Your assuming that not purchasing the dollar is permanent. Ok, so at what point would you purchase a dollar denomination? Remember, a dollar not going abroad, as it would otherwise acts the same way.
I wouldn’t be dumb enough to claim I’m smarter than anyone about finance and econ, but since I do it professionally, have so for 15 years, and run a large practice, would say that I’m not a drug taking underwear wearing day trader that has just learned everything I know from Money Magazine. If you catch my drift?
Wouldn’t you agree that there would be a tipping point beyond which our nation would be in serious trouble? Explain to me where my thoughts on this are wrong. Do you simply see foreign investors thinking our treasury notes were a bargain at some point? I don’t understand how. We would have to raise rates significantly for that to happen, and that would severely damage the economy. The dollar would take more hits based on that.
Thanks in advance.
Without trying to create any attack or criticism of you personally or your profession, the word "professional" in the world of money management or anything else simply and only means that the one so termed does it for money. That money may come from generating legitimate returns for clients, as is, I'm completely certain, true for the great majority. It may also come from 2% fees on billion-dollar hedge funds where the pricipals cannot now withdraw funds and whose fund values cannot be priced.
Nothing is permanent in finance, but the erosion of the dollar as a currency will probably continue as long the Fed takes it upon itself to serve as the main benefactor to the money center banks whose professional staffs saw fit to purchase gargantuan amounts of very questionable debt. If the Fed sees fit to continue to lower rates at the short end, I'd suspect the dollar has a modest amount further to fall. The IMF thinks the dollar will fall for 3-5 years.
[The excerpt below is from a WSJ article concerning the IMF’s view of the US dollar.]
Over the "medium term," which is three to five years in IMF parlance, "we still see room for further depreciation," Mr. de Rato said.
The euro, he said, is "very near" its equilibrium value. At a breakfast with reporters yesterday, Mr. de Rato repeated his remarks that the dollar's drop had been "quite substantial." However, he then added his projection that the dollar still had room to fall. IMF officials say his remarks were meant to more accurately convey the fund's view of the dollar and didn't reflect any pressure from the U.S. Treasury or European finance ministries. "There's still some depreciation to come in the medium term," said the fund's chief economist, Simon Johnson.
Another thing professionals do is to package some of these debt instruments.
"In the spring of 2006, Goldman assembled 8,274 second-mortgage loans originated by Fremont Investment & Loan, Long Beach Mortgage Co., and assorted other players. More than a third of the loans were in California, then a hot market. It was a run-of-the-mill deal, one of the 916 residential mortgage-backed issues totaling $592 billion that were sold last year.
The average equity that the second-mortgage borrowers had in their homes was 0.71%. (No, that's not a misprint - the average loan-to-value of the issue's borrowers was 99.29%.)
It gets even hinkier. Some 58% of the loans were no-documentation or low-documentation. This means that although 98% of the borrowers said they were occupying the homes they were borrowing on - "owner-occupied" loans are considered less risky than loans to speculators - no one knows if that was true. And no one knows whether borrowers' incomes or assets bore any serious relationship to what they told the mortgage lenders."
Professionals both packaged and bought the above type of instruments. So I'll rhetorically ask: What's the definition of professional?
The final piece of total insanity in the equation is that the US Treasury says it is interested in a strong dollar, but little or nothing is done to maintain its value. In fact, it appears the exact opposite mandate is in effect.
Personally, I have no real problems buying productive dollar-denominated assets......with dollars I already have or dollar-denomiated debt....which is what foreigners are doing. But buying dollars or dollar debt with foreign currencies to me is ridiculous when the US Treasury and the Fed seem to be devaluing them as fast as possible.
I put all my money into Tim Hortons donuts