Waiting for the big Kahuna Message Board

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Strategies & Market Trends : Waiting for the big Kahuna

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To: William H Huebl who wrote (37571)	2/22/1999 2:28:00 AM
From: Skeet Shipman	Read Replies (2) of 94695

Bill.... It is difficult for me to agree with your buy even though we are oversold. Longer term I believe DOLLARIZATION signals just how severe and desperate the world's economic situation remains. (And I do not expect a interest rate change for now.) . DOLLARIZATION - A STEP BACKWARDS . Is dollarization a major step backwards? Seemingly promoted by the same institution's economists that brought us Long Term Capital. Having the same fallacy as Long Term Capitals' trading strategies? Will it fail catastrophically outside a narrow range of normal economic circumstances? Undermining the actions of neighboring trading partners? Dollarization entails not only the elimination of a countries' and regions' currency but also the loss of its monetary controls. Dollarization is a step backwards into the 18th century necessitating the private issuance of bank currencies without security guarantees of either a central bank or a gold/silver/oil standard. It removes the ability of currency holders, international borrowers or lenders to hedge economic risks. History has shown us that financial institutions collapse during recessions in countries without these safeguards and controls, leading to severe depressions. It was just such a situation that contributed to our Great Depression and resulted in the formation of our Federal Reserve. So why are Greenspan and Rubin seemingly endorsing dollarization? Would not a unified single South American currency be a more positive step? Or is this what they fear? Another Euro. (When was the last time the US ran a trade surplus? Commodity prices will rise someday.) (It is my opinion that one of the causes of the on going world financial crisis is the overuse of the US Dollar as the defacto contractual standard in world trade.) Yes, defending one's currency with exorbitant interest rates is ridiculous. Yet, I fear, dollarization in the will lead to disaster. A single South American currency, if necessary initially tied to a currency board, would be much easier to defend, and allow for the reduction of interest rates. Skeet

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