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The Dollar Will Fall, The Only Question Is "When?"

Posted Aug 26, 2009 11:27am EDT by Peter Gorenstein in Investing, Recession
Related: udn, uup, tbt, tlt, dxy, spy

$9 trillion. That's the estimated size of the U.S. deficit for the next decade. It's also nearly $2 trillion more than the Obama administration projected back in February.

The New York Times says that figure represents, "5.1 percent of the economy's estimated gross domestic product for the decade, a higher level than is generally considered healthy."

Todd Harrison, CEO of Minyanville.com says it also means the dollar will collapse under the weight of the ever-increasing debt balance. The tough question is when?  "You can pick the direction or you can pick the timing but you rarely nail both," he admits.

Eventually, the government's efforts to inflate our way out of the crisis will come back to haunt us, Harrison says. "The credit market shows another debt bubble is forming."

Still, Harrison thinks there are actually legitimate reasons for the dollar to rally in the near term:

  • The creation of all this debt, creates demand for dollars.
  • "The dollar is the best house in a bad neighborhood."  Meaning, as bad as things are in the U.S. other economies around the globe aren't faring any better.

 

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