Officials at the Treasury also are keeping an appropriately cool head about the dollar, even though this coolness can be mistaken for insouciance. They note that the recent dollar decline has taken place in a very special context — that of a historic global credit crisis. This year’s 15 percent dollar drop began on March 9, the very day the stock market found its bottom. Tick for tick, the dollar’s decline has tracked the stock market’s monster rally. In this sense, the weakening dollar is a sign of economic recovery and strength.Bear in mind that prior to the weakening trend the dollar had soared 24 percent since mid-2008, which is right when the credit crisis began to unfold. That’s because investors and banks worldwide desperately needed dollar liquidity, and not because the U.S. was an especially safe haven during the financial storm. (Obviously, it wasn’t.) U.S. dollars — the standard currency of world trade — were needed to settle dollar-denominated investment and credit flows in markets that to a large extent had simply shut down.
BTW, as a matter of full disclosure, I am partially hedged against inflation through owning gold and a TIPS fund...in case Bernanke can't thread the needle...;-)
“That’s because investors and banks worldwide desperately needed dollar liquidity, and not because the U.S. was an especially safe haven during the financial storm. (Obviously, it wasn’t.) U.S. dollars — the standard currency of world trade — were needed to settle dollar-denominated investment and credit flows in markets that to a large extent had simply shut down.”
So what’s your prediction of the dollar’s strength as governments around the world shift into other currencies from better managed economies, selling their dollars in the process? There are also several efforts underway to replace the dollar as the international standard of exchange. The “boy genius” Geithner, even said that he was “open to the idea”. That outburst of honesty was quickly stifled, but I think it showed their true intentions.
Doesn’t look at all good to me.