The reality behind the dollar’s decline | Economist.com

[groovychk]

Originally published at Twixel.net. You can comment here or there.

Currencies | Still hanging on | Economist.com

FOR several years, the darkest scenarios for the world economy have involved a dollar crash. The script was simple. America’s dependence on foreign capital was a dangerous vulnerability. At some point foreign investors would refuse to pile up ever more dollar assets. If investors were spooked, say by a crisis in American financial markets, they might ditch dollars fast. The greenback would plunge. A tumbling currency would prevent the Fed from cutting interest rates, deepening and spreading the economic pain.

Well, the financial shock has hit but where is the stampede out of dollars? The greenback has fallen, to be sure, particularly since it has become clear that the Federal Reserve is likely to cut interest rates on September 18th, and particularly against the yen and the euro—the dollar hit an all-time low of $1.39 per euro on Wednesday September 12th and its decline continued on Thursday.

But the decline, so far, has hardly been a panicked rout. Although the dollar has plumbed historical depths against an index of important currencies, it has fallen by less than 1.5% since the financial turmoil hit in early August. Measured against a broader group of currencies that includes all America’s main trading partners, the dollar is little changed from where it was before August’s tumult began.
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Interesting. So things aren’t as bad as the chicken littles make it out to be. Typical.

Comments

[kyrie1618.livejournal.com]

There are times I think some people want civilization to end. You know the ones? They get so excited talking about what kinds of guns to buy for TEOTWAWKI, and when I try to discuss something more constructive they call me naive. Wow.