Wednesday, October 22, 2008

Currency crisis developing



Countries that do not have access to Fed loans are seeing their currencies spiral into a freefall. The Hungarian central bank raised its benchmark interest rate by a full 3-percent overnight (now at 11.5 percent) to try to defend the Forint.

Although the ECB has access to the Fed and dollar loans, Eurozone banks may still be very short of dollars and this could cause a similar spiraling down of the euro. The ECB may actually be forced to raise interest rates to defend the euro, causing even more damage to the Eurozone economy.

This is the endgame for the euro and we could be witnessing its coming apart.

6 comments:

Billy said...
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Billy said...

I am behind a little bit on the radio show I listened to 10/20 last night.

Going through YHOO finance and WSJ.com I am having trouble finding the hit piece on WFC in the NY Post.

It is unfortunate that the Post choose to do this especially since it is a sister company of the Wall Street Journal which should have higher standards.

Billy

Mike Norman said...
This comment has been removed by the author.
Mike Norman said...

Here's the link:

New
York Post.

Billy said...

I just read at the Cramer site (10/22) that PIMCO is "bearish the dollar". I wonder if this is a trading position (in which case they are getting crushed) or just random commentary.

Billy

Mike Norman said...

My guess is that the folks at PIMCO really don't understand what is going on and they are looking at U.S. fiscal and monetary efforts and believing them to be bearish. While that may be the case over the long-term, the pressure will continue to mount on non-dollar currency regimes that have borrowed in dollars and find it difficult paying back those loans. They will be forced to sell their own currencies to pay back the debt in dollars.