This has received brief attention in a comment, but it deserves a diary.
Folks, the chicken are coming home to roost. Bonddad has been warning about this. Bonddad has been right.
Today, Friday, the U.S. Dollar staged a major drop against other currencies. Behind this collapse is a little more than traders taking advantage of light trading volume in the US. There is a real fear here, folks, that at some time in the near future, the US Dollar will stage a real collapse.
Technically, the dollar dropped below a big support line that was under a trading range. The chart picture gives us the ominous head-and-shoulders formation with a down-side break. This alone may lead to more selling.
Details after the jump.
Here is the ugly picture of what the dollar did today.
The New York Times describes this in the following way:
The dollar dropped sharply against a broad range of major currencies today, and the euro broke through the $1.30 mark for the first time in a year and a half, highlighting concern about the strength of the American economy.
The dollar’s losses came during a thin trading day in which the British pound rose to its strongest value against the dollar in two years. The Japanese yen and the Swiss franc also gained at the dollar’s expense.
Stocks closed lower on Wall Street today after a shortened trading session that was soured by news of the dollar’s woes.
Though the Thanksgiving holiday probably accentuated the dollar’s fall, analysts said the drop appears to reflect concerns that the American economy will continue to weaken as economies in Europe and Asia grow stronger.
Analysts said that the dollar’s drop today reflected a growing anxiety over Chinese economic policy. China’s central bank holds a large amount of American currency, and speculation has intensified recently that it could begin selling off dollars to avoid being burned if the dollar collapses.
Also lurking behind the dollar’s depreciation is the rising probability, in the view of some economists and currency investors, that a weakening American economy will force the Federal Reserve to begin cutting borrowing costs next year.
Did you catch that emphasis that I added? There is fear that the Chinese are worried about the US currency collapsing. Collapsing. As in Argentina collapsing. Do you remember what they had to do when the currency in Argentina collapsed, and how close CitiGroup came to collapsing with it?
Do you remember what they did to social programs in Argentina? Can you imagine what it will do to our budget when we try to "restore international confidence that the dollar is sound and strong?" Let's just say, my opinion is that in that case, you will have to kiss healthcare, Medicaid, ADC, education, and infrastructure maintenance good-bye.