From Money Week:
“If a country like Argentina builds a significant current account deficit, that deficit is dollar denominated whilst their currency is the peso. It’s just a matter of time before the peso collapses and the country is bankrupt. America is fortunate that their deficit is denominated in their own currency, which means they can just print more paper money. They have taken advantage of that privilege and behaved imprudently, not caring about the deficit because of the lack of risk it posed to them.
Oil producers and exporters such as China have chosen to manage their currencies to stay in line with the dollar and pile up their foreign exchange surpluses, in dollar denominated assets, particularly US government bonds. This process means inflating their own money supply.
Inflation in these countries has now become a serious issue and more likely than not will only be remedied by allowing their currencies to rise against the dollar to a more appropriate level.”
“Despite clear signs of surging prices in the U.S., the Fed took a major step in undermining its own credibility with its most recent forecast that inflation would remain below 2% for the next three years. As the forecast clearly paved the way for additional Fed rate cuts, Wall Street ignored its absurdity and heralded the announcement as legitimate good news. The celebration is likely infuriating foreign governments, who must be dumbstruck that the Fed can claim contained inflation at home while the declining dollar is fueling massive inflation problems around the world.
In order to maintain their pegs to the dollar, foreign central banks have been forced to print their own currencies to buy all the dollars accumulated by their exporters. This has resulted in upward pressure on consumer prices in their respective nations, with annual increases now reaching alarming rates. Bernanke's message of benign neglect means U.S. exported inflation will likely increase substantially in the years ahead, exacerbating the inflation problems for those nations now supporting the dollar.”
“Everybody who holds U.S. dollars or securities is losing money, and stands to lose more when, to fight recession, American interest rates go down again, and the U.S. dollar plunges even further.
The U.S. Treasury Department says it is pursuing a strong dollar policy, which no body believes. The U.S. Federal Reserve makes monetary policy to suit the domestic economy, not the overseas holders of U.S. dollars.
The U.S. policy response to the falling dollar has been to blame those countries, principally China, and other emerging economies, which have continued to peg their currencies to the U.S. dollar, rather than allow their currencies to rise…”