Best of the Week
Most Popular
1.Oil Wars 2016 - US vs Russia vs Saudi Arabia vs Iran - Nadeem_Walayat
2.Crude Oil Price Crash Triggering Global Instability, Trend Forecast 2016 - Nadeem_Walayat
3.Stock Market Crash - Last Week was The 2nd and Final Warning... - Clive_Maund
4.Stock Market Crash Apocalypse or Bull Market Severe Correction? - Nadeem_Walayat
5.TShipping Said to Have Ceased… Is the Worldwide Economy Grinding to a Halt? - Jeff_Berwick
6.Crude Oil Price Crash Catastrophe, Independant Scotland Literally Begging to Rejoin the UK - Nadeem_Walayat
7.Summers: Global Economy Can't Withstand Four 2016 Fed Hikes - Bloomberg
8.Gold And Silver: New World Order: Public Be Damned, Preferably Dead - Michael_Noonan
9.Rigged U.S. Ttreasury Bond Market Double Barreled Hidden Q.E. To Infinity - Jim_Willie_CB
10.Major Stocks Bear Market Awakening - Zeal_LLC
Last 5 days
UK Interest Rates, Economy GDP Forecasts 2016 and 2017 - 6th Feb 16
Gold Price, Mining Stocks Rocket Higher - 5th Feb 16
Crude Oil Price Bottoms and Blues - 5th Feb 16
Gold and Silver: Ripe for a Recovery! China May well Change the Game - 5th Feb 16
How Pension Plans are Responding to Financial Repression - 5th Feb 16
Senior Gold Producer Goldcorp Takes Large Stake in Nevada's Gold Standard Ventures - 5th Feb 16
Tips for Smart Oil and Natural Gas Investing 2016 - 5th Feb 16
Another Corporate Giant Is Leaving the U.S. – What This Means for You - 4th Feb 16
TPP is Economic Warfare, Trade Can Make Everyone Worse Off / Governments are Stupid - 4th Feb 16
Gold and Stock Markets Inflection Points Galore - 4th Feb 16
Putin Cries Dyadya (Uncle), Is Saudi Arabia Listening? - 4th Feb 16
Gold Price Golden Bottom? Video - 4th Feb 16
Look North for Value-Priced Growth in Healthcare Biotech Stocks - 4th Feb 16 - TLSReport
BrExit EU Referendum - Britain's FINAL Chance for Freedom From Emerging European Superstate - 4th Feb 16
HUI Now Confirming Gold Price Move Higher - 4th Feb 16
Crude Oil Price Forecast 2016 As Good As It Gets - 4th Feb 16
Gold and Silver More 'Flight To Safety' Active February - 3rd Feb 16
Raytheon Company: A Defensive Stock for a Defensive Market - 3rd Feb 16
Is Silver Really a Weak Link - 3rd Feb 16
Gold to Beat Stocks 2016? - 3rd Feb 16
David Chamberlain Cameron, Britain's Last Chance for Freedom From Emerging European Super State - 3rd Feb 16
EU UK Draft or Daft Agreement By Donald Tusk to Members of the European Council in Full - 2nd Feb 16
Europe: Why It's Going to Get a Lot Worse Before It Gets Better - 2nd Feb 16
The Next Generational Bust Is Coming, Stock Market 70% Collapse - 2nd Feb 16
The Coming Stock Market Decline May be a Monster - 2nd Feb 16
S&P 500 Has Likely Entered a New Bear Phase - 2nd Feb 16
How and Why To Move Your Assets Offshore Before the Financial Collapse - 2nd Feb 16
Central Bank Created Silver Price Rally - 1st Feb 16
The Fed Is Not Hiking Rates: Risk Assets To Perform - 1st Feb 16
US Dollar and US Treasury Bonds Big Picture - 1st Feb 16
BOJ Negative Interest Rates Central Banking Crime Syndicate's War on Cash for Triggering Panic Consumption - 1st Feb 16
Elites Set to Wipe Out Stock Market Shorts Before Next Downwave... - 1st Feb 16
Stock Market A-B-C Correction Unfolding - 1st Feb 16
Nice week for Gold : It’s All about Sentiment - 31st Jan 16
Silver Price Breaks Higher on Rising Anxiety - 31st Jan 16
Stocks Bear Market Rally Underway - 30th Jan 16
Gold And Silver Current Prices Do Not Matter - 30th Jan 16
Gold Price Potential Upside 2016 - 30th Jan 16
Stock Market Bears Pulverised by BOJ Knock Out Punch, Non Technical Take Video - 30th Jan 16
Lacy Hunt: Inflation and 10-Year US Treasury Yields Headed Lower - 30th Jan 16
The Curious Case of Copper... - 30th Jan 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Global Financial Crisis 2016

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

© 2005-2016 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

Biggest Debt Bomb in History