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.
A weak dollar is a problem when inflation goes high, and the cost of govt borrowing goes high. Neither is the case now, or yet.
Some would argue that we are seeing inflation, especially with energy costs. Unfortunatley that is a weakness of weak dollar, but not actually an inflaitonary problem as the cost is more about the dollar and lack of refining. Gold too is appearing to be “much higher” but only when viewed in usd denominations...
It is hard to understand, and has been since the 1700’s, that trade is always fair at inception, even when gold was the standard, or so according to Adam Smith, Wealth of Nations. His premise was that trade at inception was fair, or it would not have been originated. This same argument was very heated in “Import England” of late 1700s.
A great example of how this works despite face value logic is with Japan. They shipped us goods, and left with empty boats. Actually, the boat was not technically empty, it was carrying a cargo: One envelope with cash in it.
The cash had to be turned around right? Either dump it in the currency market and discount it, buy american goods, buy american companies, or american property. They chose r/e and some biz ventures, and when it worked, they piled on, creating a bubble in cali and hi r/e.
Meanwhile, their currency kept increasing in value. This created a scenario that made bank loans more and more expensive, eventually making their banks insolvent.
So, in the end, it is obvious now that the US got the better deal? Their stock market is less than half peak value of nearly 20 yrs ago!
With all due respect, you and others are so incredibly wrong about the state of US financial affairs. We are literally on the verge of a perfect scenario for American growth, not demise by any means! Granted, not all will be winners, but the aggregate will bring our market higher, much higher.
I would not want to be highly invested in foreign equities right now, especially Asia where a bubble that will be viewed later as rivaled by none, is currently in the latter stages. The devastation there will be mind boggling, make Japan look like nothing.
US treasuries, most likely, are doing reasonabley well now for a number of reasons, but one that I’m interested in, is the fact that many foreign investors and govts are buying them as a hedge against a rising dollar and weakening of their own currency. If for example, an invetor buys 1m of 30 yr us tres, and the dollar recovers 30% over the next X years, they wind up not only gettting the coupon, but a higher valued coupon over time, and principal of 1m+30%.
I simply find it fascinating that everyone thinks this time is different, the USD will never recover, and that current economic trends will continue forever. That is the best way to lose money ever.
At some point DoughtyOne, the dollar becomes so cheap, as to become ridiculous to Canadians, Japanese, Brits, etc... They will then travel here, buy stuff here, get R/E, buy out US companies on the market etc. At some point, it gets too extreme right? And at that time, very large financial institutions overseas will realize that they are woefully short allocation in the US bond and equities market, need to make up the gap by buying US securities. The same will hapeen to US investors that are heavily overseas. When they realize they are losing overseas, gaining here, they will repatriate their money, at the expense of the foreign markets.
Ok, hope that wasn’t boring, cuz my wrists are killing me.