Quote:
Originally Posted by Phanuthier
So you are saying foreign investments were diving into USD and TB's because of confidence in the USD? I recall hearing something different, on the news (using a another dollar as standard), that the non-confidence in the equity market was driving up TB's et al.
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"The" equity market? Define that? USA equity markets? Foreign markets? What? There are a lot of components in that.
The movement of money out of USA equity markets would be one component.
There would also be a large sell off in corporate debt, flowing into government debt as well. Huge.
Nevertheless, in your scenario, if confined solely to the USA, such a transfer would have little effect on the value of the USA dollar relative to other currencies since those dollars you are talking about were already denominated in American currency.
To move the value of the USA dollar relative to other currencies, you need people to sell assets in those currencies and move the proceeds into USA dollars.
The second part of that - which can be exclusive of the first part - is the buying USA Treasuries.
The latter occurs because you feel simply depositing money into bank accounts isn't safe. You don't trust the financial system so you go to the guarantee of the people who actually print the money, the USA government and USA treasuries.
When unknown indicators like the TED Spread and LIBOR rate tightened to levels previously unseen, it was also an indication the global financial system, the blood flowing through the economic body, had stopped. Banks did not trust other banks to be alive the next day so they began charging each other astronomical risk rates to take on the risk or simply refused letters of credit at ports, as an example.
Global trade seized.
It's why the president of the Royal Bank of Canada would later say, in spite of his uniquely strong financial position in this, there was a moment he wasn't sure the bank would survive.
I loved the pure honesty of the moment, where fear dominated greed and we saw the absolute truth . . . . that the safest place was still considered the USA dollar and USA treasuries.
Restoring the flow of blood through the financial system was largely accomplished before Obama took office, although he wasn't much help with some comments early in his presidency . . . . which is why the absolute bottom didn't occur until March, 2009.
And then it was all over very quickly, talk of "Worse Than The Great Depression" giving way to "End of Recession" within a single month, by and large.
And then currencies began to return to their former equilibrium, the Canadian dollar back at par again after dipping down to roughly 78 cents I think.
Cowperson