Made in China

There was very little drama resulting from the conclusion of the G8 meeting in Italy as leaders bid "ciao" to the earthquake town of L'Aquila on Friday. Some analysts had high hopes for a resuscitation of discussion over a replacement for the dollar.
 
However, the tone of each respective comment from the mouths of individual leaders bore more of a long dollar tone than a short dollar tone. Overall global markets woke up to the big picture message that there's no point discussing exit strategies just yet because there's a rather large chance that the economies could topple back over again.

Indeed the message emanating from Italy was that there was more work to be done to support the world's economies through fiscal stimulus. The words of President Barack Obama delivered at Friday's concluding press conference convey the tone appropriately as he said, "While our markets are improving, and we appear to have averted global collapse, we know that too many people are still struggling."
 
In effect he was laying the groundwork for more of the same ahead: More stimulus. And of course we know that for the markets this issue of more stimulus is becoming something of a proverbial Catch 22. The more stimulus the U.S. undertakes the more chance it has of success, yet at the same time the more it spends the more chance the markets will bet against the capability of the U.S. government to repay its debt.
 
Despite the setback it was the Chinese who managed to draw the sword on the role of the U.S. dollar after much anti-greenback had been extinguished earlier in the week. That voice didn't gain much traction, yet still the under current was present.
 
It's not a case right now of wanting to see either a bull or a bear case for the dollar build. A bearish base case for the dollar would involve a gradual economic recovery taking root and a move away from the dollar based upon growing risk appetite elsewhere. The unfortunate bull case is based upon the kind of warnings we're now hearing from the G8 that the recovery carries about as much confidence as Bambi on ice.
 
So it was slightly worrying to say the least to learn that the G8 pledged 35% more to assist poor nations' agricultural output over the next three years than was expected by onlookers.
 
The Chinese President, Hu Jintao underwhelmed his nation's initiative to reduce the reliance on the U.S. dollar by having to return to deal with violent protests in China's Xinjian region. It was left to a less influential state councilor, Dai Bingguo to air his country's view that there was need for a better system for reserve currency issuance and regulation.
 
The position is at least understandable, and yet the more we hear the voices calling for less reliance on the U.S. dollar, the more it appears that markets will treat the end-game with a calmer outcome. Dealing with international reserves is what those upset nations are complaining about. A Chinese manufactured solution is not likely to gain much traction until the globe recovers and even when it does, we're learning that the dollar faces far less in terms of the negative prospects that we'd earlier heard were possible.
 
They want to feel less dollar centric and more diverse, which is a point that is becoming better accepted and when understood is one that seems less likely to erode the dollar at the end of the day.

The Supreme Council of the Secret Order of Jurojin