A though dilemma
A weak dollar? The current weakness of the dollar is a result of two factors:
1) The uncertainty in capital markets regarding the short to medium term of the US economy. As mentioned by ltsnyder and myself, the majority of outstanding debt of the US government is currently in the hands of non-US entities. Currently the US are the largest debtor in the world. Because of various causes (Afghanistan, Iraq, stimulation of the economy) they are currently adding to this debt, instead of trying to balance or even reduce it.
The non-US entities are beginning to wonder whether the current US policy of overspending (Bush inherited a balanced budget from Clinton) and thus increasing the debt for future generations is wise. After all, the interest payments on this debt need to be met and will place a heavy burden on the US-government spending and taxation of future generations. Actually, this in not unlike what you see happening in the DR at the moment.
It is the opinion of outside investors the right course would be to balance the budget and to cut spending and free up governement income for policy instead of creating more debt and commiting governement income for years to come to interest payments.
2) Low interest rates. Low interest rates when compared to the EU mean that the return on investment will nominally be lower than in the EU. In the past this effect was countered by the strenght of the US economy vis-?-vis other economies, which lead to in increase in value of the underlying investment to compensate this. Currently the opinion in the market is that this is less the case than in the past.
As a result of these two factors the outside investors are less attracted to US investments at the current interest rate. To compensate for lack of return at the current dollar price, the dollar price is lowered through the capital markets, in effect increasing the return on investments.
While over the long-term the outlook for the US-economy is undimished strong (in part due to a better balance between workforce and inactives, less legislative constraints, higher inovative potential, etc.), the short to medium term is what concerns markets at the moment.
The positive side to this for the US is that a weak dollar is a boon for the US economy because exporting is made easier and the payment of debt to oustide investors is made at a discount. This increases the US-economic health.
The same could be said for the DR, if the exporting industry was more developed.
MD
A weak dollar? The current weakness of the dollar is a result of two factors:
1) The uncertainty in capital markets regarding the short to medium term of the US economy. As mentioned by ltsnyder and myself, the majority of outstanding debt of the US government is currently in the hands of non-US entities. Currently the US are the largest debtor in the world. Because of various causes (Afghanistan, Iraq, stimulation of the economy) they are currently adding to this debt, instead of trying to balance or even reduce it.
The non-US entities are beginning to wonder whether the current US policy of overspending (Bush inherited a balanced budget from Clinton) and thus increasing the debt for future generations is wise. After all, the interest payments on this debt need to be met and will place a heavy burden on the US-government spending and taxation of future generations. Actually, this in not unlike what you see happening in the DR at the moment.
It is the opinion of outside investors the right course would be to balance the budget and to cut spending and free up governement income for policy instead of creating more debt and commiting governement income for years to come to interest payments.
2) Low interest rates. Low interest rates when compared to the EU mean that the return on investment will nominally be lower than in the EU. In the past this effect was countered by the strenght of the US economy vis-?-vis other economies, which lead to in increase in value of the underlying investment to compensate this. Currently the opinion in the market is that this is less the case than in the past.
As a result of these two factors the outside investors are less attracted to US investments at the current interest rate. To compensate for lack of return at the current dollar price, the dollar price is lowered through the capital markets, in effect increasing the return on investments.
While over the long-term the outlook for the US-economy is undimished strong (in part due to a better balance between workforce and inactives, less legislative constraints, higher inovative potential, etc.), the short to medium term is what concerns markets at the moment.
The positive side to this for the US is that a weak dollar is a boon for the US economy because exporting is made easier and the payment of debt to oustide investors is made at a discount. This increases the US-economic health.
The same could be said for the DR, if the exporting industry was more developed.
MD
