The U.S. Government 'adds' $5 trillion in debt, but the dollar doesn't fall. How is this possible?
"Because the currency markets months ago had already factored-in or priced into the dollar some form of U.S. Government takeover of both Fannie Mae and Freddie Mac," Andrew Resnick, currency trader, told BloggingStocks Monday.
The U.S. Treasury will buy as much as $200 billion in new, senior, preferred stock in Fannie (NYSE: FNM) and Freddie (NYSE: FRE) as part of its takeover of the government service giants, whose business models ran into trouble as the housing boom ended and mortgage defaults soared. The large, potential increase in government spending/borrowing would appear to be unquestionably dollar-bearish. Not so, says Resnick.
"The bailout is going to cost the U.S. Government and taxpayers more money, there's no doubt about that. But if it represents the first step toward reaching a bottom in the housing mess and at the same time stabilizes credit markets, that would be dollar bullish," Resnick said. "And that's the currency market's view at the present time."
Indeed, the dollar showed little signs of a collapse Monday. After dipping early Monday morning in Asia, the dollar firmed and was up about one-half cent to $1.4430 versus the euro, and added three-tenths of a cent versus the British pound. The dollar was rose about 1 yen to 108.52 versus Japan's yen and rose 1 cent to $1.1290 versus the Swiss Franc.
"Because the currency markets months ago had already factored-in or priced into the dollar some form of U.S. Government takeover of both Fannie Mae and Freddie Mac," Andrew Resnick, currency trader, told BloggingStocks Monday.
The U.S. Treasury will buy as much as $200 billion in new, senior, preferred stock in Fannie (NYSE: FNM) and Freddie (NYSE: FRE) as part of its takeover of the government service giants, whose business models ran into trouble as the housing boom ended and mortgage defaults soared. The large, potential increase in government spending/borrowing would appear to be unquestionably dollar-bearish. Not so, says Resnick.
"The bailout is going to cost the U.S. Government and taxpayers more money, there's no doubt about that. But if it represents the first step toward reaching a bottom in the housing mess and at the same time stabilizes credit markets, that would be dollar bullish," Resnick said. "And that's the currency market's view at the present time."
Indeed, the dollar showed little signs of a collapse Monday. After dipping early Monday morning in Asia, the dollar firmed and was up about one-half cent to $1.4430 versus the euro, and added three-tenths of a cent versus the British pound. The dollar was rose about 1 yen to 108.52 versus Japan's yen and rose 1 cent to $1.1290 versus the Swiss Franc.
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