 |
|
| |
|
|
| |
Rare Coins and the Dollar
April 18, 2008
The dollar has been slowly collapsing over the past five years, losing one-half of its purchasing power compared to the euro. Crude oil has gone up by a factor of five, while gold has tripled. The demand for the dollar is declining. Hardly a day goes by without some central bank or major institution announcing that they have diversified out of the dollar into other currencies.
The long-suffering dollar stumbled yet again in the first quarter, setting several new lows against the euro and reaching its weakest level against the Japanese yen since 1995. The euro rose 7.5% against the dollar, which also tumbled 10.5% versus the yen.
The overall approach of the Fed is to try to avert financial crisis and recession. The Fed has been dropping interest rates at the same time that other central banks have either kept rates unchanged or raised them. As a result, the gap between the Fed and the rest of the central banks is having its plainest effects in the currency markets. The dollar has tumbled: against other leading currencies, the greenback is at its weakest since the era of floating exchange rates which began in 1973. Indicative of the weakness in the dollar, the Japanese yen has soared almost 30% against the dollar since June.
Until the U.S. economic slowdown and housing slump show signs of bottoming, the dollar will remain under pressure, because further deterioration in these areas will keep heat on the Fed to further reduce interest rates in an effort to ease the downturn. Given the almost universal expectation that the dollar will continue to fall, it is no coincidence that the market in rare coins, gold and other commodities denominated in dollars remain so strong.
|
|
|
|
|
|
| |
|
Copyright © 2010 Blanchard and Company, Inc.
|
|
