Orchestrated Assault on the Dollar

Could a multi-national coalition, economically armed and highly motivated, deliberately plan and execute a devaluation effort against the US Dollar? Would this effort be successful in maintaining a long term advantage over the US financial might? What would it take to accomplish this - and what would it take to prevent it?
This question is being asked more and more frequently in discussions from the board rooms of multi-national corporations to the trading rooms of the forex community. Not just the ones in the United States but also in London, Tokyo, Sydney, Moscow, Dubai, Abuja and even Tehran. All financial powers are beginning to raise eyebrows at the serious downward extension of the dollars recent decline; and the implications this might bring.

Whispered phone calls are made, carefully worded emails are sent, private government conversations are kept hidden and (of course) the ever present gossip and rumor mills keep churning out their spin on things. And with good reason too. Last year China threatened to dump their dollar piggy bank in favor of other assets, and has begun doing just that. For the first time Saudi Arabia decided to not match the US interest rate cuts. Russia is making plans to develop their own wall street; allowing them to trade commodities for rubles. And even Sudan on the African continent and Venezuela in South America are on the "kick the dollar" band wagon. But is all this a coordinated effort?
Everyone knows that one country alone cannot hit the dollar hard enough to weaken it as much as we have seen in recent years. Coalitions of economic powers can, and often do make sharp, quick blows to the dollars strength; but cannot sustain it for decades as US policies and its sheer economic might adjust to - and counter the blows(a good example is the euro). A coordinated effort of multiple economic coalitions could be powerful enough to put serious and sustained damage on the dollar and the influence the dollar commands. But to see any long term success in these efforts would require that:

1. The US is caught completely by surprise at precisely the right time. The US has already proven it can, and will, prevent the deliberate devaluation of its currency by outside influences.
2. The US be either unable or unwilling to develop foreign economic and trade policies capable of defending the assault on the dollar.
3. America wants to deliberately allow devaluation of its currencies in the global markets. This would come from basic interest rate and M1 manipulation of supply and demand.

If a coalition of economic forces could obtain any one of these three factors, then we just might see a damaging and sustained devaluation of the US dollar in the world economy. And this very well could be happening right now. But I doubt it.

I think what we are seeing right now is an aspect of basic global macroeconomics. Yes, the USD is pitted against economic coalitions that began in 1985 with the Plaza Accord. But this agreement was not only predetermined, but planned for, and agreed upon by the US to deliberately devalue the dollar in an orderly fashion. The 1987 Louvre Accord was then implemented to stem the dollars decline and allow the natural market forces to resume play. Which it did for a few years; but the natural global economy is very large, very fluid and very sophisticated. The natural market forces have spiked the US dollar down to the lowest point in modern history against both European and Asian currencies.
As can be seen in a chart of the US Dollar Trade-Weighted Exchange Rate , the current spike down may be an all time low, but it should begin to form abottom and turn within the next 12 – 18 months (likely with a double bottom or reverse head and shoulder), pulling back up to the 1990 - 1995 levels within the next five years, were I think the true fair value of the dollar lies.

The fundamental reasoning for this is largely due to the current eco-political situation in America. It is a time for change and the US voters will be the driving force of that change. For as much money and power as US corporations can wield, they still cannot actually cast a vote. True, they may be able to influence it, but not enough to prevent the change the voters not only demand, but desperately need. This political change should be the catalyst for influencing future economic foreign policy for the dollar.
Another fundamental factor is the complexity of trying to maintain a common direction for a multi-national effort against the US Dollar. Global political and financial motivators are the same as with any business financial motivators. Strategic alliances are made and maintained - until better offers come around. Then better strategic alliances are made, often times directed against the original partners. Couple this with inherent deep rooted economic policy differences, makes maintaining a coordinated long term effort very unlikely.

But as with any market analysis we must always remember that a financial market does the same thing as an 800 pound gorilla. Anything that it wants to do. And in the case of foreign currencies it is more like a 2 trillion pound gorilla. Allowing human nature combined with other natural market forces to dictate their own path will inevitably bring the currency markets back to an equal balance. Whatever those balances may be.