The US is going to try and inflate its way out of the massive debt it has accumulated since it really has no other choice. Therefore, it seems we should see massive buying of US assets by foreign governments or corporations. If you hold dollars or US bonds outside of the US your concern now is the potential for tremendous inflation in the US economy. One way to protect against that eventuality is to convert your dollars or bonds into US assets which will inflate in price as the US currency is devalued. Hence we see the French attempting to buy US reactors, etc. If the US government blocks these purchases then i think a big problem arises. Who will loan us money under those circumstances? And if there is no way for foreign holders of US debt to protect against US inflation, then i think we could see some panic and foreign corporations and central banks all rushing for the exit at the same time. That would be a nightmare situation.
I agree with those of you that have predicted a deflationary atmosphere into 2009 and then when things start picking up again there will be rampant inflation. I would short the U.S. dollar and go long commodities at some point here. Short the sh*t out of the dollar. This "flight to quality" thesis is complete nonsense. The U.S. government is totally broken and these bailouts are going to result in some dire consequences. Its a catch 22 because without them, the result would be Armageddon. With them, we probably delay things for awhile but things are looking very, very bad in my opinion.
In 12 months time the government has created 3.5 trillion and swapped hundreds of billions in worthless assets for treasuries. Ofcourse this will lead to inflation in the near future. Not just that, every government in the world is planning to do the same thing: devalue the currency and spend billions on debt relief, infrastructure and public works. Once asset prices become sensistive again to the amount of liquidity that's being pumped into the world's economies we'll move from forced selling to forced buying.
I have a question if anyone can help me. When the Auto bailout failed in Congress. The markets began crashing. Asia, our futures, etc. I believe we are in serious deflation. Yes the Fed has thrown out a ton of money, but it is not getting into the system. The banks are not lending. If the autos were to fail, the markets go much lower, and deflation "Should" be much stronger. Why then would the dollar also crash? When the vote failed, the dollar began to crash along with the markets. I do not understand this. Edit - Maybe something to do with Cds on Autos? I heard leveraged to 1 trillion. Would these go unpaid, and would that crash the dollar? Would that also crash bond market? I don't know maybe those are not correlated.
but at the same time every bank has lost trillions of dollars and deleverged all their balance sheets. think about it this way. if the banking sector on average is leverged 10-1 a banking losses have been say 500 billion, thats 5 trillion less dollars. dont forget peoples biggest asset the home, that has lost 20% of its value. sounds like japan deflation part 2
Continued dollar weakness. This looks like a trend forming rather than a dead cat bounce for short USD.
I know nothing and I mean nothing about FOREX. But I want to short the USD, should I buy the ETF: PowerShares DB US Dollar Index Bearish (UDN)? Or is shorting the USD to some other particular currency better? And if so I guess I should start learning the FOREX, damn it.... Thanks