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Strategies & Market Trends : Currencies and the Global Capital Markets
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To: see clearly now who wrote (554)9/3/1998 12:42:00 PM
From: Alias Shrugged  Read Replies (1) of 3536
 
Henry -

>>>>How does this translate to currencies? As I have posted before I am not a gold bug. I believe a currency is backed by the productive power and tax generating capacity of the economy. In addition the currency's value vis a vis other currencies is a function of investors interest in holding investments in those assets. As significant portions of the Asian asset base prove to have been misguided investments and are written off the market is reassessing the value of the productive power of those currencies. Since the US is unlikely to be writing off assets to anywhere near the same degree the dollar is likely to remain better supported.<<<<

I agree with your model regarding what backs a currency and what drives the value determination process, but I think the US will write off an horrendous amount of assets, but they will be tied to financial activity instead of the infrastructure/chip plant type of investments. I guess this ties in with your view, maybe, Arnold.

The dollar may not weaken to extreme levels, only because every (most?) nation's productive power will be weakened.

The US debt can be a huge swing if/when we move into recession. Lower revenues can easily create a $200 to $300 billion deficit. Debt write-offs will lessen liquidity in the bond market, raising rates. Higher rates will increase the deficit by ?? $50 to $70 billion per 1% increase??

Mike
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