The Federal Reserve, Bank of Japan, and European Central Bank may be forced to buy US Dollar as world investors’ start selling record levels of US assets
Peter Oberois
Oct. 17, 2007

The financial meltdown is here. The US Dollar is hitting new lows every week. Now data from US Treasury shows net sales of US market assets – including bonds, notes and equities – were $69.3bn in August after a revised inflow of $19.5bn during July. This adverse flow of assets from US is a record and surpasses previous records set in early nineties.

The trend is significant. The lower dollar, the subprime meltdown and credit squeeze in US are the main reasons foreigners are dumping US assets. Treasury Department figures published manifests Japan cut its holdings by 4 percent to $586 billion, a record, China's ownership of U.S. government bonds fell by 2.2 percent to $400 billion, and Taiwan's slid 8.9 percent to $52 billion. All these are record levels of drops.

Federal Reserve cannot raise rates to support dollar and bring back international investor confidence. The other choice is to buy US Dollar together with Bank of Japan and European Central Bank.

Buying US Dollar in open market will be a temporary fix and will actually aggravate the situation in the long term. Given the fact that Federal Reserve is interested in quick and temporary fix, most likely they will opt for coordinated buying of US Dollar in the open market.

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