The dollar is surging today, and its because of a critical decision in Europe.
(Dow Jones)--The bailout of Germany's banking sector may swell the country's public debt rate to 90% of gross domestic product, Die Zeit weekly newspaper reports Wednesday.
The weekly based this estimate on a recent decision by Eurostat requiring Germany to include the balance sheets of public-owned bad banks--set up to help financial institutions offload toxic and non-strategic assets--into its overall debt ratio.
State-owned WestLB AG bank has already offloaded EUR77 billion into such a rescue bank. Going by the Eurostat decision, EUR54 billion of WestLB's toxic assets transferred to the bad bank must be included in Germany's overall debt level.
That's an interesting concept - forcing the government to include the debt of publicly-owned companies that it has nationalized.
One might wonder if America adopted that idea and included the $6 Trillion in Fannie Mae and Freddie Mac debt that the public now owns? What would the sudden increase of the debt/GDP ratio to 140% do to the dollar?
The curse to be export-world-champion
Well, that's the problem if your hobby is collecting IOU by exporting real resources to the rest of the world. Your constant worry is that these IOU don't become toxic on the other hand you are always on the lookout to increase return on your IOU. In regard to the US and Fannie Mae / Freddie Mac: nothing will happen. This is IOU in your own sovereign FIAT currency.
If the FED puts $6 Trillion on its balance sheet and decides monthly to write off 5% by hitting the DEL key nobody will even realize what's going on. That's the beauty of a free-floating, non-convertible FIAT currency.