Korean Job Discussion Forums

[Shinnam]

How can the dollar be so strong? Ok, I just don't get it, and I like to think I understand a thing or two about economics and politics. It's not just the Won that's lost it's strength, but even European currencies are sucking hind teat too. Yes, Asia is dependent on US exports, and there are financial problems in Europe, but most of these problems were caused because the countries were embracing American ideas of free market capitalism
The US economy is certainly crashing. The US manufacturing industries are in the toilet. As of the time of this writing the US stock market is at a 6 year low and unemployment is surging. There are still two occupations(wars) racking up the US deficit with no withdrawal in sight. Americans spend more per capata GDP on health care than any other country, but 30% of Americans don't have health insurance. Finally the Bush admin. has thrown in the towel to let Obama sort out the mess, so the CEO's are supping at the money trough as long as they can.
Can anybody explain why the dollar isn't crashing? I really don't understand it.

[Bigfeet]

Could be because a lot of hedge firms were hedging against the dollar earlier, sending other currencies up. Now those hedge firms are forced to liquidate some of their holdings, sending those currencies back down.

Also, banks are lending a lot less, so debts are being paid faster than they're being created. A lot of debts are in dollars, causing entities having to repay their loans to use dollars.

Also, a lot of Americans invested overseas. Now they're selling their investments and bringing money back to the US.

Don't worry. The US dollar will weaken. The US government will have to spend trillions of dollars shoring up its economy. This will seriously dilute the dollar, causing other countries that hold the dollar to diversify.

[canuckistan]

The credit crunch has squeezed the supply of the US $ in foreign markets as well; once lending loosens up again, the $ should weaken.

[Ya-ta Boy]

I also don't get it. All the news from home is either disasterous or on the brink and all we hear is that the Won does even worse and the Europeans have even fewer clues than the rest of us.

[mises]

Because it is seen as less worse than the other major currencies, maybe. Who knows.

[Gatsby]

Yes, that is a bit of a mystery.

In economic class they tell you that in times of economic turmoil, investors seek a safe haven in the U.S. dollar. It's SOP.

There are other reasons, that businesses need dollars to pay for stuff like oil, etc. You would need to ask an economist or search the web.

But there is a lesson here that must be remembered: The U.S. dollar does not obey fully logical rules. So the amateur should not try to second-guess this part of the market.

In addition, there are some powerful players who have an interest in the U.S. dollar not collapsing, namely the folks who hold all those trillions of dollars of U.S. Treasure Bills.

They used to say that if you owe the bank $10,000, that's your problem, but if you owe the bank $10 million, that's the bank's problem.

Well, there are a number of modern updates to that. One would be that if the U.S. Government owes you $10 trillion, that's ultimately your problem.

They say GM or AIG is too big to fail. Ultimately, is the United States that is too big to fail, so to speak. But that doesn't mean it won't. These days, investors are realizing things could get so bad, anything is possible.

[Join Me]

At the end of the day, the world knows the USA is still the safe bet. Times are bad and will be for some time to come but the USA isn't going anywhere and when things settle down the USA will still be on top.

Before this mess everyone thought China was the up and coming leader in the world. Well, with 70,000 factories closed already I think that may be changing in the very near future. America will be hurting...but an economy like China that depends so heavily on manufacturing is going to be in serious pain with no one buying anything. China did the US a favor by taking all those manufacturing jobs in the past couple decades.

http://www.upi.com/Business_News/2008/11/14/67000_Chinese_factories_closed_in_6_mos/UPI-23351226678590/

[mises]

Schiff does his best to explain here:

http://www.youtube.com/watch?v=Mlo8uvlwQeQ&eurl

[Kuros]

Schiff suggests that China et al. is going to dump their dollar reserves. Perhaps he's right.

But is he underestimating their hesitancy to do so, b/c they know it may have global repurcussions?

[mises]

[VanIslander]

if you stab a mouse with a paring knife it could very well die

but

if you stab an elephant with the very same paring knife it'll at most bleed

[OneWayTraffic]

I've seen a lot of this material on CNBC. The gist is that other currencies are weak vs the dollar and the yen, because that was where most of the invested money had come from. Now carry trades are being unwound, that money is going home, back to the US and Japan. With everyone trying to hit the exits at once, you're going to see a lot of 'high risk' economies weak vs the dollar. Note that for example the Kiwi and Aussie dollars are at 6 year lows vs the US. Yet vs the won, they've hardly changed. Both currencies, along with Korea benefited from the carry trade.

[mindmetoo]

People are handing their money over to the US treasury for 3 month tbills. There's a big demand on US dollars.

Look at it this way. You don't really have $4 billion. You have something that you think is or was worth $4 billion (stocks, bonds, etc.). You think that $4 billion is going to be worth $2 billion very soon (people's perception of the value of your stocks or bonds will quickly change). At this point, you don't care about a 5% return. You just want to keep your $4 billion. You can't put it in a bank because a bank might go bust. So you hand it to the US treasury and get 3 month bonds from them. The bonds pay .2% interest but you won't lose money and the USA will be the last nation on earth to go bankrupt.

[fiveeagles]

[Kuros]