The dollar strengthened 1.2 cents to $1.3821 and a gargantuan 4 cents to $1.4488 versus the British pound. The dollar also rose about one-half cent to $1.1584 versus the Swiss franc.
Now, in theory, increasing dollar commitments by the U.S. government means more dollars in circulation, which means every dollar is worth less -- a sequence that should cause the dollar to fall against the world's other major currencies. Not Tuesday, and really, when you review it, not since the financial crisis took hold in October 2008, so says economist David H. Wang. And the reason is basic: the dollar's status as a reserve currency, and as a safe haven.
"Today's actions suggest there is much more work ahead to loosen credit markets and jump-start the U.S. and global economies, and that pushed investors around the world out of stocks and into U.S. Treasuries, which benefits the dollar," Wang said. "After you review the data and historical behavior by nations, it is an entirely rational investment decision."
'The dollar is a safe haven'
"In spite of the U.S.'s large national debt, and major capitalization and economic repair tasks ahead, investors are saying 'This is the most appropriate and safest place to be with money right now.' The dollar is a safe haven." Wang said. "This reflects the belief that the United States still has enough resources to solve both the financial crisis and recession, and to a certain degree it also reflects investors' confidence in the American political system and the inherent fairness of the American people."
The dollar did fall 1.21 yen to 90.24 versus Japan's yen, primarily on the argument that Japan is less-exposed than the euro zone and the United Kingdom to toxic assets, Wang said.
Further, Wang said he's still reviewing data, but Tuesday's U.S. Treasury action "could have been the largest one-day commitment of U.S. government loans/loan guarantees in U.S. history," depending on the methodology used, although commitments for World War II (1941-1945) spending may have been larger, in the aggregate, real terms.
Dollar Analysis: For investors, the day's events mean a run on the dollar is not likely, at least not until the global economy starts to grow again, Wang said.
How fortunate it is to be an American, and a holder of American dollars: no other nation in the world could amass so much public debt -- more than $12 trillion to-date -- and commit another $2 trillion, and see its currency not only not plunge, but rise. However, after the U.S. and global economies start to recover, the U.S. will have to cut federal spending or raise taxes to prevent interest rates from rising.
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Reader Comments (Page 1 of 1)
2-10-2009 @ 9:14PM
John Dupree said...
Put in the words of a man bordering on insanity!
2-10-2009 @ 11:15PM
vince demarco said...
The circus has just started and a one day commitment of 2 trillion is only for act one.When our government takes over the banking.auto and health industries the national debt will equal or exceed the national gross product of the country that is about 14 trillion dollars. I think that is what MR. Barney Frank had in mind when he said "Now we can spend some real money" There is no individual in Washington that knows what they are doing.
2-11-2009 @ 11:39AM
JJ Forde said...
I think you have an error in your article. The dollar hasn't been at $1.38 against the Euro for nearly a month. Did you meant to type $1.28?
2-11-2009 @ 7:50AM
David said...
This only proves that so-called investors are even more gullible than the people who voted for the empty suit we call president. The dollar will fall, hard, once the world realizes that the current administration and all it's bailout and stimulus plans are nothing more than a liberal raid on the US Treasury for the benefit of the socialist democrats and the Wall Street con-artists.
2-11-2009 @ 7:52AM
john dumas said...
If I wanted to destroy an industry I would artificially prop up a failing company in that industry letting it sell at a loss until all the good companies went under as well. Then I would be offered a job in the Obama administration as one of this type of economic genius!
In real life consumers buy the best products with their money building the economy, in the government world they prop up the worst companies crippling the economy. Give the money to our best companies not our worst; do not use our own money against us. Pointy headed economists think all dollars are equal. All spending is not positive stimulus, it can actually be negative.
2-11-2009 @ 8:24AM
paul s said...
It is hard to fathom that in 8 years we went from a balanced federal budget, finally, to this. And we did it under Republican rule. It is as insane as these numbers. When Bush reinstated the thirty year treasury note, that act was what first made me think that something wasn't right. The housing bubble unfolded before my eyes like a 1960's acid trip. I couldn't believe what I was seeing and did not think it could last very long. Watching treasury notes being sold with no or next to nothing yields, would make one think an immanent financial collapse was at hand. It now appears a giant poker game is being played. The players keep ratcheting up the stakes, determined to win at all cost, no matter how much it costs. The government is calling, the financial players appear to be holding, other players are covering bets. No one appears to want to give. Those of us who were prudent with little or easily manageable debt feel like we are being robbed.