Somebody asked my the other day why the US$ was strengthening so much and I told them it was a flight to quality.

They then asked how it could be a flight to quality with the US economy in such a tailspin.

I replied, "Think about it this way, the US economy *IS* a piece of SH## right now, but it's the sweetest smelling piece of SH## out there!"

So basically although our economy is tanking, it's not going down quite as fast as others, so the dollar holds it's value? It can't be that simple though, correct? Are the countries that are not pumping in billions gaining on the currencies that are? I'm a little confused about all of this.

Originally posted by unityemissions
So basically although our economy is tanking, it's not going down quite as fast as others, so the dollar holds it's value? It can't be that simple though, correct? Are the countries that are not pumping in billions gaining on the currencies that are? I'm a little confused about all of this.

It's certainly a factor, but many other factors come into play like anticipated differentials in interest rates.

Sorry to be the idiot poster but i don't quite get the graph in the OP's link. Does this graph mean the Euro is closer to the Dollar's value now? Like way back in Aug04 (on the graph) the Euro was worth 1.55 times more than the $ whereas now it's somewhere between 1.35 and 1.40?

The Dollar is only showing dominance over the Euro and the Pound because the EU & UK haven't yet worked out their mortgage backed security toxicity issues.

Just look at a chart of the Dollar/Japanese Yen...it provides a more accurate perspective of actual dollar strength, or lack thereof.
In fact today the dollar broke below the 100 yen support level today currently sitting below 99.70 which is fairly significant for it's been above 100 historically for decades now.

The Dollar now has a credibility problem. Nations are not trusting the powers to be to correct the problem by merely throwing more monopoly money at it.
Excessive borrowing and cheap credit are what got us into this predicament to begin with.

We haven't seen the end of it. The Derivatives which were an under the table measure of insuring the investor against losses on their investments are coming due soon and no one has the money to pay these derivatives policy holders/investors.

This will be a major problem.

IMO people with real wealth know when a currency is not worth holding. When you see the US Currency start to tank you'll know it's all over for the US economy as everyone will be selling off for a better curency or Gold\Silver\etc. As long as it holds it's value then it's an idicator that there is still faith in a recovery.

When you start to see this is when I would start to panic.