As Usual, I Was RightAnd
Bill Gates and Warren Buffet were wrong.
Microsoft's Bill Gates said with fulminating certainty in Davos last January that it was time to "short" the greenback. "The ol' dollar is going down. It is a bit scary. We're in uncharted territory when the world's reserve currency has so much outstanding debt," he said.
His friend Warren Buffet kept pace, switching $22billion (£13billion) of Berkshire Hathaway funds into foreign currencies. He said it pained him as an American, and broke the habits of a life-time. But a country living so far beyond its means with a zero savings rate and a current account deficit nearing 6pc of GDP was about to pay the inevitable price.Gee, you know what? Old Brainster wrote about the
"falling dollar" early in 2005:
Look, this is pretty simple. The dollar rises and falls with interest rates. When interest rates are low, (especially relative to inflation), the dollar will decline. When interest rates are high, the dollar will rise. This is not all that surprising when you think about it. Foreigners are looking for two things when they invest their money. Safety (and US Treasuries are the safest investments in the world) and return.
Short term interest rates rose during the year, and money flocked to America to take advantage of the higher returns. The ol' greenback did fine as a result, and you no longer see idiots writing "the incredible shrinking dollar" stories.
