Here Comes the Cavalry


Well, at least I am in good company. Thank G-d, I am not the only nut on the internet railing about the position we have allowed ourselves and the Dollar to get into.

This was front page on Bloomberg.com this morning.

“Nov. 15 (Bloomberg) -- Robert E. Rubin, Treasury secretary under President Bill Clinton, and former Federal Reserve Chairman Paul Volcker said foreign investors probably won't keep increasing dollar holdings, raising the risk of a slump in the currency.

Failure by the U.S. government to shrink its budget deficit may spook the central banks, hedge funds and others who have been buying Treasury notes, Rubin said. Volcker said the U.S. borrowing requirements raise the risk of a ``crisis'' in the dollar as soon as the next two and a half years.

``It seems almost inconceivable that this will continue indefinitely,'' Rubin, who now chairs Citigroup Inc.'s executive committee, said in a videotaped message for a dinner hosted by the Concord Coalition yesterday in New York.
Rubin, 68, who served as Treasury chief from January 1995 to July 1999, helped engineer economic policies that allowed Clinton in 1998 to claim the first budget surplus in almost 30 years. The dollar, measured against the currencies of the largest U.S. trading partners, rose 14 percent under his tenure.

The U.S. currency has fallen in recent years, in part because of concern America will fail to attract enough capital to finance its borrowing. The Federal Reserve's dollar index has declined 27 percent since December 2001. The dollar is down 7.4 percent against the euro this year and is little changed versus the yen.

`Incredible'

``It's incredible people have gone on so long holding dollars,'' Volcker said during a panel discussion at the event. ``At some point, you will get a situation where people have had enough,'' he said. He added that he wasn't ready to ``extend'' a previous prediction of a crisis within two and a half years.

The U.S. budget situation must be addressed now because the government is just five years from ``rapid acceleration'' in spending tied to Social Security and Medicare, Rubin said. He reiterated that the incoming Democratic majority in Congress and President George W. Bush should raise taxes to reduce the deficit.” Bloomberg.com -November 15, 2006

In my opinion, the situation will not be address prior to a Dollar crisis. If you are an American investor, it is time to get your house in order.


Mentatt (at) yahoo (dot) com