Peter B. writes:>The strength of the dollar depends entirely on the willingness of the rest of the world to accumulate them at the rate of one-half trillion a year. Private wealth-holders will do so based on expectations of risk (exchange rate and liquidity) and rate of return. Public dollar repositories (CB's) will do so for either economic (including liquidity) or political reasons. It seems to me that the Bushies cannot afford to alienate the interests that govern CB decision-making. The current military power buildup may be seen as a basis for supporting the dollar (an implicit quid pro quo if you will), or it may be seen as reckless and overly unilateral. How would you analyze the effect of US militarism on the willingness of CB's to accumulate dollars?<
My feeling about this (and all one can say about the future involves feelings) is that if the war against Iraq and similiar forms of adventurism pay off for the Bushwackers, as they expect them to do, then it will keep the dollar up. (Of course, there can be lots of down wiggles: I'm talking on average.) On the other hand, if the spendid little war (version 2.1) turns out to be a quagmire that doesn't pay off well for them, the dollar generally will fall.
Jim
