Don’t you think it’s quite amazing just how poorly those much-touted “safe havens” did when it really counted…

by J. Christoph Amberger

Baltimore—TFN: What ever happened to the 1990’s Clueless starlet Alicia Silverstone?

More relevantly, perhaps, what ever happened to “safe-haven” currencies?

Reportedly not insisting on being paid in euros...

You know what I mean, the much-touted coin of the realm in other, smarter, more mature countries. “Hard currencies.” Issued by countries who’d outrun, outplay, outlast the spendthrift United States…

…and “decouple” from the Demise of the Dollar.

Don’t you think it’s quite amazing how poorly those safe havens did when it really counted? The euro, the Aussie, kiwi, loonie dollars (as the cool guys in the currency forecasting racket call them). How about the pound sterling? The Russian ruble? The Icelandic krona?

You might as well have put your money in Bill Miller’s Legg Mason Value Trust.

Could it be that there’s been a mistaking of cause for effect?

China’s rise from rice paddies to riches was so dazzling, its demand for commodities propelled the economies of the supplier economies to new heights. They developed beautiful trade balances by shipping coal to Nanking, gold to Guangzhou, and copper to Chongqing. Budget surpluses even. While at the same time, the U.S. dollar was allowed to do what American manufacturers and exporters wanted it to do: Keep U.S. exports cheap and expanding despite the cut-throat competion from the Far East.

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But the main factor behind Chinese expansion was not the conversion from Mao to Tao… but the insatiable demand for consumer goods from the richest economy on earth. A demand so huge that it compensated for the demographic and economic short-comings of most other economies as well.

That fact was recognized by most national financial institutions who figured out that by lending money to America, they’d buy demand for their products.

Somehow, this dynamic must have escaped the dollar demisers. Who didn’t quite think through what effect the decline in American consumption would have on the global economies whose economies, markets, and currencies depended on it.

Those who followed the directive of the doomsday sayers may well say they saw the crisis coming. But given the losses in most “safe havens”, the practical result of their prudence was the equivalent of switching ocean liner tickets from the Titanic to the Lusitania—minus the 3-year delay in between sinkings.

They’re still at it, though. Massive U.S. budget deficits are going to wreck the dollar, they proclaim. Could be. Especially if these deficits were to occur in a world where all other countries had positive balances.

But most other economies are worse off the the United States. (Ironically, one of the few currencies rising in value right now is issued by a country who has never paid much heed to debt levels.) And currencies are by nature reflections of relative value at any given time.

A relatively higher dollar allows Americans to buy more consumer goods… which may give export-dependent countries a chance for survival. It’s simple self-preservation.

Look for the euro to decline to $1.25 by next week.

And unlike the Russian ruble and the Icelandic krona, Alicia Silverstone is not currently doing dinner theater in Shaker Heights. But she actually has a cameo, “as herself,” in the 2008 laugh fest Tropic Thunder…

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*** This drug-resistant “superbug” could be the biggest source of “Jackpot Justice” since asbestos litigation! Please read our free TFN report here!Similar Posts:

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Article first published on Today's Financial News

What ever happened to Alicia Silverstone?

The parlous state of the US financial system should, in theory, be reflected in a lower value of the dollar, had it not been for its hegemonic reserve currency status propping the dollar up during this deleveraging phase.

by Stephen Jen

Baltimore — (TFN): The Fed has commenced QE (quantitative easing). In this note, we review the concept of QE and analyse the likely impact of this extraordinary operation on the dollar.

The upshot is that, since monetary policy, including QE, is a ‘nominal’ operation, the operation itself should not have significant implications for the real value of the dollar. The nominal dollar value should, thus, only be affected if QE alters the outlook of inflation in the US over the medium term. Also, whether QE by the Fed should erode the value of the dollar should be assessed relative to what other central banks do.

To the extent that the European Central Bank (ECB) and the Bank of England (BoE) also conduct QE – which is the case – the impact of QE on the dollar is not necessarily negative. Having said this, though QE per se should affect the dollar through relative inflation as well as inflation expectations, the underlying structural problems that forced the Fed to conduct QE in the first place should alter the fundamental value of the dollar, relative to those of other currencies.

The parlous state of the US financial system should, in theory, be reflected in a lower value of the dollar, had it not been for its hegemonic reserve currency status propping the dollar up during this deleveraging phase. The bloated fiscal deficits (which we assume will exceed those of the G7 countries) will further weigh on the intrinsic value of the dollar.

continue to read here…

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Article first published on Today's Financial News

Quantitative easing and its effect on the dollar

Asian currencies saw their biggest declines against the dollar in more than two years on speculation that slowing global economic growth will curb demand for Asian-made consumer electronics.

by Aaron Pan and Patricia Lui, Bloomberg.com

Baltimore — (TFN): Asian currencies slumped this week, led by Singapore’s dollar, on concern slowing global growth will curb demand for the region’s assets. Singapore’s currency posted its biggest weekly loss in a decade after the Straits Times newspaper yesterday cited Finance Minister Tharman Shanmugaratnam as saying the economy is moving toward a slowdown and growth is unlikely to rebound “anytime soon.” Nine of the 10 most-active Asian currencies outside of Japan fell this week.

“Tharman’s dovish comments confirm expectations that the central bank won’t be seeking any further policy tightening,” said Emmanuel Ng, economist at Oversea-Chinese Banking Corp. in Singapore. “Second-quarter GDP and the full-year growth numbers also run the risk of being revised downwards at Prime Minister Lee’s speech later today.”

Finish reading this important report right here…

****Make sure you sign up for our FREE TFN News Feed for breaking news, special reports and new financial videos. Sign up through your favorite reader here. Or, if you prefer, have the feed delivered to your email.Similar Posts:

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Article first published on Today's Financial News

Asian currencies drop on expectations of lower growth