Hutch:
In any fundamental analysis, the dollar should be losing value. However, because of the unique state of the world economy that has relegated the US to the market of last resort, we are importing the goods of most of the world at discounted prices. The result is, our trade deficit deteriorates to record levels and the exporters of the goods have a surplus of dollars while their domestic economies remain in severe recession or depression. To preserve their economies from further contraction they are more than willing to lend us money by expatriating their excess dollars back to the US in exhchange for US treasuries. The net result, the ball keeps rolling. They keep exporting goods to us and we export US debt instruments to them. Their economies continues on and we benefit from cheap goods. We have the best possible of all worlds, prosperity based on fundamentals that require the majority of the world to remain at recessionary levels. The problem, we are stepping on a lot of toes, and at some point in time the current scenario will change and our currency will be priced by fundamentals that are a bit shaky. When the process reverses itself, the exporting countries will sell their treasuries against a falling dollar and invest in something else. The scenario of a falling dollar and rising bond yields, the inevitable outcome to a devalued currency, will change the environment for hard assests. The question is time.
The producers can create a bit of instability by removing themselves from the team and forcing the price of gold up. Maybe they do not do this because the effect on the carry trade will have immediate implications on the dollar and bond. It is more fun when everyone(we like) is having a party.
Ken |
