Dollar Is No Longer A Safe Investment After Crisis

Dollar Is No Longer A Safe Investment After Crisis

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Treasury bonds used to be considered as good as gold, a safe haven for wealth during hard times. But now, it looks as if the dollar has no longer remained the king of crisis management. The weight of fundamental dislocations, including deficits and weak political willpower, has exerted downward pressure on the power of the dollar in the marketplace today.

The exchange rate of a dollar declined sharply when the Fed announced its plan for "quantitative easing." This Japan-esque strategy involved the Central Bank purchasing $600 billion in US sovereign debt in order to stabilize stock prices. The dollar recorded against the Euro a 5 month low in October of last year. With the start of QE2 in November later on in the last year, the dollar gained its reputation back. When QE2 started in November, the media announced it as a victory for Central Bankers like Ben Bernanke. Then headlines about the debt crisis in the Eurozone started emerging. This saw the odds turning in favor of the dollar and the Euro went down again. This scenario has been seen repeatedly, in various regions of the world and for many different root causes: whenever the dollar is on verge of being finished, a crisis or event occurs which triggers the dollar's "flight to safety" status, and the dollar rises.

The same scenario unfolded last October: when the fundamentals suggested that the dollar should come to an end, but the miracle happened once again. And with the growing power of the dollar the investor also rushed in for investment. But the cycle couldnt last for long, and in the first week of January this year, the media did not hype the Euro crisis and there were no headlines about it. With this, the main concern was the financial woes in America, and they were major concerns indeed.

Now with crises unfolding all over the place, like civil unrest in a large number of Arab countries and the huge blow struck to Japan, investors have decided to take another turn. These investors are not rushing to the dollar for safe investment, as expected, but are instead abandoning it, and thinking of alternatives.

Bloomberg recently reported that even Bill Gross eliminated any government debt from his fund in the last month. Bill Gross runs the biggest bond fund in the world at Pacific Investment Management Company. His reason for withdrawing funds was that the US government's budget deficits are spiraling out of control and, until addressed, US debt does not provide sufficient return for the risk involved.

The world now seems to be at the early stages of realizing that the dollar is not the only commodity where one can invest in after a crisis situation unfolds. They have found that oil and food products hold a better place in the market now, along with the currencies of more financially stable world powers.

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Learn about some of the different investments available as an alternative to the troubled US Dollar.



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