Studyandtrade You will find the answer to your question if you have a close look at the expansion in the US money supply over the years (do a google search) and consider how much further the US dollar will drop once Bernanke starts printing money in earnest to avert a downturn in the US economy. The dollar decline, the credit bubble and bubble in asset prices are all reflected in the money supply. What the Fed has failed to understand is that economic expansion can only be sustained over the longer term through savings and production rather than borrowing and spending. You should also consider the size of the US current account deficit and how the long term fortunes of the US dollar will not turn around until there is a sizable improvement in it. You can also consider has much worse the fate of the US dollar could have been if not for the stupidity of our Japanese and Chinese friends, and how the US has used them quite successfully up till now to export its inflation to the rest of the world. Imagine for example where the US dollar and the US inflation rate would have been if not for the generosity of foreigners (the Japanese alone for example invested a massive (as I recall) $320 billion in US debt instruments in 2003 and yet the yen still rose against the dollar) .
Hi BVM88, Thanks for your great explanations. I hope many of our fellow Elitetraders will read it! It's to bad that 99.99% of the U.S population still believes the government is working in their favour. If they only would do some study -for example read your post- they possibly would understand how it comes they lose a great portion of their hard earned money year in year out. And that they should buy gold to prevent poverty in the nearby future instead of listening to the "good news" every day!
Who's being stupid? The Asians buy long term US denominated bonds to keep US interest rates low, so the consumer can have low rates to afford our products. In any case, don't assume WE(us Asians) are stupid
GlobalFinancier Maybe I should have clarified my statement further. I was referring to the Governments of China and primarily Japan (the biggest buyer) being stupid because I expect that they will lose big time on their investments in US debt instruments in the years ahead. If you donât believe so then I suggest you carefully read some of Bernankeâs speeches of recent years. Someone is going to be left holding the bond baby, for the debt will never be repaid with real money the way the US government approaches its finances. As I pointed out on another thread, the Chinese government is quite smart and forward looking in a sense because it has used its support of the US dollar to grow its industrial base â just look at the absolute phenomenal progress they has made over the past decade. The Japanese governmentâs level of support for the $US is on the other hand quite stupid because they have achieved relative little gain given the maturity of their economy and will only serve to undermine the savings of its citizens and impoverish their nation in the long run. Just my opinion off course.