Psychology of a Falling Dollar

by Axel Merk

Given a current account deficit in excess of 6% of gross domestic product (GDP), many fear the US dollar must decline. At the World Economic Forum in Davos, policy makers disagreed as to the severity of the risk, its causes and cures. In a nutshell, the United States does not export enough to the rest of the world to balance its own appetite for cheap Asian imports. The American consumer spends too much and saves too little. As a result, dollars are leaving the US in return for goods and services. Unless those dollars are reinvested in US denominated assets at a rate in excess of $2 billion a day, the dollar will decline.

According to the Financial Times, the top international affairs official at the US Treasury warned that if the US were to instigate policies to rein in the consumer, it would plunge the US into a deep depression; fallout to other countries would also be severe. While we have explained in the past why the US has no interest in a consumer slowdown, this is the first time we hear the US Treasury warn about the risk of a depression.

http://www.safehaven.com/article-4564.htm