US Dollar Overvalued ?

[Trader333]

The USD has made substantial gains in recent times and I came across an article that from a fundamental standpoint could see it reverse over the long term so any views ?


Paul

Martin Weiss of "Money and Markets" writes:
"If you think the biggest cost of the $700-billion bailout package is going to be higher taxes down the road, you're wrong.

The biggest cost is going to be the sheer destruction of the purchasing power of your money, an outright devaluation of the dollar that's going to occur, no matter what

Washington doesn't have $700 billion. Nor did it have the $592 billion it's already shelled out since August of last year, when the crisis began.

In fact, the U.S. government was broke before this bailout package. Now, it's even more broke.

So the money has to be borrowed from the public. Yet again. From investors in this country and from other countries. By issuing loads more government notes and bonds. Loads more IOUs.

Oh, and keep in mind, it's not really $700 billion. You have to add in the $592 billion the Fed and the Treasury already pumped into the economy prior to this bailout package. So the total so far is $1.29 trillion.

Second, there's the interest expense on all the IOUs that will have to be issued.

Let's take the total so far, the $1.29 trillion. Apply a conservative 5% interest rate the government is going to have to pay to borrow the money.

That's another $64 billion per year in interest expense costs. Compounded over 5 years, that's over $350 billion. 10 years, $807 billion.

So the real cost of this bailout will be at least $1.29 trillion. And if real estate prices don't stabilize soon, the cost could easily mushroom to $1.5 trillion. Or $2 trillion. Perhaps even more. Not counting the interest expense!

And again, how's it going to be paid for?


The one and only answer: By a substantial devaluation of the U.S. dollar. By inflating it away. By eventually raising asset prices fictitiously through inflation, through more smoke and mirrors, via an eventual massive dollar devaluation.

In fact, there's precedent for it: The Great Depression only ended after Roosevelt devalued the U.S. dollar in January 1934 by raising its exchange rate with gold from $20.67 to $35.00. That was a de facto 69% devaluation of the dollar.

The same thing is going to have to happen this time around. Only you won't see any President, or anyone in Congress or the Fed actually coming out and saying the dollar needs to be devalued.

They won't have to. The markets will do it themselves. Notwithstanding an occasional knee-$%^& rally in the buck, the dollar is toast. No ifs, ands, or buts about it."

 

[Lee Shepherd]

The USD has made substantial gains in recent times and I came across an article that from a fundamental standpoint could see it reverse over the long term so any views ?


Paul

My view:

It's an advert for a subscription on market oracle.

Subscription is $99 for 12 of them. This is just a tickler to get you interested in their publication from 'real wealth report', double and triple your money blah blah blah.

Whats long term?????

Are we investors or traders???

 

[BSD]

I think it's definitely overvalued, fundamentally the economy was basically a bubble built on debt and is now in deep trouble, debt levels now exceed those of 1929, there is the historic crediut crunch, and credit card debt is the next big crisis waiting to occur, and the main reason for the current dollar strength is simply repatriation as hedge funds and banks etc are forced to sell assets to stay afloat.

 

[intradaybill]

Overvalued with respect to what? This is the right question to ask when it comes to currencies.

I think it is not. Despite crying voices that America is broke this is not so. Not true for a country that produces about one quarter of world GDP and many other countries and continents depend on it for their well being.

Everything is relative in currency evaluation. America may be temporarily in trouble but others are in worse condition.

 

[fibonelli]

My current big picture view is deflation then high inflation (and maybe hyperinflation).

The strong USD is a reflection of debt deflation. The exact same process happened wrt the Yen in the 1990s.

"Those who forget history are doomed to repeat it." --George Santaya