No alternative.

A basic point that the dollar bears overlook is that for the U.S. dollar to depreciate, it has to depreciate against the world’s other major currencies. Yet currently it would seem that those currencies are beset by problems as serious, if not more serious, than those besetting the U.S. dollar.

The troubles currently facing the Euro, the main challenger to the dollar’s dominant international reserve currency position, would illustrate this point. Not only is Europe experiencing a very much deeper economic recession than the United States and not only does Europe now have significantly negative interest rates. Europe also appears to be on the cusp of another round of the Eurozone debt crisis that could pose an existential threat to the Euro.

It is particularly troubling that the next Eurozone sovereign debt crisis is likely to be centered on Italy, a country whose economy is some ten times the size of that of Greece. Never before has Italy had a larger budget deficit or a higher public debt to GDP ratio than it has today. Yet stuck in a Euro straitjacket and deep in an economic recession, Italy will not be able to restore order to its public finances without resorting to a debt restructuring that could shake the Euro’s very foundations.

Neither Japan nor China, whose currencies to date have not been very widely used as reserve currencies, are likely to pose a real threat to the dollar anytime soon. Japan currently has public finances that make those in the United States look balanced. Meanwhile, China is presently in the midst of a credit bubble of epic proportion and it continues to maintain strict capital controls that would seem to disqualify its extensive use as a reserve currency.