March 12, 2010

NO ONE PUTS THEIR MONEY WHERE THE SINOPHILES MOUTHS ARE:

U.S. dollar is still the world's most trusted currency (John Waggoner, 3/12/10, USA TODAY)

To get some idea of the demand for Treasuries, just look at the most recent auction. On March 8, the government sold $136 billion in Treasury bills — short-term, government-backed IOUs. Of that, about $29 billion was new debt. The rest was rolled over from maturing debt.

You'd think that a borrower that added billions more to its debt each week would be getting the stink eye from lenders. But not when the borrower is the U.S. government. Monday's Treasury auction was an astonishing success: Investors bid $4.27 for every $1 of debt the government had to sell. The yield: a rock-bottom 0.15%. That same day, the dollar was in the middle of a two-month rally. A stronger dollar means a buck buys more of a given currency. A euro cost $1.37 on March 8, down from $1.51 on Dec. 3.

And the dollar remains the premier currency of world trade. Oil is bought and sold in dollars, for example, and more than a dozen countries, including China, peg their currencies to the greenback. About 61% of bank foreign reserves are denominated in dollars, according to the International Monetary Fund.

So far, there's no other currency that has the liquidity and acceptance of the U.S. dollar.

"From the market's standpoint, other currencies and other economies have more serious and immediate fiscal concerns than we have here," says Brad Tank, chief investment officer for asset management firm Neuberger Berman.

Even though China may grouse about U.S. deficits, it doesn't have many other places to put its reserve currencies. And if China suddenly sold its $1 trillion in dollar holdings, its currency would soar, making its goods too expensive for the U.S., its largest trading partner.

Posted by Orrin Judd at March 12, 2010 7:09 AM
blog comments powered by Disqus
« YEAH, BUT WHO'S GOING TO PROSECUTE?: | Main | HURRY, O-POCALYPSE™!: »