USD as safe haven

von Neumann

I had a discussion on Friday with a work mate from the Ukrainian.
Appanrently there are no Dollars to be had in the Ukraine as the locals are abandoning their local currancy.

I was wondering if people feel that this effect has a significant affect on the value of global curancies?

How might this play out, would a reduction in the global turmoil lead to a weaker dollar as people transfer there saving back into local currancies?

Économiste Monétaire

Just like Treasury Bills have been a haven for safe investment. Last week yields were negative on some, if I recall correctly.

von Neumann

I heard that too! but it just doesn't make any sense .

Correct me if I'm wrong but T Bill are goverment debt.
so you give your money to the goverment for say 5 years and they give you back less then you gave them.
So you make a garrenteed loss

The only way I can make sense of this, is that the people buying these T-bills feel that a small garrenteed loss is better then losing some or all of there money if a bank goes bust.

If this is the case then things are much worse than I thought :eek:.

Économiste Monétaire

Aye, it does seem quite silly to be paying the government to hold their debt. It's really just a rush to put something, effectively, risk free on the balance sheets. There are some who have been floating the idea that the next asset bubble waiting to burst are Treasuries--it was the three month bill that went negative, if I remember correctly. Some people appear to believe that deflation is a definite, rather than a possibility, so a return is still possible even if the nominal rate is negative. There's just an ever increasing demand for risk free investments, not surprising really--there's a new shock every few weeks, e.g. $50bn ponzi scheme . I believe the last issuance of short term treasuries was massively over-subscribed.

BenjAii

von Neumann wrote: »

The only way I can make sense of this, is that the people buying these T-bills feel that a small garrenteed loss is better then losing some or all of there money if a bank goes bust.

If this is the case then things are much worse than I thought :eek:.

That appears to be what is happening. Investors are actually paying the US Government to look after their cash.

Don't know how long it will last though. I can't remember the link offhand, but read over the weekend the futures market is betting on the dollar going down again in 2009.

von Neumann

Ya, I have a feeling that we could see 2$ to the euro next year.

I think we are looking a some competitive devaluation for both $ and £.

I could see gold doubling in $ price.

But I also predicted 200+ $ a barrell of oil for 2009 . (Back in the summer)

but I'm no ecomonist, so feel free to and some predictions of your own.

BenjAii

A fairly sobering commentary on the likely outlook for the US from Willem Buiter's blog in the FT.

"The US Federal government has taken on massive additional contingent liabilities through its bail out/underwriting of the US financial system (and possibly other bits of the US economic system that are too politically connected to fail). Together will the foreseeable increase in actual Federal government liabilities because of vastly increased future Federal deficits, this implies the need for a future private to public sector resource transfer that is most unlikely to be politically feasible without recourse to inflation. The only alternative is default on the Federal debt. There is little doubt, in my view, that the Federal authorities will choose the inflation and currency depreciation route over the default route.
If I can figure this out, so can anyone in the US or abroad who follows recent economic developments. The dawning of the realisation will lead to the dumping of the assets."


"There will, before long (my best guess is between two and five years from now) be a global dumping of US dollar assets, including US government assets. Old habits die hard. The US dollar and US Treasury bills and bonds are still viewed as a safe haven by many. But learning takes place. "

Tigger

von Neumann wrote: »

Ya, I have a feeling that we could see 2$ to the euro next year.

I think we are looking a some competitive devaluation for both $ and £.

I could see gold doubling in $ price.

But I also predicted 200+ $ a barrell of oil for 2009 . (Back in the summer)

but I'm no ecomonist, so feel free to and some predictions of your own.

$2 to the €uro would kill all the US manufactures here beforte obama's protectionism has a chance