A Summer Meltdown of the Dollar?

03-18-2011 • EconomicPolicyJournal.com

If you're wondering why I haven't said anything about the recent downgrades in Europe, it's because I'm too busy watching the dollar. As predicted last time, the "bounce" the dollar got was the size of a worn-down speed bump, nothing else. We are now gunning for the lows from 2009, and then the lows of 2008 in short order. Panic may ensue along the way. And since the majority of the dollar index is the Euro (>60%), I give you the following ominous-looking chart : Take out 1.425 and I can argue that we're going to head for 1.50. Apparently, Goldman Sachs is with me on this one - whether or not that is positive or negative I don't know. And 1.50 should put us squarely at all-time lows for the dollar index. Then what? The dollar should be rallying? Is Bernanke going to announce the unwinding of the Federal Reserve balance sheet? But "core inflation" is still too low, right? And while they are doing their best to slaughter the yen today, a dollar collapse could possible mean failure for that strategy. Either something breaks (preferably the euro), or we are going to have a dollar meltdown/panic before the summer. Be warned, this might get really ugly. Especially since a ) The retailers are still long the dollar b ) There has been little or no mention of the collapsing dollar in the media. People were actually shouting louder a year and a half ago, before the European worries started.