Tuesday, November 30, 2004

The Dollar

Did you know the dollar is in crisis? The Bush Administration has quietly talked the dollar’s value down over the past few months. While this has received little attention from the major media outlets, it is a very risky game the Administration is playing. If the dollar continues its slide against other major currencies, the demand for US assets might wane (including their appetite for US government bonds). If that happens, a couple of unpleasant things may result including foreign investors dumping US assets (stocks, bonds, real estate, etc.) depressing asset prices and increases in interest rates as the US government and US corporations try to attract investment capital from abroad to fund budget deficits and growth needs. With asset values dropping and interest rates rising, more and more US citizens will be required to sell their assets to pay down debt further depressing asset values (deflation) and economic grinds to a halt (recession). A prudent monetary policy is needed and the Administration needs to stop trashing the dollar.

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