The Case for More Protectionism

While the dollar weakens, China’s peg to the dollar continues to work wonders for them as their weakened currency makes their exports more competitive.

Numerous countries are starting to conduct operations to weaken their currencies by buying dollars and selling theirs. In effect the US is moving towards a protectionist policy without any announcement. It’s more of a stealth move in that direction. Imports into the US are becoming more expensive (except China’s).

One can not change the global economy overnight. This will take many years, perhaps even decades. Most countries continue to be export dependent. This is obvious by actions they are taking to weaken their currencies to become more competitive with their exports.

Brazil
Europe
Asia

What’s worse is that there seems to be a growing suspicion that China and the US are in cahoots as they weaken their currencies. The Yuan’s weakening will make their exports more competitive while the US tries to reflate it’s way out of debt.

As more and more countries call for a stronger dollar, there could be an ultimatum by the US’s European allies to back off the dollar weakening or risk them withdrawing their support for its foreign policy objectives. I dunno just some speculation, but it’s becoming apparent that dollar weakening cannot continue without short circuiting exporters’ recoveries. They will do everything in their power to not let this happen.

Regardless, I am still a strong dollar bull as foreign gov’ts are now calling for a strengthening of the dollar. Usually, from what i’ve learned throughout this year, it’s usually gov’t action that dictates where the markets go.

Examples:

FASB (mark to market accounting)
Dollar Weakening
Rampant Stimulus

The economy has been dismal, yet we’ve rallied over 60% in the market. The gov’t has created this rally and most likely it will be a decision by them that turns the tide around. The decision could be coming very soon.

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