Don't say nobody warned us...
in the 2005 melbourne university economic review I wrote the following short article as part of an extensive issue covering economic issues in the USA
"In considering the likely resolution of the unsustainable situation, it is important to note the privileged position of the U.S. dollar “as the world’s reserve currency… the risk that the world will finance large U.S.. trade deficits for too long” (Roubini).
Ostensibly, investors in US financial market (bonds) are acting somewhat irrationally, financing the US despite low interest rates.
Asian reserve banks are keeping large amounts of U.S. dollars as foreign currency reservess to sustain their fixed currency regime.
Countries also recognize the impact upon world economics of the USA. Given the importance of the United States as a foreign export market, it is difficult to imagine that it would be in any country’s economic self-interest to take a step that could potentially precipitate a U.S. economic crisis.
I believe countries will continue to acquiese to the USA’s huge deficits. Then there will be a shock, likely to be brought about by some military or political conflict and creditors to the U.S. suddenly decide the risk is too great. The writing will suddenly appear on the wall that devaluations and interest rate rises is certain in the short run… and this would cause U.S. bonds to lose value. So they sell dollars for another store of value. Countries will ask for payment upon maturity of bonds, and try to sell the dollars immediately."
I've been sitting on a massive position of Euros, Australian Dollars (well that's my residence) and Chinese Yuan (my domicile of birth) for the last 24 months and I it finally seems the borrowed time of the U.S. is beginning to run out. The US dollar defacto embargo by Iran, and the time-bomb that is the US loans market is finally freaking out those capable of influencing the market. If you've been reading Melonie's posts this will come as no surprise.
If the Democrats win the election, and start enacting leftist government spending policies, I think all hell will break loose! if the government doesn't get its act together and drastically reduce public spending and streamline social security
I'm interested in what other people think. Do you agree that the weakness in the US dollar is a manifestation of big problems, and is your view similarly bearish. What steps are you going to take to protect yourself / exploit the situation? Especially for Americans it will be hard to eliminate exposure to the US dollar
some stats:
USD/EUR from 1/1/06 to 3/31/07
Average (455 days): 0.79038
High: 0.84890 (1/1/06)
Low: 0.74560
Curent: 0.750
USD/AUD for the same period
Average (455 days): 1.31755
High: 1.42530
Low: 1.23030
Current: 1.238






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