“The U.S. dollar could lose its status as a reserve currency used by countries worldwide for foreign reserves and to conduct commerce if Washington doesn’t make lasting fiscal reforms soon, said Michael Pento, founder of Pento Portfolio Strategies.
Washington needs to push through both short-term and long-term reforms to taxes and spending to keep the greenback attractive.
In the more immediate future, lawmakers and the White House will be scrambling during the coming days to steer the economy away from the year-end fiscal cliff, a combination of tax hikes and deep spending cuts set to kick in at the same time and tip the country into a recession.
Over the longer term, however, policymakers must pay down debts and narrow deficits if investors are to continue to view the dollar as a reserve currency and asset of choice to ride out uncertainty.
Should debt burdens become unmanageable, investors could lose their appetite for the greenback and avoid U.S. government Treasury bonds, which would send interest rates rising and seriously bruise the economy…”
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