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Many have been discussing the Dollar's demise.  There have been panic sell-offs of Dollars in the forex market, and U.S. Treasuries are being abandoned wholesale. Yet, this is the kind of extreme in sentiment that most often occurs at a market top or bottom. It's true that the U.S. government is borrowing unprecendented amounts of money. It's true that some countries including China, the U.S.'s primary creditor, is exploring alternatives in reserve currencies. However, as much as China, Russia, Iran, and other nations might wish there were another place to turn, the global system is intricately complex, and rests on a foundation based in debt and U.S. Dollars. Things can not safely change that fast. Also, as global anxiety climbs, and people are once again forced to liquidate assets that are primarily priced in Dollars, the U.S. currency will rise in value against the "commodity" currencies.

Even if there is still one more brief, but possibly extreme panic, holders of the U.S. Dollar will once again find their currency gaining in favor. Inflation worries will be a spector of the past, and deflation will once again be the primary concern. We've been here before. This is what it looks like at a social mood top, as markets in general begin to break down once again, and as Treasuries and the U.S. Dollar are sought as "safety." The Dollar may indeed collapse at some point, and inflation may very well soar to unbelievable heights as resources become more scarce. However, for now, and perhaps for some time to come, the Dollar may find support as the Great Recession continues to play out, and the spectre of Depression once again begins to lurk in the shadows.

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Excerpt from the October 2009 MoodCompass:

October 19 – 25: A Solution? U.S. government crisis resolved one way or another. U.S. Dollar declines sharply. Inflation concerns up sharply.

From the Week by Week Highlights of Global Mood, Perception, and Behavior on Page 2 of the October MoodCompass: http://anewstory.org/markets/Oct09_MoodCompass.pdf (current issue viewable by research sponsors only; reprinted with permission of A New Story Foundation).

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