Dollar's wounds reopen
Global investors, both private and official (central banks) are voicing ever more loudly their intensifying fears over exposure to the dollar for anything but the short term and their collapsing confidence in the currency as a safe store of wealth beyond the short term.
Let's back away for a moment to look at this global crisis from a distance. When the US housing bubble began to burst in 2006, inherently risky, innovative financial assets backed by mortgage paper eventually began to be exposed for what they really were ("toxic" assets) and in late July 2007 the now-famous subprime crisis emerged.
The contagion of toxicity spread to infect virtually all such innovative assets, wiping out huge sums of wealth and plunging US banks and other financial institutions into crisis and ruin. The damage and destruction quickly spread to the real economy, as a severe and persistent credit seizure virtually shut down lending at all levels.
In the mounting storm, panicked, risk-averse global investors sold off emerging-market assets and investments deemed risky and massively piled into the dollar as a safe haven, lifting the currency. The Fed and other central banks began spending many trillions of dollars aimed at stabilizing the wobbling financial system and restoring confidence, which had utterly collapsed. The financial system was barely saved from a complete meltdown by such interventions, which continue to this very day.
Ominously, global investors, though giving the dollar the nod as a safe haven in the storm, stampeded into the short end, virtually shunning the longer-dated dollar assets altogether. That fact was a dead giveaway that the dollar's well-known loss of strategic global appeal as a safe store of wealth had not been in any way resolved, but only papered-over for the moment.
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