Seven myths about dollar

Not denying possibility of healthy discussion, we wish to discredit some myths that influences launches and dollar falling. Myth I: Dollar - safe currency because the USA have enough actives. Some consider, that deficiency of the current bill in the USA on which service more than $3 billion foreign investments daily is required is so, a real trifle. These great minds of the present say that deficiency at a rate of 6,5 % from gross national product we will quite admit because its volume does not exceed 1 % of all private actives placed in the USA; therefore, as a matter of fact, in him there is nothing reprehensible. This argument is based on falling of an index of dollar to zero - the maximum loss of relative cost to other currencies. However the fact of existence of deficiency and its influence on dollar are connected with monetary streams: it is the most reasonable to consider it in gross national product context as it estimates manufacture volumes through monetary streams. To compare it to private savings - all the same, what to confuse the charisma to fried eggs. Myth II: the Dollar is doomed because of huge deficiency of trading balance Supporters of dollar, optimists in pink glasses, severely are mistaken, declaring to that dollar in safety thanks to steady well-being in the USA, but also pessimists are mistaken, giving it is too much attention to a budgeted deficit. A direct consequence of issue of debt securities for the budget is the burden of percentage payments. Certainly, the increase in percent will make negative impact on dollar. However this indirect consequence. Yes, the big budgeted deficit undermines structural positions of the USA in long-term prospect, however, to connect with it short-term movements of dollar in a root incorrectly. Myth III: dollar Decrease will allow to get rid of deficiency of trading balance As often we hear about that, competitiveness of the USA if the dollar has fallen how much would increase. On the one hand, dollar easing can increase incomes of the companies by short time and make export production a little more attractive on a foreign market, but it will not return the manufacture, transferred abroad! It is improbable, that the USA will prosper, exporting footwear to China, and thus the dollar not important will how much strongly depreciate. Everything that can be expected from exchange rate decrease is a time simplification. However until Thrift, thrift and more time thrift "does not become the nation motto ", dollar easing will be only a pause in the course of aggravation disbalansov. Myth IV: Decrease in deficiency of trading balance will rescue dollar It is quite probable, that deficiency of the current bill in the USA is close to the maximum. However it does not mean at all, that troubles for dollar remained behind: if delay of rates of growth of deficiency of the current bill has been called by steady growth of savings and investments then long-term prospects of dollar really would inspire hope. But, similar, that for "decrease in internal consumption and economy easing as a whole costs improvement " (if at all it is possible to speak about improvement in the conditions of growing deficiency). As a result, this "good news " forces foreign investors to think twice before to put means in the American economy. If the American companies start to search for investment possibilities outside of the native land so there to do to foreigners? In process of easing of the American economy, to the consumer all becomes more difficult to occupy means under the redeemed part of the real estate, it compels them to cut down the expenses. Myth V: Weak economy - the reason of devaluation of currency We agree that the economy of the USA strongly depends on stability of dollar. However it is feature of States: for example, in the current conditions, the similar statement is not applicable to the European Union. Key distinctio n consists that last years EU placed emphasis on structural reforms, giving there is less than attention to growth. As a result, it managed to avoid problems with deficiency of the current bill, the pursuing USA. Many markets will suffer from delay of rates of growth of economic, however, the euro thus can save strong positions. At Europe it is a lot of problems, but concerning currency it is possible to consider region position rather steady. In turn, for dollar the main danger is just reduction of inflow of the foreign capital. For this reason it so painfully reacts to the news connected with reduction of consumer expenses. And, considering that consumer expenses are closely connected with a status of the market of habitation, negative data on this sector also negatively affect a dollar exchange rate. The habitation market does not differ high liquidity, therefore updating processes pass long and painfully. Myth VI: the Root of all evil grows in China By our estimations, China - the most responsible player of the Asian region. All the others, including Japan, are ready to risk the currency if only to continue to export the goods on the American market. China very seriously concerns the disbalansam and tries to solve many questions. Having opened the western banks possibility to invest huge means in the national banks, they stimulated process of internal reforms. If there is something, capable to frighten currency traders more than cooling of the market of habitation in the USA so it is flashing periodically protectionist moods in the Congress of the USA. When one of members of the Congress has expressed the concern to that Chineses bought up the most part of debt securities of the USA, the dollar has sharply fallen. Protectionism strengthening will essentially lower appeal of dollar actives in the opinion of foreign investors that will strengthen pressure, both upon dollar, and upon interest rates. It is interesting to notice, that anybody, apparently, at all does not take into consideration the decision of a problem most easier: it live within the means and is not necessary to let out promissory notes. Such old-fashioned concept really could strengthen dollar. Unfortunately, in America about it at all also did not hear. Myth VII: High interest rates will help dollar The theory how the differential of interest rates influences movements of currencies seems, that, with an enviable constancy proves the inconsistency since that day as it has been invented. However open any textbook, and you will find it there. Even if not to take into consideration that fact, that it is much more important than expectation of the future interest rates and inflationary changes, than actual rates, are weight of factors which influence currencies besides rates. Why such nizkodohodnye currencies how the Swiss franc, feel rather not bad, and in developing countries with high interest rates, as a rule, weak currencies? One year ago States have joined numbers of developing countries which pay percent on the party more than receive from the outside, under own investments. As a result, high interest rates in the USA mean higher percent for foreigners and, hence, the further deterioration of the base to dollar. The myths connected with dollar many, however, we we hope, that the review made us will serve you as food for reflexion. Aksel Grew dim, investment manager Merk Hard Currency Fund