The First Crack in the Economic Dam?

Before I get into today’s news let me just start out by saying that the U.S. finds itself in a precarious position. For the first time in history, our economic future is in the hands of foreign banks. The question of when (not if) our financial day of reckoning dawns will be answered by non-Americans.

Now, we do not pretend to be able to predict such events. In fact, we believe that no one can, but we still must be prepared financially as well as emotionally for such an event. Without such preparation, we would not be able to weather the coming storm.

Now, with that in mind, my question this morning is this…is the news this morning of the Chinese revaluation of their currency the first crack in the economic dam? It very well could be. The currency revaluation was a paltry 2.1%. We will hardly feel the effects when we visit the local Wal-Mart, but it is an important step.

First, it indicates that the Chinese are becoming concerned about the huge account deficit and all of the dollars they are accumulating. Now that they have taken this first step, it will be much easier next time. And if they ever allow the Yuan to float, look out dollar.

Second, if you read or heard the news, the Chinese are now pegging their currency to a basket of currencies. What this means is that they have moved from an exclusive peg with the dollar, to a more stable group of currencies. This is like buying insurance for their currency. In the event of a major drop in the value of the dollar, the other currencies in the basket would probably rise and reduce the downside risk.

Dollar bears will no doubt see this news as ominous and in fact it may be, but only time will tell. Keep your eyes peeled and your money safe.