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re: SHORT THE DOLLAR
Posted on 11/7/12 at 1:40 pm to TheHiddenFlask
Posted on 11/7/12 at 1:40 pm to TheHiddenFlask
Open question to all (serious question). I don't know as much about fiscal policy/currency issues as yall do.
I understand the world isn't going to end tomorrow but at what point will the deficit affect us the way it is affecting Europe? Do we just need to make sure they have higher debt than us? I know we are where people go because we are more stable than other places but what will it take for that to change and for us to get in trouble?
I understand the world isn't going to end tomorrow but at what point will the deficit affect us the way it is affecting Europe? Do we just need to make sure they have higher debt than us? I know we are where people go because we are more stable than other places but what will it take for that to change and for us to get in trouble?
Posted on 11/7/12 at 2:01 pm to Crbello4Hiceman
For one, if investors perceive that the US is not taking its debt problem seriously, they will stop purchasing US bonds, which will increase borrowing costs and our debt burden. In that case the Federal Reserve will need to step in and purchase more debt than it is already doing, which will lead to an increase in the monetary base/money supply, which will also lead to a further weakening of the US dollar in addition to the weakening resulting from a decreasing foreign demand for US debt.
Central banks worldwide are already diversifying away from Treasuries because they lose money by holding our debt due to the combination of our zero-interest rate policy and the depreciation of the dollar.
One advantage we have over Europe is that individual nations in the Euro zone are unable to print money/devalue their currency, while we have complete freedom to do so. However if you do so too much, you risk losing credibility in the capital markets and investors will punish you by driving up borrowing costs and making it more expensive for you to finance deficit spending.
Central banks worldwide are already diversifying away from Treasuries because they lose money by holding our debt due to the combination of our zero-interest rate policy and the depreciation of the dollar.
One advantage we have over Europe is that individual nations in the Euro zone are unable to print money/devalue their currency, while we have complete freedom to do so. However if you do so too much, you risk losing credibility in the capital markets and investors will punish you by driving up borrowing costs and making it more expensive for you to finance deficit spending.
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