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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: Tommaso who wrote (50778)5/8/2006 4:49:30 PM
From: regli  Read Replies (2) of 116555
 
"The only way the U. S. can spend foreign currency is to borrow it from other countries, and to do that makes the situation only worse. It's like paying off a credit card with another credit card."

I believe that such interventions would be temporary and used in the hope to stop a disorderly decline. I remember painfully well the quick interventions by the BOJ at around 102 to 105 and then again around the 108 to 112 levels. It definitely put the fear of god in me while shorting the USD/JPY pair.

I obviously agree with your credit card analogy. However, I don’t expect the U.S. deficit problems to be solved anytime soon and therefore won't be surprised if we see a run on the dollar at some point. It is difficult to let a currency devalue without undermining confidence in it. The time when the dollar reaches the level desired by U.S. authorities might very well be the time when the run on the greenback starts and that’s when I expect intervention of the kind we discussed here.
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