Is the $ slide the start of a collapse?

W

Wilkes

Guest
The Dollar, unsupported by a gold link, has been printed in vast quantities by the US in the form of Treasury Stock and essentially backed by cheap oil propelling the US economy for several decades. But the sheer scale of US debt from import/ export imbalance to low cost Asia, the Govt deficit and huge private sector credit means that this part of the world is awash with borrowings. These have to repaid. Meanwhile capital markets are awash with borrowed money in hedge funds.

I'm not trying to be a pessimist just a realist but with oil and gas either past peak or heading shortly there, the era of cheap energy is coming to an end and alternatives are just not dense or efficient enough to meet growing global demand. At best it's beginning to feel like a prolonged phase of double digit inflation around the corner.

Does anyone have or know of good independent contradictory analysis. I'd love to read the positive stuff!
 
Very little positive stuff around but have a look at this thread:



Some people (myself included) think we will see deflation before double-digit inflation.

Neither is particularly good for the US (and consequently the world) but I'd bet given a choice Bernanke would choose the latter.
 
Interesting viewpoint from This mornings CIF in the Guardian

http://commentisfree.guardian.co.uk/james_k_galbraith/2006/12/the_dollar_melts_as_iraq_burns.html

Same vaguely pessemistic outlook - the dollars in trouble but whats the alternative.

Sounds like ourselves looking at the next general election

PS: if you read down the article in to the "comments" section - some really interesting and provocative replies - especially in connection with the formation of a new world currency or breaking the dollars link with the US economy!
 


as much as some ppl would love for this to happen, esp america itself, nope, too many large extrnal countries carrying dollar.
china have sh£t loads of the stuff....

short term fall...rally and drop again...

will pull back by end of 2007...
 
the dollar is fine. Its a good carry trade at the moment. Unless $ rates fall significantly it will be ok.
 
plaudit said:
the dollar is fine. Its a good carry trade at the moment. Unless $ rates fall significantly it will be ok.
Click to expand...


Can you explain why this will be the case, I would like to understand it more?
 
plaudit said:
the dollar is fine. Its a good carry trade at the moment. Unless $ rates fall significantly it will be ok.
Click to expand...

Not necessarily. This dollar weakness, based mainly around the prospect of the Fed cutting rates, is preventing the Fed from doing so. A soft dollar doesn't bother the Fed as it lowers the real cost of their debts but they cannot risk the prospect of a run on the dollar. The weaker the dollar the greater the likelihood of a hard landing for the US economy IMO.

Please explain how a US dollar carry-trade would work - they have higher interest rates than Europe or Japan, so I don't follow.
 
plaudit said:
Buy USD/JPY and get a ~4.5% yield.
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I cant see how the yen- dollar carry trade supports the strength of the dollar. I think the inverted yield curve in dollar bonds tells you all you need to know about sentiment towards the dollar. The bond markets are saying that the US is heading for recession and that the Fed will drop rates again = weak dollar.
 
Nobody knows for sure. This time 2 years ago the Euro was destined for €1.40 and it went under $1.20. Look at NZ$, it was supposed to be in freefall but did a U-turn in the last 6 months
 
plaudit said:
Nobody knows for sure. This time 2 years ago the Euro was destined for €1.40 and it went under $1.20. Look at NZ$, it was supposed to be in freefall but did a U-turn in the last 6 months
Click to expand...

I think that the actions of hedge funds and currency speculators are poor indicators of what is likely to happen in the real economy. And what is happening in the US's real economy will be the principle determinant of the relative strength or weakness of the dollar.
 
Anybody who makes predictions about currencies are just guessing. They are notoriously unpredictable.
 
Every plane from Shannon, Dublin, London and every other European city is packed with people flying to the States bargain hunting, companies are buying US produce and carry traders are holding it, they are all supporting it. The dollar has already weakened, interest rate reductions have been priced in, European rises have been priced in, anything can happen.

If ye don't like the us$ then try a nice carry basket thats US$ neutral buy NZD/USD and AUD/USD and buy USD/JPYand USD/CHF etc, it pays more like 6%.

Remember comical Austin told us European rises are "done and dusted"
 

From the MSN article on the Euro. I guess this is good news for Ireland. As we export alot to the UK, strength of the pound will hopefully ofset some of the effects of dollar weakness wrt the Euro.
 
I think the Euro has been hovering around the 65-70p level for a couple of years now.
 
The US Treasury Secretary said today that "a strong dollar is in the interest of our county" ahead of his visit to China. The € dropped 1.5c after that comment. Trichet said yesterday that volatile exchange rates were unwelcome. This is probably the end of the slide for a while.
 
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