Brahmason's Blog

The present …and future economy situation makes currency rate crucial to compensate domestic demand partially with external demand .

At the same time it is compulsory to find enough buyers for the growing sovereign debt requirements to fill the extraordinary need of liquidity to make up for imbalances between income and spending both in USA and some european countries .

So Obama needs an instrument which may incline potential buyers of sovereign debt to buy the huge american needs of debt issues , without simultaneously causing dóllar to appreciate substantially .

He has chosen to create an atmosphere of fear about the euro imbalances so as to direct debt potential buyers to decide for american debt in place of european debt .

It is true that some european countries are close to payment suspension , but if the situation as suggested by Brahmason is wisely dealt with , none of the healthy european economies will be drastically affected .

On the other hand Obama’s attitude could lead potential buyers of european sovereign debt to drastically stop purchase of this debt and go fully for american debt .

That would definitely take the € / $ rate to around 1 € = 1.10 $ and do you know what ? At that rate american economy would finally collapse because external deficits would increase beyond 70 billions per month and which is worse , with the dollar so strong nobody would buy any more american debt and most current holders would reduce their exposure in american debt , because everybody would know that the only obvious future for the dollar at that rate , would be a strong depreciation .

It is true that quite a number of american debt holders are very eager to see a depreciation of the dollar below 1 € = 1.20 $ to get free of their burden , but those have simply made a mistake as they bought american debt without even considering that american economy was as it was and is, in the verge of bankruptcy with a global debt ( sovereign , corporative and private ) at five times the GDP ,

In conclusion Obama has to concentrate mainly in reducing spending and do his best to recover american competitiveness and promote the recovery of american purchasing power , more than just concentrating in guarantying no matter what levels of unlimited debt issuing continuously needed to pay for a model which has no future whatsoever .

Brahmason