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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: Don Green who wrote (19795)	8/27/2017 9:43:50 PM
From: Don Green	1 Recommendation Recommended By The Ox Respond to of 33421

dg> A few months ago this was consider as bad ? So now what? “Why a Strengthening Dollar Is Bad for the World Economy”, The Economist, 3 December 2016 Edited by Ignacio de la puerta2017-02-13 "Back in Ronald Reagan’s first term as president, a time of widening budget deficits and high interest rates, the dollar surged. That episode caused trouble abroad and this time could be more complicated still. Global financial and credit markets have exploded in size and the greenback has become more pivotal. That makes a stronger dollar more dangerous for the world and for America". America’s relative clout as a trading power has been in steady decline but the dollar’s supremacy as a means of exchange and a store of value remains unchallenged. In fact, the amount of dollar financing that takes place beyond America’s shores has surged in recent years. As emerging markets grow richer and hungrier for finance, so does their demand for dollars. Since the financial crisis, low interest rates in America have led pension funds to look for decent yields elsewhere. They have rushed to buy dollar-denominated bonds issued in unlikely places, such as Mozambique and Zambia, as well as those issued by biggish emerging-market firms. When the dollar rises, so does the cost of servicing those debts. But the pain caused by a stronger greenback stretches well beyond its direct effect on dollar borrowers. That is because cheap offshore borrowing has in many cases caused an increased supply of local credit. Capital inflows push up local asset prices, encouraging further borrowing. Not every dollar borrowed by emerging-market firms has been used to invest; some of the money ended up in bank accounts (where it can be lent out again) or financed other firms. A strengthening dollar sends this cycle into reverse. As the greenback rises, borrowers husband cash to service the increasing cost of their own debts. As capital flows out, asset prices fall. There are lurking dangers in a stronger dollar for America, too. The trade deficit will widen as a strong currency squeezes exports and sucks in imports. America has a big deficit and one that has already been politicised, not least by President-elect Trump, who sees it as evidence that the rules of international commerce are rigged in other countries’ favour. "A bigger deficit raises the chances that he act on his threats to impose steep tariffs on imports from China and Mexico in an attempt to bring trade into balance. If Mr *Trump* succumbs to his protectionist instincts, the consequences would be disastrous for all. The global economy is weak and the dollar’s muscle will enfeeble it further".