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Posted on 01/22/2009 6:48:11 AM PST by rabscuttle385
BY JOANNA SLATER
As the British pound continues to sink, its travails are a cautionary tale for the U.S. dollar.
The U.S. and the U.K. face very similar predicaments, from a deepening recession to a damaged financial system. Both are orchestrating massive bank bailouts and attempting to assist struggling homeowners. Both are ramping up government spending even as they rely on financing from overseas investors. And both countries have central banks that have slashed interest rates and opened the door to unconventional ways of stimulating the economy.
Yet their currencies have headed in opposite directions. On Wednesday, the British pound tumbled to a 23-year low against the dollar, briefly buying just $1.362, down from over $2 only six months ago. The pound also hit a new all-time low versus the Japanese yen. It got a minor boost in late afternoon trading, following a report that finance ministers from major industrialized nations will discuss the currency's weakness when they meet next month.
By contrast, the dollar managed to strengthen against a host of currencies as the financial crisis intensified last fall. It has also surged ahead in recent days, particularly versus the pound and the euro.
Unlike the pound, the dollar is being buttressed by its unique status as the world's reserve currency and the vehicle for transactions in U.S. financial markets, including Treasury bonds. That means investors often seek out the dollar as fears rise, sometimes in spite of their concerns about the U.S. economy.
(Excerpt) Read more at online.wsj.com ...
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The problem is, the American banking system is failing too evidenced by the market sentiment Tuesday.
And what sentiment was evidenced on Wednesday?
The two currencies are not headed in opposite directions, both are headed DOWN in specific value. The difference is in velocity, as one is very nearly accelerated to terminal velocity in its drop into free fall, and the other is behind it but gaining speed.
America, and the entire world, are both SO screwed.
Suckers catching falling knives.
“The U.S. and the U.K. face very similar predicaments,”
Yes, they take their citizens money and gives it to corrupt governments around the world.
Both are expected to fund everyone else.
The old 80-20 rule.
Well, but even if all economies are toast, people will still have to pick -one- fiat instrument to trade in. And between the pound and the dollar, people are picking the dollar right now.
Size matters.
Nam Vet
“both are headed DOWN in specific value. The difference is in velocity”
Makes sense. Here’s are slightly different analogy that I think also fits: Let’s say there are two sinking lifeboats, but one is sinking much faster than the other. It is human nature that the sufferers will leave the worst lifeboat, if they can, to join the less-damaged one. Here’s hoping that the last remaining lifeboat can be patched in time.
“even if all economies are toast, people will still have to pick -one- fiat instrument to trade in. And between the pound and the dollar, people are picking the dollar right now”
Another good idea in this thread. I have long thought that the dollar has been artificially propped up to some extent by the fact that it is the trading currency of choice, so that the United States has been getting a bit of a free ride compared to what would otherwise happen if the dollar were not the de facto world currency.
Columbia has had the luck of the draw since continental drift!
We owned the 20th century because panzers couldn't roll through Virginia, and we got a head start on the rest of the world.
Just like Texas got more luck with seaports, cotton fields, oil deposits, etc etc etc.
Eventually, the lead narrows when we stumble, but that was a huge head start.
The Government and the people have to face up to the fact that the British have borrowed too much, spent too much, saved too little, and produce too little of what the rest of the world wants to buy.
I'm afraid that you could substitute "American" for "British," without changing the truth of the statement.
I'm certain that our new Administration has zero interst in reducing borrowing, reducing spending or increasing production by private industry.
That’s a great analogy. I love the imagery.
Very astute observation.
We may very well own the 21st century because we have a permanent orbiting space station, and launch objects into space with such boring regularity that it doesn't make the news anymore -- while many of our so-called "competitors" are still peeing in their drinking water.
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