Subject re: usd up, where are we heading? Posted 24/03/05 12:21 - 101 reads Posted by stolwyk IP 203.96.208.147 Post #101359 - in reply to msg. #101336 - splitview
Now 84.2 A Commentator was referring to the grey Japanese population who get super annuation returns which don't really grow but can get about 7% on 10 year US Bonds.
This a major reason why the dollar has risen. The Japanese just ignore capital risks and hope for the best. (They must have lost some cash last year with the USD moving down).
There is an outflow of cash from US Equities to Bonds.
The USD has also risen due to the 0.25% interest rate rise and there will be more to come to control inflation.
However, there is a lag between raising interest rates and effect, Greenspan is also very late raising these rates. So the desired effect although some, won't be decisive and will take more interest rate rises.
It is a case of the "horse has bolted" and inflation is becoming rife. Producers tried to control it by taking lesser margins but there is a limit to that. _________________________________
Lowering of the USD had no effect on the Current Account deficit which is expected to rise to 6.5% of GDP this year.
A massive devaluation will be opposed by Japan and Europe who fear loss of exports. They are holding the USD prisoner to some extent aided by China. I don't think there is any objection to a higher USD from their end.
The problem is that the US consumer gets false signals, thinking that everything is ok and prices of goods from China look good. There also is less to pay for oil.
The US was talking about GST (Consumption tax) but haven't done anything.
So the road to a heavier degradation of the US financial system will take longer than originally perceived, I think.
The US earning reports will soon be out of the way, some people expect a heavier correction to the market.
That could foreshadow a recession which isn't acceptable to the US.
Is Greenspan's box of tricks empty? I would think so but printing more dollars should encourage more inflation in those conditions.
Deficits continue but taxes are less in recessionary times while much expenditure is a constant more or less. Also, at the moment, the USA calls on 80% of the world"s savings to finance the deficits and this is about $US2.5 bill/day now.
A world recession would be bad for deficit financing. Affected countries will most likely call on money they can get hold of leaving much less to finance UD debt.
There has to be a way of reducing sharply the deficit in these conditions. Commentators agree that printing far more dollars will quickly increase inflation and depreciate the debt. Altogether a distasteful exercise to watch by lenders.
Capital controls to stop the outflow of overseas currency will be brought in, I think. Without those the USD will sink too deeply.
There is really only one realistically surgical way of cutting back debt hard and that is by inflation.
Gerry Disclaimer: The events discussed in this and previous posts may not occur although the risk is increasing and is much greater than I like. It is up to the reader to interpret the news as it comes in.
Readers, please do your own research and you decide if and when to buy, hold or sell any stocks.
Please note that this risk is there before any war/ terrorist (Including State terrorism) or supply risk is brought into account.
