Tuesday, October 19, 2004

The Coming Collapse of The Dollar

I've been watching currency and bond markets with great interest for the past 5 years, and in particular the past 6 months.

While it is true that Europe and the rest of the world are unable to vote in our election per say, I argue they WILL vote with their money. The net outflow of capital from the US is approaching record levels unseen since the Carter years. Foreign central banks are working overtime propping up the Dollar - and I don't think it is because they like Bush or America, rather they need the Dollar kept alive long enough for them to divest their Dollar denominated assets. Our whole pattern when I look at it reminds me of Argentina circa 2001.

This article in the Washington Post speaks volumes and is a must-read for anyone following the undercurrents taking place in world capital markets. It's a nice summary, and doesn't get to the depth of what is really taking place, but it's a nice primer for those who are interested in what I argue is the coming collapse of the Dollar:


Washington Post Staff Writers
Tuesday, October 19, 2004; Page E01

NEW YORK -- On Sept. 9, as it must frequently do, the U.S. government turned to Wall Street to raise a little cash, and Paul Calvetti bet that demand for $9 billion worth of long-term Treasury bonds would be "huge."

But at 1 p.m., as the auction opened and the numbers began streaming across his flat-panel screens, the head of Treasury trading at Barclays Capital Inc. slumped in his chair. Foreign investors, who had been voraciously buying Treasury bonds, failed to show up. Bond prices cascaded downward, interest rates rose, and in five minutes, Calvetti, 38, who makes money by bidding on bonds at one price and hoping market demand lets him quickly resell them at a profit, had lost $1.5 million.

"It's amazing," he gasped, after the Treasury Department announced that Wall Street traders, not foreigners, had been left to buy virtually the entire auction. "I don't think I've ever seen this before....

The most recent auction of 10-year Treasury notes may have been a fluke, a
momentary downturn in one aspect of the massive world market for U.S. government
and private-sector bonds, stocks and other securities -- a market so large and
diverse that it has long been the world's safe haven. But a rash of new data,
including Treasury Department figures released yesterday showing a net sell-off
by foreigners of U.S. bonds in August, has stoked debate over whether overseas
investors -- private individuals, institutions and government central banks --
are growing dangerously bearish on the U.S. economy. "

Ask yourself this question: Would you invest in a country that runs annual deficits of $500 billion, has a declining infrastructure, a shrinking economy with a hollowed-out industrial sector that has experienced a net loss of 2 million jobs, millions of additional people thrown into poverty, the most expensive healthcare system in the world, and is engaged in non-stop protracted wars that deplete its treasury at an astonishing clip? Take it one step further - would you invest in a country where the leaders say "Deficits do not matter..."??

The bond and currency markets are going to vote this November as well - and they are not, unlike the rest of America, going to vote for Bush.


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