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View Full Version : Deleveraging Pushes Up the Dollar



mick silver
27th November 2008, 14:10
In view of the economic crisis facing the American and global markets, the recent strength of the U.S. dollar has confounded analysts. After all, the global economic problems essentially emanate from the United States and one would assume that the collapse of our economy would drag our currency down. That has not, as yet, transpired. The explanation can be found in a financial concept known as deleveraging.

In recessions, cash is short, and businesses and individuals seek to raise cash by any means practical in order to prepare themselves for the tough times ahead. In a world in which U.S. currency is held as the global reserve, cash means U.S. dollars. In short, institutions and individuals are selling any asset that is not nailed down (stocks, corporate bonds, etc.) and buying U.S. dollars. This has resulted in plummeting asset prices and a rising dollar. However, this dynamic cannot exist in perpetuity.

It is completely rational for global financial players to be cautious. The roots of the present economic and financial crisis can be traced to the sort of wild speculation typical of all asset booms throughout history. However, unlike the great speculative asset booms which preceded the Great Crash of 1929/34 or the bursting of the South Sea Bubble in 1720, the boom just recently ended was also characterized by wildly excessive leverage and outright fraud.

Among the financial community, the wild speculation was so reckless that a web of opaque and misleading accounting standards were developed in order to hide the insanity from view. The powerful Wall Street lobby was successful in persuading President Bush to allow it a free hand to push aside the anti-predatory lending rules of some 50 States. This led to an unfortunate marriage of deceptive lending and fraudulent borrowing. Brought to a fever pitch by unbridled speculation, this unholy union gave birth to the sub-prime problem debacle.

http://www.321gold.com/editorials/browne/browne112708.html

cugir321
27th November 2008, 18:54
Not sure George had that much power. He certainly had some but this guy gives him too much credit....sounds nice if you're a Democrat.

Did this guy forget a few things? I like Peter Schiff...surprised someone like John Browne, with a one track mind, would be representing him.

He said: "The powerful Wall Street lobby was successful in persuading President Bush to allow it a free hand to push aside the anti-predatory lending rules of some 50 States."

SilverHawk
27th November 2008, 23:47
If they allow the dollar to plunge like the market, China and other TBill holders will sell it to it's death. Then the game is really over, not prolonged. That domino will fall, but not until near the end. Like rats on a sinking boat. I watch from my silver lifeboat, drinking a bottle of fine German white wine..... and the band plays on.