When dollars return

Article Excerpt

Widely predicted financial calamities rarely do much harm to the market or economy. Even if the facts are correct, the calamity never materializes since the predictions give investors and businesses plenty of warning. The best recent example was the late-1990s Y2K scare. It predicted a rash of computer failures for the start of the year 2000, since computers couldn’t distinguish 1900 from 2000. Nothing much came of it. We could soon see a widely predicted calamity that turns out to be a blessing in disguise. I’m talking about the hoards of U.S. dollars that are building up overseas. The negative view is that holders of these U.S. dollars will eventually lose faith and dump them, spurring a dollar plunge and soaring interest rates. The reverse seems more likely. Rather than dump their U.S. dollars for yen or euros, foreign investors are more likely to switch to U.S. stocks. After all, holders of U.S. dollars must have faith in the American economy. Stocks are a better…

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