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As Dollars Pile Up, Uneasy Traders Lower The Currency’s Value

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As Dollars Pile Up, Uneasy Traders Lower the Currency’s Value

The dollar was on a roll just a few months ago, bounding higher against foreign currencies as investors sought a safe hiding place for their money amid a global downturn. But now, many are rethinking their decision to buy American.

The dollar skidded to its lowest point in five months this week, battered by creeping fears that Washington’s costly efforts to stimulate the economy are growing harder to finance and may set off an unwelcome bout of inflation. Analysts are increasingly concerned that a rise in prices could hurt consumer spending, deepening the recession.

The dollar fell more than 3 percent this week, weakening to $1.40 against the euro on Friday and to $1.59 against the British pound. Experts said the flight to quality that made United States Treasury debt and dollar holdings so valuable at the height of the financial crisis was now heading for a rough landing.

“Those little footsteps coming down the hallway have begun to frighten many people,” said David M. Darst, chief investment strategist at the Global Wealth Management Group of Morgan Stanley. “The dollar has sold off inexorably, slowly but surely. The key thing driving it is psychology.”

The Federal Reserve is printing money from thin air, and the government is issuing trillions of dollars in new debt as it tries to spend its way out of the recession with a huge stimulus package, new lending programs, health care overhauls and automotive rescues.

Experts warned there might not be enough demand to sop up all those new dollars and dollar-denominated Treasury securities. That led investors to fret about the sustainability of the United States government’s AAA sovereign credit rating after the Standard & Poor’s ratings agency warned this week that the sovereign rating of Britain — which is spending hundreds of billions of pounds to engineer a recovery — is under threat.

“Everyone says a little inflation can’t hurt us,” said Martin D. Weiss, chairman of Weiss Research. “What they don’t seem to understand is, that’s inflation in a growing economy. Inflation on top of rising unemployment is another thing entirely. It’s much more painful, and it could be the straw that breaks the camel’s back.”

Indeed. The great de-coupling is under way it would appear.

Most of us on here accept that Britain is beyond redemption, but the real question is: What will America do to protect its currency hegemony? War?

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Most of us on here accept that Britain is beyond redemption, but the real question is: What will America do to protect its currency hegemony? War?

I think the Americans are fed of war at the moment, placing part of the blame for their current economic mess on funding two drawn out wars.

China is too good at being patient to get drawn into WWIII against the US, to act as a serious stimulus there would need to be major shutdown of production in China/India so Americans can be employed making 'stuff'.

If you just start a war with someone like Pakistan it just becomes a cost to bear and doesn't offer any economic or employment benefits.

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