U.S. Dollar Discussion

[Jeremy]

Where do you guys see it going in the next 6 months? Also is anyone else hedging against the dollar just to be safe. Personally I think people who have all their USD's tied up in 401k's or mutual funds are crazy.

Not saying you need to get nuts and put all your money in commodities, but for the love of fu**, why would anyone have their life savings invested in USD right now; dependent on the U.S. markets and the decisions of the U.S. Federal Reserve? The U.S. debt has become comical to the rest of the world. And now other countries are starting to abandon our currency. Do Americans really realize that China could pull the plug at any minute and send our country into chaos because of currency? and debt

Last time we trusted the U.S. government to get the country out of a financial mess, they put our country into a depression. On the eve tomorrow of the 80th anniversary of the greatest stock market crash in the worlds history, I think we all need to be sensible about where we invest our money.

Investing in commodities or foreign currency is not a bad idea right now. The U.S. dollar may explode and make people tons of money, or it may collapse and cause a depression. Either way, just make sure you diversify and don't have your investments 100% tied to USD.

[resipsa]

The U.S. debt has become comical to the rest of the world. And now other countries are starting to abandon our currency. Do Americans really realize that China could pull the plug at any minute and send our country into chaos because of currency?

What exactly does that mean? US Treasury obligations are NOT callable. The holders of these obligations can't just call them in at any time, they earn their coupon payments over time and principal is due at maturity. The US has not defaulted on any debt ever (even revolutionary war bonds that traded for pennies on the dollar were paid in full), and based on the recent treasury auctions this week, it sure doesn't look like the market thinks there is much risk of this happening. I think there were around $45B in 2 year and another $40B in 5 year notes auctioned on Tuesday (with 7 year notes scheduled for tomorrow). The results of Tuesday's auctions were extremely favorable with the 5 year yielding only 2.38%. Clearly the rest of world missed your memo about the obvious demise of the dollar.

[Ozpoker]

Have been following this as real estate in US is way more affordable than in Australia right now and toward early-mid next year imo - and was looking to purchase over there.

While doing my research i came across this graph - it a pretty obvious downtrend looking for a bottom somewhere.....anywhere?

Australian - USD 10 year exchange rate - expressed as Australian dollars per US $1

[Hazo]

I wish the US dollar would strengthen against the Aussie Dollar. Earlier in the year $0.60 would give me a dollar, now it's 94 cents to the dollar.

[thefarang]

Just a note . . . 401K can hold a variety of investments including debt and equity funds investing in foreign markets. So to be more clear perhaps it would be better to say sitting 401Ks or mutual funds invested in US equities.

[Jeremy]

My point about China was that they hold an enormous amount of U.S. Dollars, and our reckless government is projecting trillion dollar deficits every year for the next 10 years. Hmmmm... who is going to fund these deficits?

Please enlighten me on how accumulating this much debt to foreign countries is sustainable, and what the collateral on it is. That's fantastic that yet another Treasury auction was successful. It's just more interest that we'll have to pay right?

Of course the U.S. has never defaulted to anyone. You don't have to default when you have a printing press and can simply print more money.

How come we as American citizens are afraid to ask one simple question, How is this debt going to be paid off? I mean really, as a tax payer, is it an unreasonable question to simply ask how things are going to be paid for? Unfortunately the reality now days however is that if you question how your tax dollars are being spent, or if the constitution is being followed, you get labeled as an extremist.

In regards to the dollar, do you think it will be the worlds reserve currency for years to come? But that's not important right now, let's party, according to the commerce department today the recession is officially over.

[resipsa]

My point about China was that they hold an enormous amount of U.S. Dollars, and our reckless government is projecting trillion dollar deficits every year for the next 10 years. Hmmmm... who is going to fund these deficits?

Please enlighten me on how accumulating this much debt to foreign countries is sustainable, and what the collateral on it is. That's fantastic that yet another Treasury auction was successful. It's just more interest that we'll have to pay right?

Of course the U.S. has never defaulted to anyone. You don't have to default when you have a printing press and can simply print more money.

How come we as American citizens are afraid to ask one simple question, How is this debt going to be paid off? I mean really, as a tax payer, is it an unreasonable question to simply ask how things are going to be paid for? Unfortunately the reality now days however is that if you question how your tax dollars are being spent, or if the constitution is being followed, you get labeled as an extremist.

In regards to the dollar, do you think it will be the worlds reserve currency for years to come? But that's not important right now, let's party, according to the commerce department today the recession is officially over.

I'm not arguing the position that continuing to add to the debt indefinitely is a good idea in any way, I'm simply wondering where the hell your claim comes from that China could pull the plug any minute? That makes no sense and just makes a very real issue look like fear mongering conspiracy theory crap.

I agree that there are very real problems here but as long as we are able to continue to roll the debt over very cheaply (rates currently under 2.5%!!) its really not an immediate issue. The dollar is not going to become the German Mark of the Weimar Republic tomorrow. The real concern is that at some point down the road interest rates will be a lot higher and this will be a lot harder to accomplish. The country does need to get its financial house in order and start balancing the budget and the fact that the Treasury currently has access to effectively very cheap money makes this an excellent time to do so; assuming the money could actually be spent in way that helps the economy and generate positive ROI in the form in increased tax revenue for the gov. Unfortunately, creating new giant entitlement programs that we all know will spiral out of control isn't exactly the answer.

Regarding the news stories that have floated recently about China and Russia trying to move away from the US dollar as the reserve currency, this seems to be just political posturing. Random officials can say whatever they want, but the fact is that treasuries continue to trade at such low yields shows that the international community still believes the dollar is the safest game in town. China might be shooting its mouth off about moving away from the dollar, but they continue to buy it with the promise of very low returns.

[resipsa]

Just a note . . . 401K can hold a variety of investments including debt and equity funds investing in foreign markets. So to be more clear perhaps it would be better to say sitting 401Ks or mutual funds invested in US equities.

Even US equities may have reduced exposure to the US dollar. Plenty of large cap stocks with large foreign operations would benefit quite a bit if the dollar decreased in value. Even in the last quarter, many of these companies claiming large gains in earnings attribute a lot of those earnings solely to foreign currency gains when repatriating foreign revenue back to the US.

[resipsa]

But that's not important right now, let's party, according to the commerce department today the recession is officially over.

Sorry, forgot to address this one additional point about the recession being over. Keep in mind that the technical definition of a recession is 2 consecutive quarters of negative growth. Today they announced that GDP is up for 3rd quarter, so by the technical definition, the recession is over. That really isn't disputable. You can certainly argue that the economy is still horrible and most people would agree with you, but that doesn't change the fact that the recession from 2008 to first half of 2009 is over.

Of course, it's still possible that we are at the beginning of a new recession (a "double dip recession") with negative growth in Q4 and Q1 of 2010, but I don't think that's expected to be very likely.

[Spry]

More inflation. Thats what i think will happen and continue to happen for the next 6 months. I'm hopeful resipsa is right that we're not about to hit the Weirmar Republic action of hyper-inflation, but it's a real enough chance (slim, may it be) that it doesn't hurt to hedge some in stores of value instead of fiat currency.