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The dollar did not go up in order to repay debts. That was my point.  It went up because people wanted to hold dollars relative to either other currencies or other assets.

Firstly, wherever there was an interbank market in dollar loans which froze up - and Norway was a good example - the result of the refusal by banks to roll over these loans was a requirement for dollars to settle the loans.

Hence the need for massive Fed currency swaps - mischaracterised as Fed "bailouts" eg of the poor, mismanaged, economic basket case that is Norway.

One of the key results of this, as far as I could see, was that the dollar appreciated against the relevant currencies.

Secondly, if a US owner of a leveraged foreign asset perceives that the value of the dollar is likely to fall relative to the currency of the asset location, then he is likely to get out of that exposure while the going is good.

I don't so much see that as a flight to safety, rather than as an aversion to foreign exchange risk.

"The future is already here -- it's just not very evenly distributed" William Gibson

by ChrisCook (cojockathotmaildotcom) on Sat Sep 5th, 2009 at 05:06:33 PM EST
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