A Quote From Our Latest Issue
Late March Issue (#523). Published on March 27, 2005
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You Lend – We Borrow And Spend:
That’s the way it “works”. For as long as foreigners are prepared to fling money at the US financial system in excess of the (ever growing) US current account deficit, the US Dollar is “half safe”. It is only “half safe” because the longer this goes on and the US piles both its internal and external debts ever higher, the closer the world is to the point where at least some foreigners have the scales fall from their eyes, and ask: “What on earth have we done?” Once that happens, they move (as quietly as they can) towards the exit doors from US investments and then out of the US Dollar. At that inevitable point in future, the US current account deficit will stand unfunded. That is the real danger point for the US Dollar. An inflow of foreign money will always force a currency higher than it otherwise would have been in the absence of the inflow – given floating exchange rates.
At present, the foreign inflow of world money continues to exceed the US external funding requirements to fund the US current account deficit. The moment that inflow ebbs, the US Dollar will descend. If the US Dollar descends below the 80.00 line on the $US index, the entire world is in no man’s land.
The Dollar has not been below (except for a few fleeting days) that 80.00 line on the $US index in the entire history of the floating currency era going back to early 1973. That is why The Privateer has marked the “80 LINE” on the US Dollar Index as decisive. This is the global level to watch.
From: “The Global Report”
©2005 – The Privateer market letter
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