One way of thinking about the USD - for the past 5 + years, Japan, China, Korea, and others have spent large sums to postpone the devaluation of the USD relative to their currencies.
A devaluation would have started to naturally correct the trade imbalance, and make many US products more competitive - I'm thinking about the $1500 - $2500 cost advantage Japanese cars enjoy because they do not have the legacy pension and health care
costs of GM, Ford, and Chrysler. A 15% drop in the USD (on a $21,000 car price) would eliminate this, and stop the decline in market share.
If the market intervention stops, the USD should move lower.
Right now, it appears that ONLY central banks are buying Treasuries.
For some reason, I expect the movement may be VERY sudden, maybe like the drop in the Korean WON in 1998, which happened in about 4 days.
I would also expect a sudden stop in the decline of the USD, just as millions of investors move to short USD - long every thing else.
I don't have much of a feel for the size of the devaluation, beyond more than 5% but less than 30%. 30% on would push the Euro from $1.20 to $1.56. Europe starts feeling real pain around $1.40
The yen would go from 110 per USD to 80, and anything under 90 yen per USD will make the exporters cringe.
I would then expect that about a year later, the USD would start sliding again, maybe a few percent a year vs. other currencies.
So I would expect a drop of about 50% against other currencies and 75% against gold. |
