The Bottom Line - Foundation Bank

Can the Dollar Survive?

Volume VI Issue IV - May 5, 2010

A Monthly financial Commentary for our Friends, Clients and Advocates

Days of Dollar Dominance

Will the dollar lose its status as the reserve currency of the world? Mark Dodson, with Hays Advisory, says, "not within the next 100 years". In his commentary found at haysmarketfocus.com on April 29th, he outlines several reasons why he believes this is the case. The first reason is the lack of alternative safe havens for investment. Continued concern over the debt in Greece, Turkey, Spain, and Portugal underscores this point. A second reason for the dollar's continued dominance is the relative size of China's economy. Though they are the fastest growing economy in the world, their economy is still one-third the size of the United States. Not only will the Chinese GDP need to eclipse the U.S. GDP, but it will also need to do so for an extended period of time to establish the confidence necessary to become the world's reserve currency. A final reason, Dodson explains, is that of the cultural intangibles present in our country such as order, rule of law, and institutions. These three things are often taken for granted, but are the essential underpinnings to a successful economy over the long-term. A country's citizens must be submissive to its authorities and governing framework for people to thrive in business. In my estimation, Hays may be correct that the dollar will remain the reserve currency for our lifetimes. However, just as the British pound even eventually gave way to the rising star called the Dollar, history might caution us to watch the horizon for the next rising star.

Is Small the New Big?

Small is in. Small to medium size organizations (including businesses and cities) have an opportunity on this side of the Great Recession that they did not have prior. Long gone is the assumption that behemoths in business are immune to troubled economic waters. It takes time to turn the Titanic. As a result, people might be more attracted to the tugboat business model that can turn on a dime. It makes it easier to miss the icebergs. Community banks stand to benefit, separating themselves more and more from their big bank cousins. Likewise other small to medium-size businesses that can offer the personal touch lacking in big business will be more appreciated than in the past. But small is not just en-vogue in the corporate world. Small to medium-size towns are likely to experience the greatest population growth in the next 20 years. Because the millennial generation values community unlike any other generation in recent history, many will be moving away from sterile urban areas to intimate cities and communities where "everybody knows your name". Many immigrants are bypassing big cities and looking to steadier work that smaller cities can offer. People who sought work in Florida, Nevada, Arizona, and California in the last 10 years are now coming back to more stable work in towns like Chattanooga, TN, Huntsville, AL, and Ft. Collins, CO. Also, because strict credit standards will be more likely to relax sooner in smaller towns, the flow of new investment will open up again sooner than in larger cities. Lastly, cost of living in these less metropolitan areas is significantly below big city living. A person can sell their house in a major metro area, and typically buy a much larger one with a little land in a smaller city. Keep an eye on this demographic shift.

Capitalism Producing a Cure?

Have we found a cure for Cancer? The biopharmaceutical company, Dendreon certainly hopes so. The FDA approved their new cancer vaccine called Provenge last week. It has the potential to harness the body's immune system by teaching it how to recognize foreign cancer cells. This reminds me that despite all the thorns, the rose of capitalism also produces beautiful, lifesaving petals for mankind that would not bloom any other way.

Chad P. Wilson, CFP

Foundation Bank – Division of McKenzie Banking Company, McKenzie, Tennessee - 731-554-2423

The above is strictly informational and does not constitute any sort of recommendation.

Please consult your own financial advisor for specific loan or other investment advise.