Thursday, November 25, 2004
The US Dollar
Contrary to what the Treasury would have us believe, the US external payment imbalance is not a reflection of foreigners' hunger to invest in US companies and in the US stock market. Alas, those days went with the bursting of the equity bubble in March 2000. Instead, the main factor now holding up the dollar is the massive purchases of US Treasury paper by foreign central banks, which now finance an unprecedented 50 percent of the US external deficit. They do so not because they believe that the US is an attractive place in which to invest. Rather, they do so as a means to keep their currencies cheap in relation to the dollar so as favor their export sectors.Maybe the word is getting around that we have a dire dollar crisis pending. You would not know it looking at the stock market averages or the bond market, but today the CRB went to a record high, the dollar to a new low vs the Euro (1.3266 to 1.00), and Gold climbed to a new high at $452.30 USD per ounce. Let's be careful out there!