By Donald Rissmiller
The bear case for the dollar may be well-known, but there are a number of reasons why it seems too early to bet on a collapse in the US currency in 2010, says Donald Rissmiller, chief economist at Strategas Research.
First, he says, as long as floors remain in housing and consumer confidence, the US economic recovery is sustainable. “Confidence eased slightly in October but remains above its recent low,” he notes.
Second, he believes the saving/investment equation is not yet sufficiently imbalanced to suggest a dollar crisis is imminent.
Furthermore, the debt-to-GDP ratio remains below the 100 per cent level typically considered problematic. “While there has been some talk of an eventual US debt downgrade, the timeframe still appears to be several years away.”
Mr Rissmiller also argues the Federal Reserve will raise interest rates, while employing tools such as paying interest on reserves, leaving its balance sheet elevated. “There’s a lot of room for tighter US monetary policy before policy becomes ‘tight’,” he says.
Also, foreign central banks could intervene in support of the dollar, given the global push for exports as a solution to the economic downturn.
Finally, pegged and semi-pegged currency countries, such as China, have little incentive to disrupt the current trade system. “Without inflation in developing Asia, there’s little need to make drastic changes now,” he says.
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First, he says, as long as floors remain in housing and consumer confidence, the US economic recovery is sustainable. “Confidence eased slightly in October but remains above its recent low,” he notes.
Second, he believes the saving/investment equation is not yet sufficiently imbalanced to suggest a dollar crisis is imminent.
Furthermore, the debt-to-GDP ratio remains below the 100 per cent level typically considered problematic. “While there has been some talk of an eventual US debt downgrade, the timeframe still appears to be several years away.”
Mr Rissmiller also argues the Federal Reserve will raise interest rates, while employing tools such as paying interest on reserves, leaving its balance sheet elevated. “There’s a lot of room for tighter US monetary policy before policy becomes ‘tight’,” he says.
Also, foreign central banks could intervene in support of the dollar, given the global push for exports as a solution to the economic downturn.
Finally, pegged and semi-pegged currency countries, such as China, have little incentive to disrupt the current trade system. “Without inflation in developing Asia, there’s little need to make drastic changes now,” he says.
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