Not enough world capital to support US Dollar

CBS Marketwatch ^

[BlackJack]

"We are still very early in a major dollar sell-off. The US needs to attract 80 percent of the world's available capital just to keep the dollar stable. The relative attractiveness of US capital has deteriorated to the point where it is extremely unlikely the US will be able to maintain the market share of world capital it needs to break even. In fact, foreign demand for the dollar has already begun to significantly decline, and it is only a surge in foreign government demand that is keeping the dollar from collapsing further. This demand will falter as the pressure on the dollar intensifies."

[BlackJack]

We need to suck most of the world's savings to keep dollar afloat, can't go on much longer, or can it?

[marktwain]

So the dollar drops in relation to other currencies. So what? This would just mean that people overseas could buy U.S. products and services cheaper than they can now, and that overseas products valued in other currencies would become more expensive to us, such as Chinese goods. This would mean that we would buy less from the rest of the world and that the "cheap labor" in the rest of the world would become more expensive.

It is possible that the stock market could go down some more if foriegn investors pull money out of it.

[BlackJack]

And it adds to inflation, interest rates go up, and the economy tanks big time. No more refi boom to keep spending going.
More unemployment.

[Odyssey-x]

If the dollar drops foreigners who own bonds will become rather annoyed because they will loose a lot of money relative to their domestic currencies. American bonds will therefore become less attractive which will raise interest rates. This will cause deflation as credit is removed from the market. Real estate prices, things we buy with credit would FALL.

Prices of commodities would RISE as foreign demand would lead to more American products being exported and more foreign consumption of commodities in general leading to a smaller supply being imported to the U.S. Smaller supply = higher prices.

[AmericaUnited]

I been reading about the death of the dollar for that last 30 years.

[Rain-maker]

But wait! We attack Iraq, make the middle east a US territory, and take all the oil.

It's back to business as usual then.

[Eternal_Bear]

Rising budget deficits and record trade deficits are also undermining the dollar as well. The loss of trillions in the stock market haven't helped either. The worst case outcome is that the dollar will cease to be the World benchmarket currency and that means double digit inflation. Good time to invest in gold.

[PokeyJoe]

This snippet is from a service that has a vested interest in gold going high. The entire jist of the article is that there is uncertainty. Sometimes, you just have to stand on your chair, raise your hands and give praise to DUH.

[steve50]

A drop in the dollar devalues the life savings of responsible citizens. It does help high debt outfits out, since the are paying back less actual value. It's how the games been ran for decades

[wideawake]

BlackJack writes:

it adds to inflation

Odyssey-x writes

This will cause deflation

Which is it?

[lavaroise]

Well, by shipping our industries abroad, this is the kind of catastrophy we are heading to. Try and sell those Chinese VCRs when the dollar hits rock bottom....

[jlogajan]

Well, by shipping our industries abroad

Net industrial production CAN'T be shipped abroad. If you have imports you have exports to pay for them. If we get a VCR we are shipping something in return for it. You can't ship most services. Therefore foreign exchange is almost always conducted with goods.

[FormerLurker]

Real estate prices, things we buy with credit would FALL.

Now THAT wouldn't be a bad thing, as real estate is grossly overvalued to begin with...

[americanbychoice]

The dollar has been on a decline for 4 months. The Administration has conciously decided not to prop up the dollar. It will help our trade deficit. American products become cheaper. Foreign products more expensive. Yes, there is an outflow of foreign capital from the markets right now. Only short term though. Where else will they invest, in Europe? The european markets right now are seeing good growth, however, their economy is so weak that long term prospects look like foolishness. Don't worry, it will stabilize our economy and down the road, the dollar will come back again.

[junta]

Stanley Roach addresses this issue constantly and he sees a long term correction, but in the short term the world will still be dollar centric.

[SamAdams76]

I been reading about the death of the dollar for that last 30 years.

Tell me about it. It's been non-stop doom-and-gloom since 1970. According to the conventional wisdom of the 1970s, we were supposed to be overpopulated by now with no more fuel and people fighting in the streets (of America) for a loaf of bread.

[lavaroise]

Net industrial production CAN'T be shipped abroad.

Of course it can. What do you think Mexican illegal migrants are for in the US? What about the tooling machinery and the manufacturing licenses issued to China? All these are a taxation on exports.