How low will the greenback go?

Discussion in 'Economics' started by The Kin, Apr 1, 2005.

  1. I think it's set for a steady decline for a long time to come. Buffet and Gates know it!
  2. Oh... my feelings... well on a forum this large I guess you have to expect one or two assholes, but whatever. I was reffering to this storey, which I believe we have all seen:

    Former Prime Minister Mahathir Mohamad, whose economic management during the 1997-98 financial crisis won worldwide accolades, says the U.S. dollar is heading for a collapse, and urged international businesses to trade in euro, news reports said Wednesday.

    In a dialogue session with international CEOs on Tuesday, Mahathir said only the fear of a global economic catastrophe in the event of a dollar collapse is helping the greenback retain its value, the Star and the New Straits Times newspapers reported.

    But the dollar has scant real backing, and is in fact being weighed down by the massive U.S. debts and deficit.

    "The catastrophe will come one day because even the most powerful country in the world cannot repay loans amounting to US$ 7 trillion (euro5.3 trillion)," he was quoted as saying during the dialogue, held in Sabah state on Borneo island.

    "The uncertainty is with the timing, not whether it will collapse," said Mahathir, whose dislike for U.S. economic and foreign policies are well known.

    However, it was the pragmatic Mahathir - prime minister until 2003 - who had insisted on pegging Malaysia's ringgit currency to the U.S. dollar in 1998 to combat the financial crisis when the freely convertible currencies around the region fell dramatically.

    Most governments took massive loans from the International Monetary Fund to prop up their currencies, but Mahathir refused the dole, earning widespread scorn at the time, and fixed the currency rate.

    However, his policy was later acknowledged as sound and Malaysia came out of the crisis in a relative good shape. The ringgit remains pegged at 3.8 to a dollar but Mahathir has said in recent months it is time to re-float the currency because it is being hurt by the dollar's almost daily fall against all major currencies.

    The weak dollar - and hence the weak ringgit - has made imports into Malaysia more expensive.

    Also, when companies are paid in U.S. dollar, they are being paid less "because the currency has devalued by 50 percent," he was quoted as saying.

    If businesses don't want to be shortchanged they should ask to be paid in other stronger currencies such as the euro, or in euro equivalent, he said.

    "The time will come when you have to move away from the U.S. dollar" as the international currency of trade, he said, adding that he has suggested the use of gold as an alternative, stable currency.

    He blamed Washington's massive deficit on President George W. Bush's economic policies.

    "Unless they (Americans) change their president and have a more responsible president who will try to reduce the deficit, they will have serious trouble with the U.S. currency," Mahathir was quoted as saying.
  3. I'm willing to bet his view of American foreign policy is tainting his opinion of the dollar. With double digit unemployment in germnany, France doing god knows what anymore, and the rest of the EU acting as, well, who gives a ^&$# about the rest of EU, I would find it hard to sleep at night owning a currency tied to an economic system that looks forward to their 1 month vacations rather than fixing their own problems.
  4. m22au


    Well written mercure.

    Convertbility also failed to discuss the merits of investing in currencies outside the universe of the US Dollar and the Euro. It is possible that those two currencies could underperform a large number of currencies in the coming years.

  5. seems obvious to me. In case of dollars strong sell off by asian, the euro could go to 1.5/1.7 but it will come back at 1.3 because european economy cannot afford so strong currency.

    Its long term value compared is around $1.2 per euro. This figure is based on purchasing power parity analysis between europe and usa undertaken before the launch of euro. The 1.18$ launch value in 1999 has not been chosen by luck.

    It is not the euro who must rise, it is the asian currencies! yen, yuan, rmb....
  6. Dollar Rises to 7-Week High Versus Euro Before Greenspan Speech

    The dollar rose to a seven-week high against the euro in Asia on speculation Alan Greenspan will say the Federal Reserve plans to add to seven interest-rate increases this year, widening the gap with benchmarks in Europe and Japan.

    The Fed chairman is one of five U.S. central bankers to give speeches this week. The dollar is up 2.6 percent against the euro and 3.2 percent versus the yen since policy makers raised the key rate on March 22 and said inflation pressures are building. St. Louis Fed President William Poole, who gives another talk this week, on April 2 said this reaction ``made a lot of sense.''

    ``There's been more jawboning by Fed officials,'' said David Mozina, a currency strategist in Sydney at ABN Amro Holding NV. ``Inflation and the level of Fed aggressiveness that may be needed is what's driving the dollar.''

    The European Commission yesterday cut its 2005 growth forecast for the region to 1.6 percent, from a previous estimate of 2 percent, as record oil costs and rising joblessness depress growth. German unemployment reached a postwar high last month.

    U.S. 10-year Treasury yields have risen almost half a percentage point since mid-February, helping support the dollar. They were at 4.46 percent today. The Fed has lifted its target rate seven times since June, to 2.75 percent.

    The European Central Bank has kept its benchmark rate at 2 percent since 2003 and will probably leave it unchanged at a meeting on April 7, according to all 34 economists surveyed by Bloomberg.


    I recall something about interest rate differentials and money finding a haven in higher rates.

    Anyone really give a shit about anything other than the big 3 (Dollar, Euro and Yen) ? Why!?!?
  7. Just to update this foolish thread.

    Euro weakened by French vote

    The euro hit its weakest level against the dollar in eight months Tuesday, after French voters rejected the EU constitution, raising concerns about the future of the European integration process.

    Adding to the uncertainty were new polls showing that a Dutch referendum on the constitution on Wednesday is also likely to fail.

    French Prime Minister Jean-Pierre Raffarin resigned following the no vote and was replaced by Interior Minister Dominique de Villepin. De Villepin is viewed as part of President Jacques Chirac's camp and as unlikely to pursue the kind of market reforms that might bolster the euro.

    In late the euro was down 1.4% at $1.2305, after trading as low as $1.2295 in intraday action, marking the first time it has fallen below $1.23 since Oct. 13.


    Gee, I wonder what Buffet, Gates, and the writer of that article in Forbes are thinking now.
  8. Lucrum


    Probably something to the effect of

    "Oooh $HIT!"
  9. Though I don't really know the rationale and execution of their positions, I think many people forget that they could simply be hedging their exposure to the dollar. All of their wealth is tied to the dollar. In the event of a massive dollar decline, the real values of their wealth will decrease.

    It's just rational risk management.
  10. And when they announce it to the media, it's also a great contrary indicator.
    #10     Jun 1, 2005