U.S. Dollar: Best of the Worst?

Is the U.S. dollar surging because it is the best of the worst?

The U.S. dollar's rise is occurring regardless of the bad news and data coming out of the States. It is happening because of a frantic search for dollars by foreign banks from Switzerland to South Africa. Banks are not lending to private people, companies or to other banks. There is a shortage of U.S. dollars in short-term money markets with foreign banks seeking dollars while U.S. banks hoard them. This is causing banks to pay interest rates that are at least twice as high as what their U.S. counterparts are paying to borrow dollars overnight. Add to this the fact that banks worldwide are also looking to reduce their overall borrowing & debt. In order to clear up their balance sheets that are U.S. dollar denominated, they need dollars in order to repay it.

All of a sudden - contrary to many thoughts - there is a global demand for dollars. This global demand has forced the U.S. Federal Reserve to increase swap lines with other central banks. This provides liquidity in dollars for their local commercial banks. The Fed now has arrangements with nine other central banks, which together provide access to a total of $620 billion. There is also the mention of Item 112 where the Fed can support liquidity in foreign banks. There was talk about Iceland on Monday morning, and a statement was made that the country could be considered "Bankrupt."

We are experiencing unknown times where no one trusts anyone. All the liquidity of so many of the world’s central banks has done nothing to quell the fears and panics. Some have an opinion on how to solve this problem while others are simply in denial. To me it seems it comes down to this simple thought: Pay (with increased taxes), or Pray - Or maybe we need a lot of both to get us through these times.

What do you think?

 

Comments

[Mr.G:]

this isnt the 1930's where govts have to find more gold to back their dollars/currencies .They are all fiat currencies and can literally be printed out of thin air (there is an unlimited supply ) - all the CB's around the world are being forced to create money(even if it is only to buy dollars)- the dollar wont crash because evryone is creating new money at the same time- In the last 2 weeks alone (before the new 900 billion auction and the bailout)the govt has been printing at 200% increase -
why else would gold go up while the dollar does ? because there is a worldwide devaluation of currency and gold unlike other commodities has no real industrial demand and doesnt reflect future demand in this respect (majority of commodities are tanking due to the assumption there will be less economic activity in the future)but in fact is showing there will be future inflationary pressure due to the current creation of currencies..

2008 Oct 07 08:10 AM

[sieraromero:]

The world economy must be in really,really, really bad shape, if there are demands for our worthless currency!

2008 Oct 07 08:48 AM

[Kelly Liebe...:]

The gig is almost up... You cannot print yourself out of this crisis. Otherwise, why couldn't each of us head down to our basement and print our own $100 bills to pay our debts? Why is it considered counterfeiting when we do it????
Because printing money that has no basis in value is illegal and unconstitutional!
Buy gold and silver and prepare for the eventual devaluation of our currency.

2008 Oct 07 09:52 AM

[Here's a th...:]

Reminds me of something Sir Winston Churchill once said.

2008 Oct 07 11:11 AM

[Andy Abraham:]

Members of MyInvestorsPlace.com have been chatting that they expect massive inflation...interestin... currently commodites are cratering..What do you think???

2008 Oct 07 02:36 PM

[Mr.G:]

yeah -in the short run commodities will continue to tank but as the injection of liquidity from the fed /treasury takes place plus all the money on the sidelines - plus central banks around the world printing out their own currency - yes inflation is right around the corner -the price of gold reflected that yesterday as both the dollar (increased against other currencies ) and gold increased at the same time -the fed 's policies as well as world banks is to dilute the problem with so much currency it becomes a more manageable problem being having so many dollars around will deflate the cost of the crises or credit derivatives but inflate the cost of assets

On Oct 07 02:36 PM andrew Abraham wrote:

> Members of MyInvestorsPlace.com have been chatting that they expect
> massive inflation...interestin... currently commodites are cratering..What
> do you think???

2008 Oct 07 02:55 PM

[CaptBob:]

At least this answers one question: Bush pushed for privatization of Social Security into the wonderful equity markets. Boy!, the Fibonacci rats are deserting that ship!.

Of course this is not a ringing endorsement of the present system, under which todays payers will get a nickel on the dollar, if they get that.
And take a look at that 4% inflation, which is your coat of living raise.

If the Wall street economists-(bankers)-i... collusion with our wonderful elected officials can produce such a cornucopia for the Serfs--
Bring back the Monarchy!.

2008 Oct 07 03:11 PM

[Groundhog:]

In response to your question, I think that we should "forget about it." The it is money. People still need to do the work that has to be done. Especially all the "poor" and "middle class" people who provide all the mundane goods and services that everyone enjoys everyday. We can let our fixation on money drive us to wreck and ruin or we can get on with the work that has to be done. We all still need to provide the basics for each other rich, middle class or poor. We need to eat. We need to clothe ourselves, and we need a roof over our heads. If we focus on making sure everyone in this country has these necessities in sufficient quantity to maintain their human dignity, then the money or capital that has been lost will gradually be regenerated. There is still enough money to pay people for the work that has to still be done so that food can be eaten, clothes can be worn, and rents can be paid. We just have to give up the notion of surplus wealth until we have regained sufficient wealth for a well functioning and sustainable economy.

2008 Oct 08 05:47 PM

[berberick:]

you hyper-inflation guys will be saying the same thing in 5 years . Buy gold and silver !! It's coming to a end !! We will be just fine just like the 70's ! It hurt but we recovered , things were fixed buy super high interest rates . Hello , history often repeats , and for all you gold bugs out there . Gold has done horrible since the 70's . It's pretty much where it was . T-Bill's have destoyed gold in return since then .

2008 Oct 11 10:55 PM