If I had a dollar for every time since 1980 I read or was told about how it was all over for the US dollar, I could permanently retire with all those greenbacks, despite their fluctuating value. Given its current level, you would have to be blind and deaf to not be aware of the demise of the currency. Today, there is a piece on page C1 of the Wall Street Journal regarding this topic. The columnist tries to inject as fear and doom and gloom as possible right off the bat with the title, “Why the Dollar Won’t Regain Its Past Strength”. He quotes professors from Harvard and Berkeley and trots out some model they developed saying the dollar has 20% more to go. If that is case, then I suggest you call your broker immediately and buy some short-term, non-dollar government bonds. They make it sound like it is a no-brainer, and, who really knows, maybe it is. It can’t hurt to have that kind of exposure and diversification in a portfolio generally.
There have been several posts in this forum regarding this subject. The biggest risk to a weak dollar is inflation. If inflation gets too high, we have problem, and so does most of the rest of the world. There are benefits to a weaker dollar, which are detailed in previous posts. If I had to bet on the
The other points of the piece are somewhat dubious. The rest of world catching up in productivity isn’t a real surprise as they chuck their electric typewriters for PCs. There doesn’t seem to be any lack of demand for US Treasuries, judging by where they are trading. Finally, the point regarding EM spreads doesn’t mention the supply and demand issues in that market, and it remains to be seen whether EM doesn’t suffer the fate as the rest of the credit market.
Finally, after an informal and unscientific poll of traders, I have yet to find anyone that read this “required” reading on Wall Street desks.
3 comments:
Thee is no mass exodus from the dollar. It is and will continue to be the world's reserve currency. You correctly note that the biggest danger of a weak dollar is inlfation. However, the upside is that now U.S. goods are competitively priced in the world market.
There are three ways the cost of U.S.-produced goods will be competitively priced globally. 1) Our production costs fall in line with that of our trading partners. Not likely. 2) Costs of foreign production rise to levels which are similar to those in the U.S.
3) Our currecny weakens to make our goods attractively-priced overseas.
Many countries have used weak currencies to undercut U.S. industry. Some even engage in various forms of currency manipulation. What is good for the goose is good for the gander. The only downside is that I won't be able to take my wife to Paris. Did I say "downside"?
Go to Philly instead and reinforce your faith in democracy
I don't know. Welfare-Philly has almost as many people on the dole as Paris.
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