Most people agree about the building problem with the US debt and the danger it creates for treasury bonds as quantitave easing appears to be " bond " to happen increasingly over the rest of the year and for some time as those fears will play out on investors .

The problem of the huge amounts of money sitting in treasury are the alternatives and when it comes to currencies strangely enough none seems safer at this time then the US dollar i mean none liquid enough to be an entry point , actualy we all know the US dollar is in a class of it's own , even as we discuss it's fate and believe it's doom to fall and eventualy lose it's status , we still know it will take time and a lot of it .

It does'nt mean it won't endure great volatility over the next few months and probably over the next couple of years but deep and endurable changes will occur over a long period due to the conditions that make the dollar strong and the only real reserve currency in the world of today .

I've been arguing over the last couple of months along with others that the Chinese were divesting from treasury even though the numbers proved they incresed their holds in US bonds since the beginning of the year , the fact is they've been moving from long term into shorter term .

In my opinion they with others are working on a long term exit strategy , and the IMF SDR along with an increase in the use of the Yuan for foreign trades and for currency swap as well as their huge investment in the future through commodities build up or their buying up of equities all over the world is part of that strategy .

But as many argue the amount of money China Japan Russia and others hold in US denominated dollar is so huge that it will take years to divest it in a awy that won't crash the dollar and along with it their investments .

It seems most here are very bullish on gold and i along with them but gold is such a small market that it's not a viable answer alone for all the scared money that may come out of treasury , the oil market is much larger and a neccesity to all human activities and it has become some type of a refuge recently especialy since it fell so much from it's previous highs and along with other commodities it has become a refuge but still to this day US bonds remain in the eyes of most , and notwithstanding the fears of the US deficit , the safest investment vehicle for huge amounts of money .

And as long as they're are no other viable alternatives for those huge amounts of money to move out it will mostly remain there building up the most dangerous buble of the present day even as it will be subject to volatility and increase fears .

Tec

http://www.reuters.com/

Tue Jun 16, 2009 6:13am EDT

By Mike Dolan - Analysis

LONDON (Reuters) - The raging debate about the future of the U.S. dollar's reserve currency status may be masking the real drivers of its near-term direction.

Even as Russia, China and Brazil ratcheted up rhetoric about a new global reserve currency and diversifying their huge foreign currency stashes away from dollars, the U.S. currency has staged a remarkably healthy rebound this month.

Against the world's most traded currencies, the dollar has clawed back a quarter of the losses it has suffered since March -- losses that were driven by growing confidence in financial and economic recovery.

The billions parked in U.S. money market funds and Treasury securities during the worst of the credit crunch streamed out to seek higher returns in riskier plays such as equity, often outside the United States and significantly in emerging markets.

Fund tracker EPFR estimates that $104 billion has left money market funds since the start of the year and almost $30 billion flowed directly to emerging market equity, mostly since March.

But as the stock market rally has stalled, or at least taken a breather, the dollar has bounced more three percent.

And this bounce came in the face of persistent Russian and Chinese reserve warnings and ahead of Tuesday's summit between these two emerging giants and their new-found economic allies from the BRIC grouping -- Brazil and India.

SMOKE AND MIRRORS

So why has talk of diversification by the world's biggest reserve holders not weakened the dollar further?

After all, China and Russia hold more than a third of the $6.7 trillion global reserves stockpile and at least 50-60 percent of their combined holdings is denominated in dollars.

For sure, it was cited as a contributory factor as the dollar skidded through April and May. And data released on Monday showed public and private holdings of Treasuries held by Russian and Chinese names fell by $6 billion in April alone.

But analysts reckon this is small compared with the massive private sector investment swings in and out of the United States in recent months and probably for several months to come.

With equity and bond markets still torn by uncertainty about the next leg of the post-crisis economic story, the dollar's negative correlation with stock market nervousness appears to be re-establishing itself.

As stocks look to lurch lower again, the dollar may well attract another "safety" bid -- just as in the earlier part of the year.

Against that, central bank reserve shifts are unlikely to be either sudden or in great size.

For a start, major central banks from Moscow to Beijing or Brasilia would have as much as anyone to lose from any sudden or prolonged loss of confidence in the dollar, given they still hold hundreds of billions in dollar securities. Neither would they want to precipitate a financial crisis that could shock the consumers of one of their biggest export destinations.

Also, whenever the dollar weakens, central banks that fix their currencies at least partly to the dollar are forced to buy at least some dollars to maintain that peg. Periods of dollar weakness are therefore met with official dollar purchases -- even if the proportion is gradually less over time.

Analysts at Goldman Sachs point out that global reserve accumulation, which peaked about $7 trillion last summer, has resumed as the dollar has weakened since March and as crude oil prices surged.

SDR DOUBTS

Others point to the more recent debate about emerging countries switching U.S. Treasury holdings for bonds from the International Monetary Fund -- bonds that would be denominated in the IMF's basket currency, the Special Drawing Right.

However, this flow too may prove more marginal in the short run than it first seems.

Dollars already make up some 40 percent of the SDR basket, limiting the drop in dollar allocations from about 60 percent dollars at present.

As commitments to date from China, Brazil and Russia to the proposed IMF bonds amount to about $70 billion, that would involve a reduction in dollar holdings of $14 billion at most.

The IMF itself is adamant there is no risk the dollar's dominant status for some time.

"The dollar is the principal reserve currency in the global economy and will remain so for as far as we can see," IMF First Deputy Managing Director John Lipsky said on Monday.

So is this is a story for another day?

"The prospects of an aggressive change in the U.S. dollar allocation in the Russian foreign reserves remains very low," Commerzbank analysts told clients on Monday.

"But it is also worth stressing here that the secular move away from the U.S. dollar into other regional bellwether currencies in the emerging markets space is still on, and will probably intensify over the next many years."

Goldman Sachs takes a similar view: "We do believe that the dollar will effectively remain unchallenged as the main reserve currency for a long time but there is also little doubt that the constant reserve diversification talk creates uncertainty."

(Editing by Ruth Pitchford)

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