Hello I-ex,
you wrote: ''This fact plus an increasing budget deficit and huge, persistent trade imbalance will very likely seriously erode confidence in the dollar. Add the potential for an accelerating increase in prices in world commodities from their current extreme low levels to the mix and a rapid decline in the dollar becomes even more certain.''
I think you're damn wrong... What other currency do you have to offer to ''anxious'' international investors? Since I've started investing on the Nasdaq --back in 1996-- the greenback has increased by 25% relatively to the DEM and consequently to the Deutsch Mark zone (ie BEF, NGL,...).
Today, I heard that the rubble dropped by 40% (!!) relatively to the DEM... and guess which banks are heavily involved in Russian bonds and other debt instruments? The German banks! So, now you can ask me why the DEM isn't falling like a stone relatively to the USD?
Because it's election time in Germany, stupid!
I suspect there's currently a hidden agenda with the currency mob: from New York to Paris to Zurich to Tokyo (why not, after all?) to... Frankfurt (of course!) there's only one motto: support the DEM --at all cost! Everybody's expecting Chancellor Helmut Khol to get shouldered aside by SPD (Socialist) Gerhardt Schroeder but yet, the other Western powerhouses want it to be a smooth political transition. We don't want the Germans to get pissed off by a falling DEM because we don't want to see political extremes reaping 25% in the coming September 27 election!
Things might be different after September 27, 1998 though... So, I think that the dollar still has a bright future and it'll likely hit the DEM 2.00 mark by the end of the year. After all, this is also the interest of Europe: a stronger dollar will soften the stringent monetarist policies enforced by the launch of the Euro --which is scheduled on January 1st, 1999. A strong Euro will further depress the European economy and could trigger some social upheavals (remember Indonesia?).
Regards,
Gustave. |
