Well, somebody is buying. They pushed the dollar back above 80.

the continued US taxpayer bailouts of politically-connected Wall Street banks will push the United States into a “Depression”.
http://www.cnbc.com/id/26656750

” The end result of the global economic slowdown may be the U.S. announcing national bankruptcy as the government cannot afford the bailouts that it promised and the market will not bail out the government, Martin Hennecke, senior manager of private clients at Tyche, told CNBC on Thursday.

“We expect a depression in the United States. We expect a depression, very possibly, also in Europe,” Hennecke said on “Worldwide Exchange.”

The estimated $300 billion cost of the Fannie/Freddie bailout will probably be considered as a loss that the government will have to take, therefore passing it on to taxpayers, he explained.

“We already have $3 trillion of debt, as far as the U.S. government is concerned. These debt figures across the U.S. economy are rising very sharply.”

When the government can no longer pass the United States’ “immense debt” on to taxpayers, it will turn to the holders of U.S. dollars, leading to the eventual downfall of the currency, Hennecke said.

“Definitely, it (the dollar) is not a safe place to be invested in, as real inflation is closer to 10 or 11 percent than the actual inflation numbers given by the U.S. government,” Hennecke said on “Worldwide Exchange”.

I’m wondering about the effect on Agencies and Treasuries from what you’ve reported here. I’m not a finance or economics person, so please excuse me if this question is stupid.

If foreign CBs have fewer dollars because they continue to sell them, could demand for and purchases of Agencies and Treasuries continue to weaken such that their interest rates suddenly spike?

It’s not real clear how the other of half of the twin deficit gets financed, now that HEW has gone away. As of July it’s $62B. August read on that not out yet so cheap oil should help on the import side, but then we don’t have a weak dollar helping exports.

========================================
US Inflation Pressures Cool And Trade Shortfall Grows
Thursday, 11 September 2008 12:48:26 GMT

Written by John Kicklighter, Currency Strategist

Speculation of an approaching recession and return to dovish monetary policy may be stepped up today (slightly). The economic docket offered three notable economic releases, and each disappointed in comparison to economists, and more importantly traders’, consensuses. Measuring the steps to a possible recession in the second half of this year, both trade and employment numbers worsened. The physical trade balance for July dropped to a $62.2 billion deficit against forecasts of a $58.0 billion shortfall. This was worst trade reading for the US in 16 months as oil imports soundly overwhelmed a 3.3 percent jump in exports. The appreciation in the dollar through the month is not likely to have yet been reflected in trade figures (at least at notable levels). Taking a measure of employment, first time unemployment claims grew (from the originally reported figure) to 445,000 while total filings hit another near-five year high. Though a modest economic release, this nonetheless offers a very disappointing outlook for consumer spending (accounting for an estimated 70 percent of growth). Finally, upstream inflation pressures have tappered off as expected. A 3.7 percent drop in import prices over the month of August was the biggest drop on records going back 19 years. It comes as no surprise, petroleum products plunged 12.8 percent and industrial supplies fell 8.4 percent. Altogether, this data had limited impact on the dollar; but it certainly curbs hopes of a near-term rate hike and draws a recession state closer.

http://www.dailyfx.com/story/market_alerts/fundamental_alert/US_Inflation_Pressures_Cool_And_1221137366922.html

At least I hope the CBs are making money on the trade, since they should have sold on the high and are buying lower. Or not – ?

So it looks like the Saudis still see their role as being a stabilizing influence on the world economy. Unless this is some sort of convoluted PR.

http://www.nytimes.com/2008/09/11/business/worldbusiness/11oil.html?_r=2&ref=worldbusiness&oref=slogin&oref=slogin

But more oil at a significantly lower price means lower reserve growth.

And if the US consumer decides to do something with the gasoline savings besides buy Chinese stuff, then we should see lower reserve growth for China.

Those two things would be bad for Happy Hank, who seems like he or his successor might need something around $750B next year. Up to $4 Trillion if they think they are going to reflate the housing market back to where it was. But first things first.

I think the other big factor in dollar strength and the reversal in surplus CB strategies is that corporations doing currency hedging are a major factor in the currency markets. Everyone was on the same side of the trade (short dollar) and there has to be a lot of unwinding going on there.

Interest rate futures markets have a lot of influence on decision making there, and presently they give a sort of near term probability of a quarter point hike by the Fed, and half point cut by the ECB.

Personally I don’t believe it because I think Ben will play every card he has and actually give us another rate cut, while concurrently nationalizing the entire financial sector, leaving a gapping hole in the S&P 500.

And Euro and Japanese exporters just got a 10% hike in corporate profitability, so biz confidence should get a boost from that.

The only ones I can think of would be their own. Maybe they need the gold standard to keep FDI from driving them up?