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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: ild who wrote (50759)5/8/2006 1:58:44 PM
From: regli  Read Replies (2) of 116555
 
I think his point was that at a certain point the U.S. WILL have to defend its currency and that this would be an ideal time for CBs to sell their dollars.

This scenario makes sense to me, the U.S. has defended the dollar before in the late 1970s and will likely do so again in the face of a severe decline. This would be the time for FCBs to dump some of their reserves without driving the dollar down too far.

If the U.S. were to defend its currency, the dollars would in fact return home as it has to sell other currencies in order to strengthen the dollar i.e. it would therefore make sense for the Chinese to buy Euros whereas the U.S. would have to sell its Euros in order to keep the dollar stable.

The only other way for the U.S. to defend the dollar would be to raise interest rates to exorbitant levels similar to the late seventies, early eighties which would kill the economy and would be an absolute last resort solution.
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