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Strategies & Market Trends : Waiting for the big Kahuna -- Ignore unavailable to you. Want to Upgrade?

To: orkrious who wrote (75203)	4/11/2007 12:56:45 AM
From: Real Man	Respond to of 94695

$3 billion foreign inflows a day is required to just counter the trade deficit. So far, foreigners have been buying dollars, not selling them. When your asset becomes worthless quickly, you simply hit a sell button, and there are lots of worthless dollars abroad. That's what a currency crisis is about - a lot of folks decide to sell an asset (currency) that keeps depreciating quickly, simply because it is doing so. High interest rates are unable to compensate for a currency that is falling 5% a day. Peso, Russian ruble, Asian currencies, whatever - always the same reason. The fundamental cause is accumulated trade deficit. 3% of GDP is crisis level for any country. US is special because of USD reserve currency status. So, we had 7% of GDP trade deficit for a long while now. Higher interest rates will not be enough to compensate for a currency that's rapidly losing its value. How about 40% drop a day? That's what a currency crisis sometimes looks like. Would you buy a 10-year bond or a 4-week t-bill paying 5% a year then? I'd transfer everything in my own currency. The Fed can do NOTHING. They can only print dollars. They don't have ANY reserves. They can raise rates, but that won't matter if a real panic hits.