So…in addition to stockpiling commodities, China is scarfing up real assets that produce these commodities: coal, copper, iron and gold mines, oil fields, timber lands… In another 4 or 5 quarters they will have as much in hard assets as they have in dollar denominated financial assets.  Then, if the dollar falls in value by (say) 50%, their hard assets will rise by a like amount, leaving them insulated from the dollar’s decline.  Will the decline wait for China to get into position…or does China control this timing?

NYT has an opinion piece from Nouriel Roubini on China’s currency.  Although  Chinese renminbi is not yet ready for prime time, the prospects for dollar strength in the long run are dim:

“Traditionally, empires that hold the global reserve currency are also net foreign creditors and net lenders. The British Empire declined — and the pound lost its status as the main global reserve currency — when Britain became a net debtor and a net borrower in World War II. Today, the United States is in a similar position. It is running huge budget and trade deficits, and is relying on the kindness of restless foreign creditors who are starting to feel uneasy about accumulating even more dollar assets. The resulting downfall of the dollar may be only a matter of time.

But what could replace it? The British pound, the Japanese yen and the Swiss franc remain minor reserve currencies, as those countries are not major powers. Gold is still a barbaric relic whose value rises only when inflation is high. The euro is hobbled by concerns about the long-term viability of the European Monetary Union. That leaves the renminbi.

This decline of the dollar might take more than a decade, but it could happen even sooner if we do not get our financial house in order. The United States must rein in spending and borrowing, and pursue growth that is not based on asset and credit bubbles. For the last two decades America has been spending more than its income, increasing its foreign liabilities and amassing debts that have become unsustainable. A system where the dollar was the major global currency allowed us to prolong reckless borrowing.”

FT reports that the Federal Reserve entered into currency swap agreements enabling US banks to have more access to four foreign currencies.  In addition, FT notes that (emphasis is ours):

“The Fed has already authorised these four central banks to borrow unlimited amounts of dollars from it to meet the dollar funding needs of their local banks.”

Obviously, when a foriegn central bank sells debt obligations to the Fed, it is possible for the Fed to pay for those securities with “newly printed” money.  So…this is a great way to get more fiat dollars into circulation in the world without US banks first having to lend them.  Could it be that there will now be a “run on the dollar” engineered by the PPT to take big advantage of this?

This chart of the S&P 500 in Eurodollars is from TPC:

The FED’s printing really is dollar destruction…and helps to destroy the most recent little rally too…