Paradise lost?

That's what Barclays bank in London says about the fortune of the dollar as the U.S. recovery gets underway. The dollar will weaken according to the bank's analysis from $1.40 against the euro to $1.50 within a year. The bank analysts can't see any asset performing well enough to attract large-scale capital inflows.

Well it's a view, we suppose. And considering the range of predictions this year is a whopping 32 cents wide as analysts try to second guess the dollar's performance, never has the standard deviation been so large.

The analysts' predicting the demise of the dollar of course cites the ballooning budget deficit and the government's decision to expand the money supply through the purchase of $1.75 trillion in bonds and mortgage debt.

But our question is what suddenly changed to create this loss of faith in the dollar. After all without the respite the fortunes for the U.S. economy would be dire, and that apparently would boost the need to hold dollars. As Barclays Bank points out, the refrain from adding to the fiscal burden as was revealed in yesterday's FOMC statement, should support the dollar over coming months and see the dollar rise to $1.35.

Causing a loss of support for the dollar on Thursday was the success of a seven-year government note auction totaling $27 billion. A rather strong indirect bid, that's the bidding by other agencies and central banks from around the world, helped ensure its success.

But one senses that this could go round and round. The Fed has maintained its agreed stance. Without those purchases the economy wouldn't mend. The resolute Fed action is a good thing. The strengthening economy will detract from the appeal of any U.S. asset class you can think of causing returns to underperform the appeal of any comparative asset class available to investors overseas. But silly central banks right now can't help themselves from buying U.S. debt, which supports the dollar. But the dollar will be lower in a year. Right, that one's got us.

Someone pass the margarita!!

The Supreme Council of the Secret Order of Jurojin