Sunday, September 26, 2010

FED's Politics to force other countries to buy Dollar. My interpretation

1. Fed trying to weaken the dollar to fight deflation and for higher equities (psychologically good for all of the world).
2. Which in turn creates higher commodities prices (eg, wheat, cocoa, cotton etc.)
3. Developing countries are facing higher inflation (eg, India, Brazil, etc.). To fight growth and inflation, they are increasing interest rates thus higher currency power in Indian Rupee, Rial etc.
4. Instability in Us economy forces investors to park their money in yen and other safe or high yield currencies thus exporters will get hurt in those countries.
5. Now, politics is that US govt is forcing other countries indirectly to buy Dollar (eg, Japan unloading yen and buying dollar, Brazil unloading Rial and buying dollar).
6. They did it last year and the year before. They will continue to play this game as long as all commodities are denominated in Dollar.