21 September 2008

Traders Say: "the Dollar Will Get Crushed"

The Dollar has been in a decline thanks to the profligate stewardship of Greenspan and Bernanke. Paulson and Rubin helped Wall Street to hijack the US economy and twist it to serve the enrichment of the financial sector.

Now that it is unraveling we ought not to underestimate the lengths that the Treasury and Fed will attempt to forestall the collapse itself. They have had and will continue to receive help from complicit central bankers, vassal states and protectorates like Japan and Saudi Arabia.

But US debt can only be defaulted or forgiven. It cannot be repaid. Without the backing of a world government or the confiscation of the savings of most of the world the dollar is in a death spiral to failure.

Bloomberg News
Dollar May Get `Crushed' as Traders Weigh Up Bailout
By Bo Nielsen and Anchalee Worrachate

Sept. 22 -- Treasury Secretary Henry Paulson's plan to end the rout in U.S. financial markets may derail the dollar's three-month rally as investors weigh the costs of the rescue. (The rally was a technical bounce given some extra strength from manipulation. - Jesse)

The combination of spending $700 billion on soured mortgage-related assets and providing $400 billion to guarantee money-market mutual funds will boost U.S. borrowing as much as $1 trillion, according to Barclays Capital interest-rate strategist Michael Pond in New York. While the rescue may restore investor confidence to battered financial markets, traders will again focus on the twin budget and current-account deficits and negative real U.S. interest rates.

``As we get to the other side of this, the dollar will get crushed,'' said John Taylor, chairman of New York-based International Foreign Exchange Concepts Inc., the world's biggest currency hedge-fund firm, which manages about $15 billion...

Dollar `Downdraft'

``The downdraft on the dollar from the hit to the balance sheet of the U.S. government will dwarf the short-term gains from solving the banking crisis,'' said David Woo, London-based global head of foreign-exchange strategy at Barclays, the third- biggest currency trader, according to a 2008 survey by Euromoney Institutional Investor Plc...

`Huge New Supply'

The rescue comes as the U.S. budget deficit and the current-account balance, the broadest measure of trade, grow. The Congressional Budget Office projects the spending shortfall will increase to $438 billion next year from $407 billion. The current account deficit is up from $167.24 billion in December.

``Investors may start to worry about the amount of debt the U.S. is taking on and its impact on the dollar,'' said Geoffrey Yu, a currency strategist in London at UBS AG, the second- largest foreign-exchange trader. ``The fact that they mentioned taxpayer money implies that they're going to issue debt. If there's going to be a huge new supply of Treasuries, this will be dollar negative. It's too much for the dollar to take.''

Traders are also concerned the bank bailout will spread to other U.S. industries suffering from the credit crunch that's holding back an economy growing at its slowest pace since 2001. Detroit-based General Motors Corp., the world's biggest automaker, said last week it will tap the remaining $3.5 billion of a $4.5 billion credit line to pay for restructuring costs.

`Damaged' Currencies

Lower interest rates may also weigh on the dollar. Futures on the Chicago Board of Trade show there's a 38 percent chance policy makers will lower their target rate for overnight lending between banks to at least 1.75 percent by January from 2 percent currently. A month ago, they showed a 46 percent chance of an increase to 2.25 percent.

Rates in the U.S. are already the lowest of any the Group of 10 industrialized nations except Japan, where they are 0.5 percent. The European Central Bank's benchmark is 4.25 percent.

Another drawback for the dollar is that the Fed's key rate is 3.4 percentage points less than the rate of inflation, the most since 1980, so investors lose money by investing in short- term U.S. fixed-income assets.

``People thought that the Fed was done cutting,'' said Andrew Balls, an executive vice president and member of the investment committee of Newport, California-based Pacific Investment Management Co., which oversees almost $830 billion. ``In the longer term the diversification away from the dollar will remain intact. The U.S. hasn't done itself any favors in making its assets attractive to foreign investors...''