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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (5954)	4/7/2008 12:00:32 PM
From: ggersh	Read Replies (1) \| Respond to of 71475

Just wait til we attack Iran.....

To: Tommaso who wrote (5954)	4/7/2008 12:09:18 PM
From: RJA_	Respond to of 71475

From an email buddy: A bit of history I learned from my Dad: the U.S. in Iraq was not the 1st instance of a country not raising taxes to pay for a war. Germany in WWI did not raise taxes, on the theory that the captured resources from the French (Saar Valley) would pay for it. My Dad’s opinion is that the peace signed afterwards (Treaty of Versailles) was eminently fair to the Germans and did not cause the hyper-inflation of the early 1920s. Rather it was the war-time tax policies in Germany that caused all the mayhem. From: Rockefeller Strategic Currency BriefingMonday, April 7, 2008 Finally, G7 starts on Friday in Washington, just ahead of the IMF/World Bank meetings over the weekend. As noted above, Japan is rushing to get a BoJ Gov in place for G7, and both meetings could result in harsh words spoken to the US by the world’s financial community, as though the US is the unruly boy disrupting the 7th grade English lesson. Several people have stepped up in support of G7 intervention to halt the dollar’s slide, including IMF chief Strauss-Kahn. As we have been saying for some years now, this is simply not going to happen. Only joint intervention has a prayer of working and the US would refuse to join. For one thing, it would be a face-losing exercise. For another, the current US administration either prefers a falling dollar (to favor its multinational contributors) or else is indifferent to the level of the dollar, believing the market is self-regulating. Second, the Germans appear to be against it as impractical. Third, it’s hypocritical to demand the Chinese allow a faster appreciation of the yuan and then intervene yourself. Finally, if you look at who has been intervening, it’s not company the US wants to keep—intervention is a third-world undertaking (S. Korea, Singapore, Russia, Brazil). The only first-world country that has been intervening is Iceland, and Iceland is a very special case. It’s also the size of a small American city. It’s also not clear that European financial leaders would want to intervene, anyway. Market News reports that at last weekend’s EcoFin meeting, a split was seen on two issues—hawkishness on inflation but also attitudes toward the dollar. Europe is eager to prove that its economy is just as adaptive and resilient as the US economy, not the hidebound, stuck-in-the-mud old thing of the past. That means it has to overcome a too-high euro. Trichet has his own party line—excessive volatility is undesirable and it’s awfully nice that the US TreasSec wants a strong dollar. Belgian FinMin Reynders “offered an interesting aside when he revealed that policymakers were more concerned about inflation at the present time than about the strength of the euro, suggesting that Europeans are getting used to the idea that they may have to live with a currency at these levels.” Yesterday the German weekly magazine Der Spiegel reported that the German finance ministry opposes intervention in currency markets to curb the dollar's fall. It cites an internal memo prepared for FinMin Steinbrueck's discussions at G7. It purportedly says interventions can‘t be financed at the level they would require to be effective—there isn’t enough money. Besides, it’s extremely unlikely the ECB will cut interest rates in order to make investments in the eurozone less attractive and thereby slow the euro's rise. In sum, G7 is no threat to anything, although the FX market gets jittery anyway, just in case these guys may be coming up with another Plaza Accord or something dumb like that. As we noted last week, the market tends to pull back from whatever excess it was engaged in just ahead of G7 meetings. It’s as though traders are afraid of being punished for bad behavior. Therefore, we expect the curious dollar firmness to hang on this week, although comments from one-needle Trichet and additional dovish remarks from Bernanke could turn the focus from the US economy nearing a bottom to the yield differential, and that is never dollar-friendly.