Dollar Musings

The spike in the dollar has quite a few folks scratching their heads in light of the current, US induced economic crisis. It seems like a disconnect with reality. Some reliable intel today describes a "kidnapping" of a senior trader in China by Ningbo Yibao Inport & Export Co. Seems a representative from a London based scrap metal business (Goldarrow Metals Limited) was "kidnapped" and told he could not leave the country until some $350,000 or equivalent in goods was paid to make up for low quality deliveries. This is not the kind of business acumen China is noted for, especially since this was an established relationship. To make a long story short, and what makes this story worth noting is that the Chinese company had failed to pay for goods already delivered. The Chinese company had been paying high metal prices during the commodity boom and when prices plunged they no longer wanted to pay that price for goods they had already purchased, but not yet taken delivery of. There are other signs of systematic problems in other sectors as well. China relies on readily available credit. It seems that credit is beginning to be difficult to find. In other words, a credit crunch appears to be forming. So far the Chinese have weathered this global credit crisis better than most. However, there does appear to be signs that all is not as well as it may appear. It's a little too early to tell, but the situation in China bears watching. In Russia, the story is different. Standard & Poor's rating service recently lowered Russia's long-term sovereign credit rating because it's expected that the motherland will have to inject its reserves into its economy to weather the global financial crisis. Apparently S&P rightly feels this will tax their "economy". I use that term loosely. Russian bond yields are increasing as credit becomes scarce and investors flee. Plus, the Russian stock exchange has already dropped 80% since May. Russia only has two basic economic engines; energy and minerals. They can weather the crisis for awhile as they have $650B in reserves, but how long can that last? Keep in mind Russia has been trying to flex its muscles recently and now has it's eye on the Ukraine among others. They need money to continue trying to rebuild their lost empire. Between balancing its global aspirations and fighting off a credit crisis they are going to have their hands full. Gee, too bad commodity prices have plunged. Good luck Russia. Obviously more time needs to pass to see exactly how difficult things get for these countries, but it's part of the reason the dollar is spiking. It's still the worlds currency and their are no equals, in spite of our domestic problems. Yes, these are interesting times, and it could get scarier, but dollar strength does not appear to be a fluke.

The information I posted came from a copyrighted source and I condensed it down quite a bit as well as add some of my own observations. However, I did find an article that speaks to the China incident. FWIW.

http://www.recycling...s/LA846045.html

Edited by coolhand, 28 October 2008 - 09:01 PM.