Money and Metals

The Mail and Guardian has this editorial on the rising US dollar. "If you were using logic to play the forex markets in the past few weeks, you would have lost money. All sorts of reasons have been trotted out to explain why the dollar has been going up, none convincing."

"When you get down to it, there are only two reasons for an appreciating dollar. One is that it is going up because it is going up; the herd mentality of markets means that you do what everybody else is doing even if you think they are wrong. The second is that the markets have deluded themselves into thinking that a country that is spending one dollar and six cents for every dollar that it is earning doesn’t have a problem."

"As a new book by Bill Bonner and Addison Wiggin notes, 'They [the Asians] have enough Treasury bonds have enough Treasury bonds to destroy the US economy on a whim.' One day China may want to do just that, but not yet. For the time being, it does not have any incentive to halt a process that allows it to grow at three times the pace of the US economy, and is prepared to take the risk that the symbiotic relationship will fall apart. Whether it is in the interests of Americans to sit back and do nothing is another matter."

"Bonner and Wiggins argue that the US can’t stop itself. Drawing parallels with the last days of Rome, they argue that Americans believe they can go on spending more than they make indefinitely. Washington would undoubtedly prefer to see the trade deficit cut by rejigging currencies and rebalancing global demand. Indeed, it may use the threat of protectionism to seek a third way out of the current predicament."

"Let’s not delude ourselves, it’s not going to happen this side of an almighty crisis that brings everyone to their senses. At some point, the shopkeeper who keeps extending credit to a customer having problems paying the bills in the hope that he will eventually straighten himself out can end up sharing the pain. Until the crunch comes, however, it’s easy to keep believing the fantasy."