Is this "Recovery" Being Fueled by Yet Another Bubble (The Dollar Carry Trade)?

[Junkdrawer]

When the Internet Bubble burst, many feel that a worried Greenspan "fixed" the Economy by lowering interest rates and encouraging the Real Estate Securitization Bubble. Well, that worked out well, huh?

So now, hot on the heels of that collapse, the Fed has lowered interest rates to less than one percent. And those clever guys and gals on Wall Street have a new game: The Dollar Carry Trade.

...

Hot money investors, who owe no allegiance to any nation or currency, can now borrow dollars for a fraction of 1%, then sell them and reinvest in higher-return assets of other currencies. It's called the dollar carry trade. And it's simply an updated version of the yen carry trade.

That trade enriched banks, hedge funds, currency traders and even retail investors for years. It also weakened the yen, temporarily benefiting exports in Japan's export-led economy. But when the financial crisis hit, investors rushed to repay yen loans, sending the currency soaring just as the economy tanked.

The dollar carry trade may have less of an impact on the U.S. because it is still primarily a domestic economy. It may give exports a modest boost, but it will also lift import prices and perhaps spur higher inflation.

And when traders borrow dollars and sell them to invest in assets of other currencies, they drive down the greenback and inflate the cost of commodities.

"It has already put downwards pressure on the dollar," said Dan Cook, senior market analyst with IG Markets, the currency-focused U.S. subsidiary of London-based IG Group. And downward pressure on the dollar generally translates into higher commodity prices. "When we see the weaker dollar, we typically see oil gaining," said Cook.

...

http://cricket.yahoo.com/cricket/news/article?id=item/2.0/-/story/finance-news.ibd.com/2977395299/

Oh, and the lower the dollar sinks, the more profitable the Dollar Carry Trade becomes. In fact, New York University professor Nouriel Roubini warns that these Carry bubbles usually burst when currency values "snap back". Watch his video here:

http://www.democraticunderground.com/discuss/duboard.php?az=view_all&address=385x396692

Now, earlier today I posted a series of TheRealNews videos by Jane D'Arista:

http://www.democraticunderground.com/discuss/duboard.php?az=show_mesg&forum=389&topic_id=7020043&mesg_id=7020043

She goes into considerable detail on what the dangers are and what regulations we need to prevent another disaster. Maybe someone is listening. But probably, they'll just wait for the bubble to burst and claim they should be rescued yet again because "No one could have seen it coming"(tm).

[brentspeak]

1. This is apparently the future of the United States: endless cyles of bust and faddish bubbles

and then more bust and then more bubbles. The sound economic principle of a strong domestic manufacturing sector and solid employment doesn't fit into Wall St's profit plans of cheap offshore labor and insatiable domestic consumption, so band-aids and bubbles take their place.

[Junkdrawer]

2. Or we could change the rules of the game to encourage the kind of investments we need....

Nah...

Legislators and lobbyists are still cheap.

[StarfarerBill]

3. Our economy has creaked by on various bubbles...

...ever since our industrial base disappeared overseas, and will continue to do so until our foreign investors decide we're no longer worth the trouble and start calling in debts.

[Junkdrawer]

4. There was a great article a while ago...

that the reason that the industrial base died was that reinvestment was diverted to financial games that sucked the life out of US industry.

[sandnsea]

5. Obama has committed to changing the bubble economy

"And so one of our challenges now, and I’ve been speaking about this for many months now, is how do we get what I call a post-bubble growth model, one that is sustainable. That’s what we’re going to be discussing here today. As I said, we’ve got experts from a wide range of business sectors, and what we’re going to talk about is, are there mechanisms that we can start putting in place where we see the kind of growth that used to characterize the U.S. economy — export-driven growth, manufacturing growth, growth that pays high wages and provides high living standards for a broad-based middle class."

http://obama-mamas.com/blog/?p=570

[Festivito]

6. 500T$ worthless CDS sit out there, ready to take US down.

Anytime Obama does anything the ousted guard does not like, they can bury the whole country.

[paulsby]

7. as an infrequent currency trader myself, i say

YES

YES

YES

i follow the EURUSD pair especially every day, and part of this silly false rally in equities is attributable to the dollar decline.

it's an interesting decoupling that cannot hold

[Junkdrawer]

8. Kick

:kick:

[uponit7771]

9. Where the inflation hawks are wrong is that we're ALREADY IN hyperinflation....... yes, its that bad

...out there that the slight deflation we're seeing is actually hyper inflation because the CPI should be down 10-20% from their 07 highs and they're not.

People aren't spending like they used to because of jobs not being available.