1. The U.S. will retain its reserve currency status.

This theme is paramount because it answers the question of our age: If the U.S. is backing its financial system, who is backing the U.S.?  The question is critically important because the U.S. continues to need massive amounts of money to finance its efforts to restore stability to its economy and its financial system. Thus far, support has been superfluous, as evidenced by the low level of Treasury yields, and the success of this year’s Treasury auctions, which have been very strong.

A chief reason the U.S. is able to retain its reserve currency status is because it remains the world’s preeminent power economically, politically and militarily. Moreover, the currencies of rising powers such as China are not yet ready to absorb the $7.5 trillion in reserve assets the world holds, particularly because their bond markets are immature and can’t house reserves as U.S. markets can. Any loss of reserve status is more likely to be a lengthy process, not an event.