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Pimco: We Can Not Assume The Dollar Will Retain Its Reserve Currency Status

• ZeroHedge.com
 
Mohamed El-Erian made one of his regular media appearances today (in addition to his almost daily Op-Ed, released earlier) appearing on Bloomberg Surveillance with Tom Keene and talking the developments in the Maghreb. While the full highlights are presented below, there are two items of note. El-Erian once again hits on what we believe will be the keyword of 2011: stagflation. To wit: "we have to appreciate that in the west, what is happening in Egypt and North Africa results in stagflation in the short term. So higher inflation and lower growth because of higher oil prices that take away purchasing power and transfer wealth somewhere else; because of higher geopolitical risk, which tends to diminish animal spirit and therefore impact investment; and let's not forget that the Middle East is a market, particularly for European exports. So from an economic perspective, it is important for the west to understand that these are stagflationary winds that have been added to the global economy." It is important, but not necessary: as long as the manipulated, liquidity glutted market continues to misrepresent the true state of the economy, nobody will care until it is too late. And speaking of "too late", validating our sarcastic observations over the past several weeks that the dollar is no longer the "flight to safety" currency (that would be the PM complex, and the swiss franc if anything), is the Pimco CIO's suddenly very dour outlook on the weakening US Dollar: "It is a warning shot to America that we cannot simply assume flight to quality, flight to safety. That people are starting to worry about the fiscal situation in the U.S., worrying about the level of debt and what they're hearing about states and municipalities. I would take this as a warning shot that we cannot assume that we will maintain the standing of the reserve currency as we have in the past." That's a given - the question however remains, which fiat currency, if any, is willing and ready to step in and replace the USD? With all eyes continuing to be look at the CNY, how long before China finally takes the plunge to find out just who is the real reserve currency in the world? On what the weak dollar is signaling: "It is a warning shot to America that we cannot simply assume flight to quality, flight to safety. That people are starting to worry about the fiscal situation in the U.S., worrying about the level of debt and what they're hearing about states and municipalities. I would take this as a warning shot that we cannot assume that we will maintain the standing of the reserve currency as we have in the past."

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