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How Realistic is a North American Currency?

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Could a seismic currency shift be in our future?

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On it's face, while difficult to imagine, it makes intuitive sense. The ability to combine Canadian natural resources, American ingenuity and cheap Mexican labor would allow North America to better compete on a global stage.

As we've learned through experience, however, perceived solutions introduced by policy makers and politicians don't always have the desired effect.

Unintended Consequences

I've long contended that much like the Internet prophecy proved true-but not before the tech crash-so too would globalization, albeit not without painful yet necessary debt destruction.

To get through this, we need to go through this. If we're not allowed to go through it, foreigners will seek alternative avenues. Remember, for holders of dollar-denominated assets, seeds of discontent have been sowing under the surface for years with the greenback off 30% since 2002.

More likely than not, global leaders will watch how our new administration attempts to tackle the financial crisis before taking drastic steps. They understand that codependent risk exists as a function of the derivatives that interweave our financial infrastructure. If they could disassociate from our economic ecosystem without inflicting massive damage on themselves, they would have done so long ago.

If forward policy attempts to induce more debt rather than allowing savings and obligations to align, we must respect the potential for a system shock-such as a two-tier currency-to gain traction if, and likely after, the dollar meaningfully debases from current levels.

If this dynamic plays out-I sincerely hope that it doesn't-the global balance of powers would fragment into four primary regions: North America, Europe, Asia and the Middle East. In such a scenario, ramifications would manifest through social unrest and geopolitical conflict.

This particular path isn't something one would wish for but the cumulative imbalances that steadily built in our finance-based economy must be resolved one way or another. Therein lies the critical crossroads we together face as our wary world attempts to find its way.

Scary? Yes. Probable? Not so much, at least for the time being. Possible? Certainly, although I'll again offer that it could take years before the pieces of this prickly puzzle fall into place.

Effective money management dictates weighing the entire probability spectrum of potential outcomes and factoring them into our decision making process. While the notion of a seismic currency shift may seem obscure, we must respect the possibility long before it becomes front-page news.

For if we've learned anything through the last few years, proactive thought provocation is a necessary precursor to effective preparedness.

R.P.
No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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