Peter Schiff: Carry Trade Dollar

Peter Schiff has been making the rounds lately and talking about the continuing collapse of the U.S. dollar, which will make it an ideal carry trade candidate going forward, and which will make many people very wealthy as a result.

Schiff has also said that he has no idea when, or even if, the U.S. dollar will strengthen any time soon. Of course that can't be counted on at all with the ongoing spending spree of the Federal Reserve and U.S. government.

Schiff is of course the president of Euro Pacific Capital, an investment firm he runs.

Peter Schiff - Collapsing U.S. Dollar

US Dollar Carry Trade Currency?

The statement from the Federal Reserve that slow economic conditions "warrant exceptionally low levels of the federal funds rate for an extended period," caused great pause today for those understanding what this will mean for the U.S. dollar, as it will probably take the place of the yen as the currency used for carry trades.

A carry trade is when an investor borrows using a currency with low interest rates for the purpose of investing that capital in higher-yielding assets. The problem with that is it is bad for the currency used as the investment of choice to start the process, which looks to be the U.S. dollar through probably a minimum of 2010.

The Federal Reserve said these conditions will continue, essentially reinforcing the reality that the U.S. dollar will be the carry trade currency going forward, although obviously not stating that specifically.

Dollar Collapse G10 Economic Power

The collapse of the U.S. dollar will be accompanied by the further erosion of the fading G10 bloc countries and their economic power, preparing the way for an world which will eventually be completely changes in focus and power.

Even so, the U.S. dollar will fall the most of the currencies like the yen, euro, Swiss fran, British sterling, among others.

Some think the regional currencies of larger countries will be the new safety valve for smaller countries, while the U.S dollar will assume the role of Japan in "carry trade" status going forward. That's not a good thing.

While this was happening before the economic crisis, the crisis has actually temporarily hidden this reality, but when growth truly resumes, the growing disparity between emerging markets and old money will come to light even further as that chasm continues to grow.

The U.S. dollar is expected to be hit the hardest, and the misguided policies of the U.S government from administration to administration, culminating in the total lack of control of the Obama administration and the Federal Reserve, will only hasten the downfall and make it worse going forward.

U.S. Dollar Continues as Safe-Haven Choice

With many gold funds needing cash, along with ongoing deleveraging, the U.S. dollar continues to be the refuge of choice for many jittery investors.

With the dollar and the yen basically mirroring the movement of the equities market, they have been the cheif beneficiaries of current market conditions.

The yen is still playing its customary role of measuring risk, and the dollar is moving pretty closely in step, playing a similar role as well.

For the yen, when stocks strengthen - investors sell, when stocks plummet, they're quickly buying the Japanese currency.

The yen continues to be pressured because risk-adverse investors are abandoning carry trades at this time; that has helped the U.S. dollar hold its strength. It'll continue to be difficult to guage risk while the market seesaws back and forth.

Those currencies which will be most negatively impacted by the continuing strength of the dollar will be the British pound and euro.