Monday, February 23, 2009

Why the dollar will stay strong for now

Why the dollar will stay strong for now

"...although the Chinese could cause serious problems for the US by refusing to lend it any more money, that’s unlikely to happen right now. The Chinese don’t want to spark a run on the dollar, as that would wreck the value of their own dollar holdings. But at the same time, there’s always the risk that by printing lots more money, the US will simply try to inflate its way out of its debts. That wouldn’t be good for China either. So it’s understandable that Beijing is looking for reassurances that if it keeps buying US debt, it’ll eventually be repaid in money that’s actually worth something."

Posted by damien @ 11:10 AM (844 views)
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2 thoughts on “Why the dollar will stay strong for now

  • The dollars intrinsic value is close to zero. This crisis will not be over till this is realised by all.

    From this HPC post yesterday:
    “Word Net Daily: Federal obligations exceed world GDP
    “As the Obama administration pushes through Congress its $800 billion deficit-spending economic stimulus plan, the American public is largely unaware that the true deficit of the federal government already is measured in trillions of dollars, and in fact its $65.5 trillion in total obligations exceeds the gross domestic product of the world.

    “The total US obligations, including Social Security and Medicare benefits to be paid in the future, effectively have placed the US government in bankruptcy, even before new continuing social welfare obligation embedded in the massive spending plan are taken into account.source

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  • What people who predict the collapse of the dollar fail consistently to realize is that as long as America remains the largest single market for good and services the dollar will always be king. Countries will be willing to buy US bonds to keep the dollar high (thus their goods cheap in the US) and to fund the purchase by Americans of their exports. Only when exporters stop relying on America to buy their goods will the US have to live within its means like for example the UK. This will not happen soon as there is simply no alternative to America. China has yet to develop an enormous consumer base and EU markets remain too fragmented, plus high taxes reduce Europeans disposable incomes significantly compared to Americans.
    Additionally, $65.5 trillion is little more than an academic figure because it includes payments to be made IN THE FUTURE. My mortgage obligation is far larger than my annual income but I’m paying it off over 30 years. Additionally some of those obligations simply won’t be met. It is unlikely that anyone below 45 will receive much from social security or medicare by the time they retire.
    The United States remains, and will do for the foreseeable future, the most productive, innovative and freest economy in the world. The best scientist in the world still go there and their attitude to risk taking has not changed. Private capital for new ventures is more freely available here than anywhere else.
    Those Europeans and others who believe that this marks the beginning of the end of the American era are deluding themselves. Amercian companies dominate the world of business and although a lot of manufacturing has been outsourced, the owners of these factories in foreign countries are still often American companies with American shareholders, and remember too that they are making products for the American market.
    One thing that many Europeans are right about is that for better or worse America is effectively an economic empire and its colonies are in Germany, Japan and China. This is my evaluation reading past the hype as a European.

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