Now raising intellectual capital
There’s been lots of hand wringing over the fate of the dollar, with its recent slide giving rise to, in the words of blogger Macroman, the “dollar going down forever” crowd. Data released from the U.S. Treasury on foreign capital flows didn’t help matters. Seems in July foreign investors wanted to put their funds elsewhere.
Lots of ink has already been spilled on the well worn arguments that blame reckless borrowing by the US government and the growing movement toward establishing an alternative world currency as the drivers behind the dollar’s decline.
The latest theory gaining traction is the dollar is becoming the funding currency of choice. It’s a compelling case that the FT lays out nicely. It also fits snuggly into the “US. is becoming Japan” school of thought.
Analysts say negligible US interest rates, its quantitative easing measures and little sign that the country is set to withdraw from its ultra-loose monetary policy anytime soon leaves it in a similar position to Japan at the start of the decade.
Under normal circumstances, U.S. Treasuries should probably be getting clobbered.
The worst of the credit crisis is over, the economy is expected to snap back in the second half of the year, and the appetite for riskier, higher-yielding assets should be siphoning off demand from boring, safe-haven assets like Treasuries.