Best of the Week
Most Popular
1.Stock Market in DANGER of Strangling the Bears to Death - Nadeem_Walayat
2. Germany Pivoting East, Exit US Dollar, Enter Gold Standard - Jim_Willie_CB
3.Flight MH17 – Kiev Flash Mob's Last False Flag? - Andrew_McKillop
4.Stock Market Crash Nightmare! - Nadeem_Walayat
5.Gold - The Million DOLLAR Question... - Rambus_Chartology
6.Gold And Silver – BRICS And Germany Will Pave The Way - Michael_Noonan
7.The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - Nadeem_Walayat
8.The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - Felicity Arbuthnot
9.Which Way is Inflation Blowing? Watch Commodities - Gary_Dorsch
10.U.S. Economy Quarterly Review and Implications for 2014-2015 - Lacy Hunt
Last 5 days
HUI Gold Bugs Fighting To Break Downtrend - 23rd July 14
What Putin Knows About Flight MH17 - 23rd July 14
Why Microsoft Will Continue to Rebound, Huge Upside Potential - 23rd July 14
Will Putin Survive? - 23rd July 14
MH17 Crash Next Phase Economic Warfare - 22nd July 14
The TRUTH about China’s Massive Gold Hoard - 22nd July 14
Forex Multi-week Consolidation in EUR/USD Ended - 22nd July 14
Bitcoin Price Medium-term Trend Being Tested - 22nd July 14
Beware Of The Flash Mob - 22nd July 14
Can Putin Survive? - 22nd July 14
Israel Assault on Gaza: A Historic Crime, Nazi Like Final Solution - 22nd July 14
Zionist Israel an International Pariah - 22nd July 14
Reflections on the Global Misery Index - 22nd July 14
GDP Economic Statistic : A Brief But Affectionate History - 22nd July 14
TransTech Digest: Super Battery Bio-Power vs. Dirty CleanTech - 21st July 14
How to Find Trading Opportunities in the Currency Markets - 21st July 14
Stock Market One More Pull Back - 21st July 14
The Conquest Of Real - Degenerate Philosophies of the Book - 21st July 14
A Clear Way to Profit from a Graying Population - 21st July 14
Last Chance Critical Financial Market Forecasts Special Total Access - 21st July 14
Stock Market Crash Nightmare! - 21st July 14
Why the Stock Market Is STILL Cheap - 21st July 14
From Gore-Bore To Gore-War - 21st July 14
Gold Price Looking Drab - 21st July 14
An In-Depth Look at Gold Chartology - 21st July 14
The Jewish Selfish Gene, People Chosen by God, Everyone Else is Goyim to Kill - 20th July 14
AUD NZD Taking The Forex Bull By The Horns - 20th July 14
US-backed Israeli Invasion of Gaza Unleashes Death and Destruction - 20th July 14
The Israeli Promised Land Dream - The Criminal Roadmap Towards “Greater Israel”? - 20th July 14
Stock Market in DANGER of Strangling the Bears to Death - 20th July 14
Sanctions and Airliners - What’s the U.S. Empire’s Agenda? - 19th July 14
Gold And Silver – BRICS And Germany Will Pave The Way - 19th July 14
Choppy Stock Market in Recent Weeks - 19th July 14
Is The Stocks Bull Market Over? - 19th July 14
Edward Snowden Towers Over His Enemies - 19th July 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

U.S. Dollar Crash is Not Going to Happen

Currencies / US Dollar Oct 22, 2009 - 01:26 AM GMT

By: Mike_Whitney

Currencies

Best Financial Markets Analysis ArticleThe dollar is not going to crash. In fact, many economists believe that the dollar will rally when the Fed ends its quantitative easing program (QE) sometime in early 2010. The Fed is on track to buy nearly $2 trillion dollars of mortgage-backed securities, US Treasuries and agency debt. In other words, the Fed is printing money and pumping it into the housing market to keep the market from collapsing. This keeps interest rates low, but it also weakens the dollar. When the program ends, long-term interest rates will rise and the dollar will strengthen.


There is also a correlation between stock prices and the dollar which should be considered. As equities have soared, the dollar has plunged. That's because investors have become less risk-adverse than they were after Lehman Bros. collapsed. Now they have resumed speculation. Still, the S&P 500 is up over 60 percent since March 9, (which prices in a full three year recovery) which is "too much too fast." According to John Hussman, "90% of stocks (are) suspended above their 50- and 200-day moving averages for as sustained a period as we have now observed." (Hussman Funds Weekly Market Comment) That suggests that stocks are wildly overbought and that the market will soon correct, perhaps, violently.

Also, there is no shortage of investors and central banks willing to buy US debt which supports the greenback. Consider this report in last week's Bloomberg:

"Investors can’t get enough Treasuries even as the U.S. budget deficit climbs beyond $1 trillion, the government sells a record amount of debt and the dollar declines to the weakest level since August 2008.

Foreign buyers increased their holdings for a fourth consecutive month in August, to an all-time high of $3.45 trillion, according to Treasury Department data released Oct. 16. U.S. demand is being spurred by a rising savings rate and concern the economic recovery may falter. Fixed-income funds have attracted 18 times more money than stock funds this year, according to data compiled by Morningstar Inc. and Bloomberg." (Bloomberg News)

Long-term, it is likely to be tough-sledding for the dollar, as government spending increases and fiscal deficits keep piling up. But in the short-term, investors believe that deflation is the biggest problem facing the economy. The surge in US Treasuries proves that point.

The notion that the dollar will crash, has become an article of faith among doomsayers, Libertarians, survivalists, leftists and goldbugs. (I'm as guilty as anyone) But is the theory supported by the facts?

First of all, "crash" is an ambiguous term. I take it to mean a plunge in the value of the currency to a hyper-inflationary range. What we are seeing now, however, is the Fed managing the value of the dollar downward to increase exports and reduce the real value of household and financial sector debt. That is not a crash; it is a planned demolition with the intention of improving the US's position vis a vis its main trading partners. It is a type of currency warfare which is making the dollar more competitive at the expense of people who save. It's exactly what Bernanke wants.

All the Zimbabwe talk is pure nonsense.

The reserve currency system is inherently unfair and invites all kinds of abuses. It gives the United States greater access to credit and elevates the dollar above all the other currencies. The dollar should be dethroned as the de facto international currency so that there can be greater parity between the currencies.

By Mike Whitney

Email: fergiewhitney@msn.com

Mike is a well respected freelance writer living in Washington state, interested in politics and economics from a libertarian perspective.

Mike Whitney Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014