From the Radio Free Michigan archives ftp://141.209.3.26/pub/patriot If you have any other files you'd like to contribute, e-mail them to bj496@Cleveland.Freenet.Edu. ------------------------------------------------ I found this article which I think is fantastic in the latest issue of Forbes (which I think is a great magazine that everyone should read.) Anyway, it sums up what I think a lot of us feel about the US dollar and paints a less than rosey picture for it's future. For the more paranoid people out there, consider who would step in to help if the US dollar collapsed ? And who would benefit from radically lower wages/costs in the US ? Enjoy !! --------------------------------------------------------------------- Dollar Crash Ahead ? Forbes page 184, March 13th, 1995 "The dollar may look cheap, but it is going to get cheaper yet against the mark and the yen." Pain Before Gain by Andrew J. Krieger IN MY LAST COLUMN (Dec 4, 1994) I forecast a short-term dollar decline before a more sustained rally. The dollar broke lower, from 1.58 Deutsche Marks to the dollar at the end of 1994, to the current 1.52. But I am revising my overall forecast. I don't think the sustained rally is near. In fact, we are likely to get a real collapse in the dollar first. Only after this dramatic dollar washout to new all-time lows against the Japanese Yes, Swiss Franc, and Deutsche mark will the U.S. dollar be ready for the rally that so many people have lost so much money anticipating over the last four years. I am extremely bearish on the dollar for several reasons. One is the global overhang of greenbacks that is the inevitable consequence of a nation living off loans from foreigners. Another is the steady reallocation of currency reserve portfolios among foreign central banks. They are beginning to substitute marks and yen for dollars. The dollar is now over represented, accounting for 65% of overseas currency reserves even though the U.S. economy accounts for only 22% of global production. As central banks adjust their holdings, they will be dumping dollars and buying yen and marks. There's another factor weighing on the dollar: U.S. stocks and bonds are becoming less attractive to investors-whether domestic investors or foreign ones. As holders dump dollar assets to buy Japanese, German, French, and British assets, the dollar will suffer. The dollar's troubles are deep-seated. Americans simply spend too much and save to little and borrow abroad to fill the gap. Our savings are far short of what we consume and put into capital investment in factories, bridges, and so on. For a long while we have been able to get away with this imbalance by raising capital broad-giving foreigners IOUs, Treasury paper and real estate. The foreigners have now accumulated net dollar topping $1 trillion. Here's something else to think about. Many hedge found and asset managers are remaining doggedly bullish on the dollar and holding on to pro-dollar positions through both option and spot strategies. But their hands are weakened by 1994's dismal performance. They cannot sustain much further pain in their positions, and these positions would likely be liquidated in even a modest dollar selloff, further fueling the decline. If you want further proof of the inherent sickness in the dollar, look at the seven rate hikes by the Fed over the past year. In normal times, a 7% on year Treasury yield with U.S. inflation under 3% would attract massive dollar buying. But all that the Fed has accomplished with its tightening is to propel the dollar down to its lowest level in two years. Under the circumstances, only a large, sustained downward move will cleanse the market of its excessive dollar holdings and bullishness. What catalyst could set this process in motion ? Some unpleasant surprises on the U.S. inflation front would be a likely candidate. Wall Street seems to think that the U.S. economy is headed for a soft landing-slower growth while inflation remains subdued. I feel, however, that such a development is unlikely. The recent slowing of job growth is probably only a pause in a strong employment market. The economy is already past full employment. I find the inflation risk in the economy alarmingly large. What happens when a pickup in inflation is finally obvious ? The Fed, I speculate, will be at pains to avoid overreacting. It will stay its current course. Then bondholders will worry hat the Fed is losing ground in its anti-inflation fight. They will dump bonds, taking interest rates much higher and the dollar much lower, further fueling inflationary pressures. We might witness an ugly self-reinforcing cycle of liquidated assets forcing the liquidation of still further assets. As foreign holders sold off real estate, Treasury notes and other U.S. securities, they would pile up dollars. These dollars would then be dumped at distress prices into the currency markets. Even the gravity-defying stock market would turn down and begin a substantial selloff. Eventually, Alan Greenspan would be forced from his gradualist approach and would raise rates sharply - and I mean sharply. Then and only then would the greenback be poised for a long, powerful rally, the one everyone's been waiting for. But first the pain, only then the gain. ------------------------------------------------ (This file was found elsewhere on the Internet and uploaded to the Radio Free Michigan archives by the archive maintainer. All files are ZIP archives for fast download. E-mail bj496@Cleveland.Freenet.Edu)