The present rally towards 1 € = 1.20 $ and 1 $ = 75 Yens will doubtless unbury lots of liquidity in dollars . Yen will successfully match the dollar rally but Japan exports to USA are resilient to rate changes .
That plus the increase of consumption at the expenses of imports , should put an extra of pressure on current imbalances together with a sharply mounting core inflation that will have to be contained with the immediate rates increase on which Taylor has warned Bernanke only two weeks ago .
It is true that during a short period the increase of global revenue taxes will help budgetary problems , but export huge losses by USA main actor companies , will soon force a bitter correction and which is more , the USA debt tenants will find themselves in a state of shock with the inevitable shift of treasuries rentability .
The benefits of the overvalued dollar ? A sensation of improved welfare in the electors with momentary improvement of budget tensions during election time . Plus of course the burning of dollars of some funds which should compensate for the freed liquidity as dollar touch the above rates .
The risks ? The precipitation into abyss wich should begin with a never seen before volatility specially if China grows near 9 % this year .
Brahmason
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