Tuesday, September 2, 2008

The Debts of the Spenders: Why the Dollar is Rallying

The fundamentals have not changed. The US economy remains as weak as ever.

What has changed are geo-politics and economic weakness in Europe. Inmany respects, we are in a "Race to the Bottom" w/the Europeans to seewhose economy does worse. Wall St led the pack for the past fewmonths. Now, it is the Europeans' turn. In this perverse game,"victory" is measured by how much better one's economy is inincremental comparisons to its peers.
Interestingly enough, the recent Russian-Georgian war has created ashort term boost to the dollar. The recent strength in the USD is notUSD strength per se, but Euro weakness. The fear is that Europe willbe involved in a war with Russia, and energy will be involved. Russiasupplies 25% of the EU's energy needs and over 50% to many EasternEuropean states. The EU is Russia's largest trading partner.