Lieutenant Island Views : Commentary About Finance, Politics and Baseball

Whither the Dollar? | March 24, 2009

Whither the dollar? That is the question. As the attached article points out, the Chinese government is worried. If they are worried, we should be too! A cheaper dollar certainly debases their investment in dollar denominated securities, particularly the Treasury obligations which they already own. Equally significant, a cheaper dollar will likely force us to pay higher rates on the Treasuries which we will sell to finance the large stimulus package that will be unfolding in the coming months. The only silver lining is that China is as addicted to a high dollar as we are. As we are their largest market for all sorts of goods, and because their currency is basically pegged to ours, their income and purchasing power erodes as the dollar declines. One answer for them is to allow their currency to trade more freely like other currencies do. While it sounds reasonable, they know that freeing their currency to trade on a “market basis” is the proverbial slippery slope. It is a slope that they will find pock marked with speed bumps and other hidden dangers that they have, to date, assiduously avoided. This is a relationship that bears watching closely and must be handled with deft skills by the Obama administration

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About author

Mr Thaler is currently the Managing Partner of Lieutenant Island Partners, an organization providing corporate finance advice and general consulting to corporations and not-for-profit organizations. Mr Thaler retired as Vice Chairman of Deutsche Bank Securities in early 2008. His background includes experience as an investment banker, senior manager, business builder, college professor, not for profit board chair and trustee. In his thirty plus years as an investment banker for Deutsche Bank and Lehman Brothers, he has been involved in numerous significant debt and equity financings, mergers & acquisitions, leverage buyouts, restructurings and cross border transactions. Of particular note, Mr Thaler has been one of the most active participants and strategic advisors to the homebuilding industry. In a period of significant turmoil and losses, he was one of the few active bankers to the industry who did not have either a loss or credit write down. He is currently advising several public builders on strategic matters and is an adjunct professor of finance at Morehouse College in Atlanta, Georgia. Though he lives in New York, he is a life long Red Sox fan!







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