Why the dollar is destined to fall

[Boom_cha]

http://www.ntrs.com/library/econ_research/weekly/us/030926.html

snip

On net, the rest of the world keeps “investing” in the U.S. to the tune of $1.5 billion a day. Given that we are throwing a party with these proceeds rather than investing for our future growth, our foreign benefactors are likely to start wondering how we will be able to pay them interest and dividends on a timely basis in the years ahead. In fact, it looks as though that already is starting to happen among private foreign investors Chart 3 shows that in recent quarters, foreign official institutions are starting to account for a larger percentage of total foreign capital advances to the U.S. If the central banks of Asia were not so intent on slowing the inevitable descent of the U.S. dollar, the greenback would have sunk faster and farther than it has in the past year or so.

Although foreign private demand for U.S dollar-denominated assets may be waning, it has not yet collapsed. But as we keep partying on, using foreign capital to finance our purchases of more SUVS, more McMansions, and more government entitlement programs, it could dawn on more foreign investors that we might intend to pay our interest and dividends in greenbacks freshly-printed by Greenspan, Bernanke, and Kohn. In other words, we might attempt to service our debt with U.S. dollars of declining purchasing power. If (when?) this realization were to come to pass, the dollar price of commodities would soar, U.S inflation would move higher, bond yields rise, and the Fed would be forced to raise the funds rate more aggressively than otherwise. In an economy as highly leveraged as that of the U.S., this would not be pretty picture.

[Fixated]

1. ......

On top of all that, Snow has been talking down the dollar for months.