Thursday, July 09, 2009

US Dollar Strength - DO NOT be complacent

As I have written several times in the past few years, it seems obvious that the US dollar is poised to continue its long-term descent that started a half-dozen years ago.

A presentation I watched today, put on by the IAAO, reminded me of this once again - it seems inevitable the currency will continue it's decline, given the amount of debt the US government is currently taking on.

Time immemorial has shown that the temptation for a government to inflate it's way out of external-owed debt - denominated in national currency - is too tempting for most governments.

Expect the US to follow the same path - be wise and move some of your assets out of USD denominated investments, or at least into hard assets that historically have shown some resistance to "inflation-depreciation". Think real estate, oil, gold, minerals - generally, "hard assets". The first path is usually better (movement out of the currency entirely), but the second path allows you to hedge your bets, should the currency not decline as (much as) expected.

Many commentators have commented on the fact that Treasury bills are currently well oversubscribed, meaning there is currently much more demand than available bonds. They perceive this as an indication of health of the US finances, and foreign appetite for such debt. This is a short term trap, based upon investors seeking the most liquid assets during times of turmoil. Neither will last - diversify now.

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1 comment:

Astin said...

While I expect a collapse eventually, the fact that the rest of the world is following the same moronic policies as the States keeps the USD relatively strong for the time being. If the US was the only one printing money it doesn't have, then they'd already be crushed.