A strong US Dollar should be a priority for US monetary and fiscal authorities. If the US dollar continues to lose ground against other major currencies, investing in US assets become less desirable to foreign investors. Because of the inverse relationship between bond prices and interest rates, as the deficit grows, the availability of US treasury securities increases, bond prices decline and interest rates rise leading to inflation. And as we all know, inflation reduces the value of real assets.
To think that the US dollar volatility can be ignored because foreign investors have too much to lose to allow the collapse of the dollar seems shortsighted. Foreign investors such as China are stocking commodity inventories and could over time significantly reduce their exposure to the US dollar. Such actions would indicate lack of confidence in the US dollar.
On a different note, Ford Motors Co. reported earnings on Monday along with some promising forecasts. As you read the press release, think about the actions Ford Motor Company has taken over the last year. What are the key factors that differentiate Ford’s turnaround strategy from GM’s?
