IMF Says Overvalued Dollar Used for ‘Carry Trades’
By John Fraher and Rainer Buergin
Nov. 7 (Bloomberg) -- The International Monetary Fund said traders are probably using the dollar to fund “carry trades” across the world and the currency may still be overvalued even after its slide this year.
“There are indications that the U.S. dollar is now serving as the funding currency for carry trades,” the IMF said in a report published today. “These trades may be contributing to upward pressure on the euro and some emerging economy currencies.” While the dollar “has moved closer to medium-run equilibrium,” it is still “on the strong side.”
With investors able to borrow at near-zero interest rates in the U.S., some economists are concerned that markets may become distorted as traders plough those funds into riskier assets. Nouriel Roubini, the economist who forecast the financial crisis in 2006, said Nov. 4 that investors are milking the “mother of all carry trades.”
The MSCI All-Countries World Index has gained about two- thirds since March and sugar has soared 90 percent this year. The dollar has dropped 13 percent against a basket of currencies from its major trading partners in the past seven months.
The “carry trade” is not just in U.S. dollar arbitrage, it’s straight out central bankers funneling trillions of dollars to banks outside of the United States. It’s absolutely intentional. So why talk down the dollar? Could it be that they don’t want to see the dollar appreciate? Uh, huh, thought so.
Here’s a word to the world’s central bankers – You debt pushing whack jobs are not fooling anyone but yourselves! Your schemes are widely known and becoming more widely known by the day. You do not control the markets, you can only manipulate them for so long. Your fall will be cheered by the masses, get your bunkers ready, you’ll probably need them, and it will be your just reward for running with the Devil…
Van Halen – Running with the Devil: