Tuesday, August 25, 2009

Dollar Still Holding Its Own

Doubts persist about the future of the U.S. dollar as the reserve currency of choice for governments around the world. However, hopeful signs remain that a change in the status quo does not appear to be happening anytime soon. Writing in today's Wall Street Journal, here's Neil Shah, who provides the economic quote of the day. His words should provide some cold comfort on the heels of new deficit projections ($9 TRILLION in 2019). Total U.S. debt is now hovering near $12 TRILLION, about 75% of the total GNP, higher than it's ever been in history. But despite those staggering numbers, take heart, America -- we're not dead yet!

That said, can any justification be found for launching another entitlement program like ObamaCare in this environment? Is now the time? Doubt it. Health care cost reform that doesn't include the "public option" (translation: Government-run health care)? That's more likely. Here's the link to Shah's article:

"There aren't yet many signs that investors are leaving the dollar. China and Japan, the biggest foreign creditors to the U.S., loaded up on longer-term Treasury debt in June, according to the latest Treasury data. China, for example, bought $26.6 billion in notes and bonds, its biggest monthly buying on record.

"'The Treasury rally suggests the U.S. is facing neither an inflationary explosion nor a crisis of confidence,' analysts at French bank BNP Paribas SA [parent company of The Bank of the West] said in a recent note.

"The dollar has held its own against its major rivals in recent weeks. On Tuesday, one euro bought $1.4314, compared with $1.4293 on Monday and $1.4253 at the end of July.

"Any dislodging of the dollar as reserve currency will likely happen gradually if it happens at all, analysts say. Investors like China would suffer major losses if they suddenly sold a large portion of their dollar holdings.

"And a weak U.S. dollar would ripple far and wide, hurting the competitiveness of companies in export-dependent Germany and Japan. That could prompt policy makers there to voice concerns about the dollar's weakness to protect their own economies."

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