US debt as a % of GDP is about the same as Eurozone, so that alone doesn't explain recent dollar weakness vs Euro. A better reason is the the massive retreat of foreign investors from the US markets. As the subprime mess evolved, foreign investors have been net sellers of US Assets for 3 quarters, which I think is unprecedented in the past 3 decades. During that time there have been hot emerging markets to soak up the investment dollars.
Furthermore, traders have been successful going long oil and placing some gains in a short usd trade, knowing that this trade has excellent feed-forward characteristics (for example, rising energy costs exacerbates the account deficit, leading to dollar weakness). And finally, large speculators have attempted to throw their weight against the USD (Jim Rogers comes to mind) with some success.
The account deficit is a major problem, I agree, and that is one way in which Bush is like Reagan, but so far it hasn't been the main reason for dollar selling. Plenty of other reasons, lol. Paradoxically enough, the weak USD stimulus to many areas of the economy that are driven by exports (adv. materials, software, aviation, computer design and semiconductor design/testing, steel, oil exp. technology) will likely see the return of foreign investment to these selected areas. That is the benefit of a freely floating currency.
Also, at least one of those trades, the oil/dollar trade, has a decent shot of unwinding right about now. |
