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

To: ggersh who wrote (6607)	4/26/2008 5:15:54 PM
From: Real Man	Read Replies (2) \| Respond to of 71456

The Fed's Revolution businessweek.com ........................................................... BIG WILD CARD On the other hand, much of the nonfinancial corporate sector is in good shape. So lending to businesses—even startups—is likely to be strong. Venture capital funds raised almost $35 billion in 2007, the highest level since the tech boom. Still, some businesses have much the same problem as consumers. "We have variable-interest rates on bonds that are adding a lot to our cost of doing business and adding absolutely no value to care," says Paul Levy, an economist by training and CEO of Beth Israel Deaconess Medical Center in Boston. "That means we have less money available for capital investment." The biggest wild card right now is the dollar. Over the past year, its value against the currencies of U.S. trading partners has dropped by 10%. That has stimulated exports, which climbed in volume by 8% over the past year, and held down the volume of imports, which rose just 2%. But if the dollar slips too far and too fast, global investors will see the value of their investments in the U.S. plummet. That will push them to pull their money out, making the greenback drop even more. Under these circumstances, the Fed cannot protect the dollar. Its weapon for fighting financial collapse is printing money. But the more dollars it prints, the faster the dollar will fall. Of course, many economists don't anticipate a dollar crisis. Capital Economics' Jessop notes that two of the strongest currencies are in countries whose central banks have kept rates low: Japan and Switzerland. In the end, the U.S. may require an unprecedented amount of cooperation from global central banks to keep things afloat. That could mean coordinated interest rate cuts. Says Berkeley's Eichengreen: "The Europeans have been underestimating the impact that events in the U.S. will have on their economy."