Neutering Monetary Policy
Treasury Gain May Falter; Foreign Holders Flee Dollar
"The dollar's slump to a 15-year low against six of its most actively traded peers is turning the gains into losses for international bondholders, prompting China, Japan and Taiwan to sell. Overseas investors own more than half of the $4.4 trillion in marketable U.S. government debt outstanding, up from a third in 2001, according to data compiled by the Treasury Department. "
Please click on the title of this post to link to the Bloomberg article.
That is pretty much the sort of headline I expected to read when "it" all began. The sunshine boys of the financial markets are calling for a rate cut because this year's bonuses look at risk. However the second part of the equation is the US dollar. Like nitrogycerine in liquid form things go along fine as long as there aren't any sudden movements. Well there have been a few sudden movements and the US dollar may be headed for its long overdue repricing....read explosively downwards.
Now when your currency is under selling pressure and has broken through key support levels the last thing you want to do is drop interest rates. In fact, that could precipitate a full scale run on the dollar which in turn would lead to swift and substantial rate rises.
If the current diversification out of the US dollar turns into a rout expect to see rapid rate rises to support the currency. Naturally this will push the US economy and the rest of world along with it into a stonkingly massive recession.
Watch that dollar.
"The dollar's slump to a 15-year low against six of its most actively traded peers is turning the gains into losses for international bondholders, prompting China, Japan and Taiwan to sell. Overseas investors own more than half of the $4.4 trillion in marketable U.S. government debt outstanding, up from a third in 2001, according to data compiled by the Treasury Department. "
Please click on the title of this post to link to the Bloomberg article.
That is pretty much the sort of headline I expected to read when "it" all began. The sunshine boys of the financial markets are calling for a rate cut because this year's bonuses look at risk. However the second part of the equation is the US dollar. Like nitrogycerine in liquid form things go along fine as long as there aren't any sudden movements. Well there have been a few sudden movements and the US dollar may be headed for its long overdue repricing....read explosively downwards.
Now when your currency is under selling pressure and has broken through key support levels the last thing you want to do is drop interest rates. In fact, that could precipitate a full scale run on the dollar which in turn would lead to swift and substantial rate rises.
If the current diversification out of the US dollar turns into a rout expect to see rapid rate rises to support the currency. Naturally this will push the US economy and the rest of world along with it into a stonkingly massive recession.
Watch that dollar.
posted by Peter at 3:35 pm
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