If we look to the States it’s amazing to see how the shape of the financial landscape has changed since August 2007. Rates plunged from 5.25% to zero, the fiscal deficit went up from 2% to 13%, mortgage rates went down to 4.50% from 6.5%, the FED balance expanded from 850 billion USD to 2 trillion USD and we can go on.
David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates, points out that there is one policy tool that is practically unchanged since two years ago … the US dollar. “It is the only policy tool that has not budged one iota since the crisis erupted two years ago. But we are sure that as the unemployment rate makes new highs and increasingly poses a political hurdle in a mid-term election year, it would make perfect sense for a country that always operates in its best interest - even if it may not be in everyone’s best interest - to sanction a US dollar devaluation as a means to stimulate the domestic economy,” he said.
Why is there no devaluation?
It ‘s called deflation. The D-word is a bad thing for owners of debts. They have to run for the hills and in doing so they’re looking for dollars to pay off everything which is dollar denominated. Another support is coming from the fact that different entities are still forced to show appetite for dollar assets. If they let the buck slip, the value of their dollar assets will be hurt.
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David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates, points out that there is one policy tool that is practically unchanged since two years ago … the US dollar. “It is the only policy tool that has not budged one iota since the crisis erupted two years ago. But we are sure that as the unemployment rate makes new highs and increasingly poses a political hurdle in a mid-term election year, it would make perfect sense for a country that always operates in its best interest - even if it may not be in everyone’s best interest - to sanction a US dollar devaluation as a means to stimulate the domestic economy,” he said.
Why is there no devaluation?
It ‘s called deflation. The D-word is a bad thing for owners of debts. They have to run for the hills and in doing so they’re looking for dollars to pay off everything which is dollar denominated. Another support is coming from the fact that different entities are still forced to show appetite for dollar assets. If they let the buck slip, the value of their dollar assets will be hurt.
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