11/19/2004

Daily Kos :: Dollar Dump Accelerates

A full page of comment and analysis in the Financial Times this morning on the accelerating flight from the US dollar.

The US currency came under renewed selling pressure the moment it became clear George W. Bush had been re-elected president. In the two and a half weeks since then, the alue of the dollar has fallen 2.5 percent against the euro and 1.9 percent against the yen. The falls represent an acceleration of the dollar's steady decline since 2002. Since the start of that year, the greenback has fallen 32 percent against the euro and 21 percent against the yen. . . .

Darek Halpenny, currency analyst at Bank of Tokyo-Mitsubishi, points to a 'very grim' outlook for the dollar in the near term. 'With the foreign exchange market now focused entirely on the problem of the US budget deficit and current account deficits, there is a real risk that dollar selling becomes a crisis of confidence,' he says. . . .

There is a fear in the currency markets that the dollar's decline, which has been gradual and orderly so far, will turn into a rout.


Diaries :: LondonYank's diary ::

In a sidebar story, a money-changer in the black market that operates freely in Beijing is quoted as saying, 'We are getting loads of people now getting out of the US dollar and buying renminbi . . . There is no confidence in the US dollar anymore and people are afraid the renminbi will be revalued. . . .You need to dump the dollar. That is for sure. But have you thought of buying the euro? It is looking pretty strong.'

Strong stuff for the FT. But what can you Kossacks do to help yourselves through the coming bad times? The following are some ideas to consider, although how a dollar crash affects individuals will vary a lot depending on whether they are asset-rich (have investments) or asset-poor (have debts):

- If you have cash and stocks and worry about the impact of falling dollar values, then switch your investments into European stock and currency funds trading in the US. There are quite a few. This way, even if the dollar falls, your asset values remain unaffected - or even appreciate.

- Pay off your credit cards and other debts which are subject to interest rate increases. If you have a variable rate mortgage, consider refinancing to a fixed rate mortgage. Interest rates are going to have to rise to attract the foreign capital needed to cover the current account deficits, so put your finances in order now.

- There will almost certainly be a sharp recession in the next 4 years. If you are planning a big career or house move, think carefully about the implications for you. Will you have to sell your house into a declining and illiquid market? Are you afraid of negative equity (mortgage higher than the sale value)? Will a career change make you more vulnerable to job cuts or a slowing economy?"

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