Dollar Perfect Storm

June 1st, 2009 by admin

Now, I think Dr. Faber mentioned Zimbabwe to illustrate his “hyperinflation” call… Myself? I think that just what I said above– that inflation will rival that seen in the late 70’s, early 80’s.
However, Dr. Faber has a point, and that is… When a Central Bank raises interest rates, they have to issue new Treasuries with higher yields, than previous ones issued. That makes the previous Treasuries less valuable.

So, what will the Fed do, when the first signs of run-away inflation show up? Do they bite the bullet and raise rates causing all their previous issues to lose value (hello, China, I’ve got bad news for you), or will they do nothing, absolutely nothing?

And what’s this all got to do with currencies? Ahhhh grasshopper…

Everything has to do with currencies! When Treasury holders sell off those dollar-dominated Treasuries, they will also be selling off the dollar. That will lower the dollar’s value.

And then throw in what I’ve been talking about lately with China already signing six currency swap agreements with countries that allow them to take dollars out of their trade equation with these countries, and put renminbi into wider use, and you’ve got the “Perfect Storm” forming for the dollar, folks.

Keep in mind: This is just my prediction. It’s not a fact per se – at least not yet. But, it’s staring us right in the face! I don’t know why more people aren’t talking about this!

 

Source: worldcurrencywatch.com

TagsTags: , , , , , , , , , , , , , , , ,

Posted in Currency Markets, Currency Today, Currency Values, Paper Currency
Similar Currency Trading Posts

  • Brazil and China Cut the Dollar Out of Their Trading
    In case you missed it, China has been making several swap-line agreements with six different nations around the world since December. A swap-line means that these countries can now trade in their own domestic currencies, without switching to dollars first.


  • Currencies - Renminbi Currency Swap
    In the past six months China has called for a replacement reserve currency, called for the use of SDR’s, signed currency swap agreements with several countries.


  • Foreign Currencies Investor - dollar index
    In the absence of a major stock market decline or another financial institution blow-up this summer, it’s a safe bet to start nibbling at foreign currencies again.


  • Meltdown 101: Will China global currency idea fly? - The Associated Press
    Boston Globe Meltdown 101: Will China global currency idea fly?The Associated Press The idea is to create an international currency that China and other countries could use to hold trillions of dollars in reserves. China has more than $1 trillion in US


  • Currency Markets - Non-Dollar Currencies Soar
    The non-dollar currencies were hanging out, trading in a tight range. Then the Fed came out and announced further stimulus and more quantitative easing. You should have seen the non-dollar currencies begin to run up vs. the dollar.


    • Comments are closed.