Bonner from Daily Reckoning, with a few clever comments
"Foreigners still shunning dollar assets," says a headline
in the Kansas City paper. What surprises us is not that
they shun it, but that they ever got so friendly with it in
the first place. On a trade-weighted basis, the dollar
gained 47% from '95 to 2002. So far, reports Stephen Roach,
it's only down 9%. Which leaves plenty of room for a lot of
people to lose a lot of money.
The Fed and the Treasury are doing all they can. The latest
week shows the money supply (as measured by M3 for the
technically-inclined reader) up $55.4 billion. If this were
to continue, M3 would grow by more than $2.5 trillion in
the next 12 months.
Still, bond investors think they can make money - or even
stranger, they think they can protect themselves from
losses - by buying a long-term investment yielding scarcely
more than inflation, at a time when the Fed is doing all it
can to destroy the currency in which it is denominated.
And Americans, generally, believe they can muddle through a
major decline in the dollar with no loss to their own
wealth...or living standards.
"We continue to believe that a sharp depreciation in the
value of the dollar," writes Stephen Roach, "is the single
most important force that might foster a long overdue
rebalancing of a U.S.-centric world economy. The impacts of
higher real interest rates should show up first in the form
of weakening U.S. domestic demand - a key outcome if
America is ever to rebuild its aggregate saving rate back
to historical norms."
Synopsis: A higher dollar = less spending = more saving.
Vulgate version: Americans are going to have to stop buying
things they don't need with money they don't have provided
by people they don't particularly like.
Implication: More recession coming. |
