James Turk Blog

In order to evaluate the effect of the credit turmoil on the dollar, we should therefore determine how prolonged the dollar is apparently in conditions of its international circulation. The most recent numbers from the US Treasury TIC data is for the position in June of this past year for foreign ownership folks securities, and for end of season 2016 for US possession of foreign securities.

8.52 trillion more than US ownership of non-dollar foreign investments, up 275% since 2008. That is illustrated in the following chart. We cannot say for certain this signifies something near to Triffin’s tipping point, where the quantity of dollars in foreign hands shall undermine the money. But based on the global world Bank, global GDP has only increased by about 20% since 2008, suggesting that we now have, indeed, far too many dollars in foreign hands relative to financial activity, compared with a decade ago.

This being the situation, the dollar could be arranged to fall on the international exchanges throughout a credit problems, when investment liquidation pressures increase, and currency hedges are initiated. However, this is not the complete picture regarding exchange rates. It’s the character of fiat currencies that their specific ideals are inherently uncertain, each one reflecting purely subjective values in the foreign exchanges. There can be little doubt that the existing equilibrium between, say, the Argentinian peso and the US dollar would be disturbed in a global credit crisis by undermining the peso. We can not be so certain of the exchange rates between, say, the euro and the buck.

Nor can we be so certain how recognized Chinese policy towards dollar investments may change, or indeed the positioning of other sovereign wealth funds. All we can say is the foreign world outside America is overexposed to dollars, as it is at the late 1960s just, when the treatment was to market them for gold.

We’ll start with the fundamentals and work our way out. Dividends are money an ongoing company pays its shareholders, typically every month, quarter, or year. Regular dividends: An organization pays a regular dividend since it expects to continue to pay the same amount or increase it, over time. Most dividends paid are regular dividends, which are funded with a company’s income.

  • The specific securities where the fund has spent
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Special dividends: These are dividends that are paid sporadically. Apple is an excellent example of a highly profitable company that earns a lot more than it might ever fairly reinvest back into its business. 11.5 billion on research and development, trying to boost its existing products and produce new ones.

But Apple simply makes too much money to find a productive use for everything. 11.5 billion on the r&d — which leaves it with substantial amounts of cash that it needs to discover a purpose. At a certain point, an organization runs out of good ways to reinvest its cash-flow power simply. 1 billion trying to help make the best cookware for another colony on Mars?

Sure. However, the returns are likely to be poor, so shareholders would rather receive a dividend than watch their money disappear on silly research projects. For this good reason, most dividend-paying companies have a tendency to be slower-growing businesses that neither have the need nor wish to plow all their profits back into the business enterprise.