I certainly expected an adverse reaction to this news by Bloomberg as i said " This realy offers a different view from what most of us think about the US dollar outlook ." Actualy i agre partialy to what the article says since in the short term the dollar should fair rather well relatively to the strenght of most other major currencies and so far money still flocks to th US though with less enthusiasm 'cause the outlook elsewhere is no better and even worst in some cases . On the short term most economies outlook seems pretty bad as it was reported last wee by the IMF for those who stimulate their economies through borrowing the economic outcome may be relatively bad on the longer term like the US .

That's one of the reason Germany is so reluctant with the stimulus , they don't want to come out of this in the situation the US and Britain in particular will be . Europe as a whole does'nt look much better considering the problems plaguing east europe .

As for Japan the yen remains rather strong and they seem to be in a better position long term , but now their exports are in a bad shape and they put some of their hopes in the chinese market to partialy support their short term growth .

So relatively speaking i can understand the US dollar is still looking attractive short term . I still think the sheer size of the deficit and the servicing of the debt will kill the US dollarso to speak over the next few years relatively to the Yen , the Yuan , the Euro , the Roupi , or middle east currencies and a few others in south america . We can think about most oil exporters . Yet as the dollar will devaluate imports should also remain relatively low compare to what they were thus helping the trade imbalance wich has greatly improved already . That should have a positive effect on the dollar thus alleviating some of the devalution incured from the debt .

So as inflation will hit the US sometimes next year i guess, it's impact should have the double effect of devaluating the US dollar and slowing down the imports even further thus reflecting on the relative value of the currencies of the countries exporting to the US hence tempering the impact of that devaluation .

I said enough about how i thought China would benefit from what's happening and how the yuan would gain strenght from this crisis relatively to the US dollar as it already did over the last years (

) and obviously the yuan should be a big winner but being one of the major exporter to the US the strenghtening of the yuan should also be tampered by that factor . Still i believe by stimulating interior growth through their stimulus package and by encouraging interior consumption China will become less dependent from it's US market as it comes out of the crisis .

We can't ignore that at this point for most people on this planet , i mean those with money , America appears as the safest place to putg their money and treasury still appears safer then elsewhere . But when signs of weakness will appear then it will also be the moment of truth for treasury . The reaction then will determine the extent of the devaluation of the greenback , it will also depend what other alternatives there will be . As long as weaknesses remains in other " strong currency countries " the US dollar should stay relatively strong .

The question is what is the timeplate for those relative changes and where else could money go without losing ? As i mentioned the obvious remain the yen and maybe the Euro but many factors are still unclear such as how will the eastern europe problems affect the rest of europe , will germany's approach towards stimulus prevail over the influence of Brittain and the US ?

And we can't forget what started all this of course , how will the toxic assets problem be resolved in the states and elsewhere , some countries are in no hurry to act hoping the problem will be resolved elsewhere and those who will pay for what remain to be done might come out worst then the others , thus affecting once again the relative value of the dollar compared to those currencies . So far everyone is looking at the US to resolve the toxic assets problem and we know Brittain has paid dearly as well to keep it's banking system afloat .

I don't want to go any further on the toxic assets affair there is yet too much unknown and too much fears associated with it , but it;s obviously the root of the problem and it's outcome will greatly influence the value of the dollar .

The other alternative for money when it comes out scared ( it's been discussed at lenght on this hub and others ) is gold , and it should surge at the same time , when money starts looking for other havens away from treasury ! ?

So what do you think this short term is ?

(Apr 20,'09)