Good bye dollar, hello euro

Americans may not know how to type a euro (€) symbol on their computer but that wont stop the euro from kicking the dollar's ass. Bush's statements today that the weak dollar valuation on the free markets are "contrary to US policy" just go to show that the rest of the world has little or no confidence he has any ability to strengthen the US economy. My prediction is that Monday will see a marked decrease in confidence in the dollar, marked foreign disinvestment as funds move to Euros, and consequently a rapid decline in the dollar value.

I wouldn't be the first one to predict this either, many have predicted that the next few years will see the euro on the rise at the expense of the dollar. William Clark wrote a very interesting essay for Independent Media Center on how the invasion of Iraq might be aimed at preventing oil nations from switching to trading in the euro. Although the reasons for the rise of the euro are different, the consequences are the same: very bad news for the US economy.

To appreciate why you have to realise that the EU nations represents a larger, more stable and less malevolent market to invest in than the USA. The dollar is currently the most favourite currency to maintain reserves in, but if the dollar is slipping and the US government can do nothing to prop it up, then it is natural for money to flow elsewhere and most likely into euro investments.

Of course a weaker dollar will help exports but as most people know, the USA is fond of imports so all of a sudden we'll find many of our staples costing more, and meantime the government will be trying to jack up interest rates to attract more foreign investment. Of course higher interest rates is the opposite of what the economy needs right now. Housing markets will stagnate, buyers who have borrowed to the hilt to buy at low, non-fixed mortage rates will suddenly find themselves at best unable to sell their properties to move, at worst when their adjustable mortgages start cranking up they will be default on loan payments. That may take a year or so to have an effect but when it does it aint going to be pretty.

What can I say? Phil has seen a shadow and yes folks, we're gonna have a bad time. In the mean time I'm looking at Euro based mutual funds.