Since last Wednesday, the dollar has gained against the Euro from a low of .745 to today's latest high of .795. This is incomprehensible to many people who see the stock market plunging to further lows on news that the bank bailouts haven't worked. How the dollar can gain when the U.S. economy appears to be on the brink of total collapse doesn't appear to make any sense.
This otherwise confusing scenario becomes understandable, however, when we realize what might be happening. If currency speculators are convinced that the dollar's value is about to plunge, they will borrow as many dollars as they possibly can, then sell them immediately. Once the value of the dollar goes down — as it seemingly must — the speculators will buy back the dollars they sold at a much lower price, pay back the dollars they borrowed, and pocket the difference as a profit.
This is called "short selling." The immediate effect is to drive up the price of the dollar . . . temporarily, due to increased demand. The value starts to plunge, however, once the speculators start selling what they borrowed. The lowering of value accelerates once other people and foreign governments see that the currency is in trouble and try to get rid of their holdings. The result is a precipitous drop in the value of the currency, and an enormous profit for the speculators who got in on the ground floor.
Had anyone guessed in 1933 that Roosevelt was going to devalue the dollar and take the U.S. off the gold standard, he or she could have made an immense fortune by borrowing highly-valued dollars and paying them back with much cheaper dollars. In the 1970s foreign banks bought massive amounts of dollars to try and support the value to prevent such currency speculation and a forcing down of the value of the dollar, until Richard Nixon gave up the fight and took the dollar off the gold standard internationally as Roosevelt had done domestically.
It is thus a distinct possibility that currency speculators see in recent economic proposals in the United States the prospect of further bad news in the financial markets, and are acting in anticipation of it. That fact alone should alert the powers-that-be that there is something fundamentally wrong in what they're proposing, and it's time to look outside the box to Capital Homesteading.
THE Global Justice Movement Website
This is the "Global Justice Movement" (dot org) we refer to in the title of this blog.
