Why is the US dollar rising? We denounce the dollar for the abomination that it is—paper money backed by government going bankrupt. But that doesn’t mean it can’t rally from time to time.
After all, in the relative world of paper currencies, the dollar is competing against equally abominable currencies like the euro and the British pound. If you were a currency trader, it would be tough to pick which currency will have a worse 2008. Will it be the pound, the currency of a nation with a debt and housing problem even worse than America’s? Or will it be the euro, the currency of a region that has multiple languages, multiple rates of economic growth, multiple and equally fabulous local cuisines…but aims to bring it all together with the same rate of interest for borrowing?
Don’t mistake the dollar’s rally for strength. And if you are inclined to forget, we predict that the dollar will rise against its paper rivals, but fall against gold. Thus you will have a rising greenback and a rising gold price. These are strange times.
In case you are wondering, yes we will be publishing the DR next week. Markets would like to take Christmas off. But this is the trouble with globalisation. There are no days off. Every day is a work day somewhere in the world. So we’ll keep tabs on things and let you know if they fall apart.
The Daily Reckoning Australia