globalview99

How Low Can the Dollar Go?

The so-called fall of the Dollar is a head fake sucking in easy money who think that because of the huge deficits, the US will need to ratchet up interest rates to attract foreign purchases of US debt.

But that's not going to happen because the Japanese CB as well as other export-driven economies CB's (Germany, China, and other Asean Group exporters) upon looking over the precipice of continued falling exports (to the US) and unacceptable high unemployment, will intervene and buy up Treasury notes (thereby increasing exchange rates and strenghtening the USD) just to raise the buying power of US consumers which will raise their level of exports and keep people employed. It's a matter of politics and survival; and you can bet on it.

Just remember, the US consumer generates some 16% of global trade; if the Dollar remains weak and US consumers cut back on their buying (which has already happened) the economies of nations that export to the US are likewise affected. So given the choice of sitting on USD reserves and watching their employment rolls dramatically fall and pople on the streets demanding jobs and bailouts to pay mortgages, foreign governements will buy up US T Bills at low rates to keep the economy humming.

Conversely, the US government is delighted with a weak dollar as a natural barrier for US consumers to buy US goods rather than foreign goods. So the US is really in the catbird seat with a win win scenario going forward.