I see in the Financial Times that the Southeast Asian central banks are supporting the U.S. dollar, since our Treasury is not. A cheaper dollar is good news for U.S. exporters, but it is not so good for American consumers. We are paid in dollars. When dollars shrink, our pay shrinks. The collapsing dollar makes most of us poorer.
It is easy enough to find reasons why investors are dumping dollars. In the bailout, the Federal Reserve has created too many dollars. Take a look at this chart,(LINK BELOW) from the St. Louis Fed. Note how the blue line jumps at the far right of the diagram. That's the past 12 months. It is a flood of liquidity. Its consequences cannot be good for the value of the dollar.
Part of the story is interest rates. They are at rock-bottom, which does not make America an attractive place for investors to park their money. And being at rock-bottom implies that the next substantial move will be upward, which will reduce the value of all long-term fixed-rate dollar bonds, including Treasury bonds held by foreigners and foreign central banks.
The U.S. "bailout" and "stimulus" experiments will have to end. We're going to have inflation. In order to fight it, and in order to defend the international value of the dollar, the Fed will have to put up interest rates. Probably it won't begin it this year, but something like that is coming. It will not be popular.
http://research.stlouisfed.org/fred2/series/AMBNS
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