Author Declares Falling Dollar is Saving the Mortgage Market

On Tuesday, the Dollar Crisis and Recovery Partners released what many will find a startling statement: the falling U.S. Dollar is going to begin immediately saving the mortgage market and generate yet a new surge in the stock market.

U.S. currency specialist and author Mike McDonald asserts that the falling interest rates engendered by the falling Dollar render the "doomsday scenario painted by Wall Street over sub-prime mortgages and housing...way overblown."

McDonald points out that since June, one year U.S. Treasury bill rates have fallen from 5% to a shockingly low 3%, while the 10-year Treasury rates to which 30-year mortgages are indexed have fallen from 5.2% to 4%, with most of that decline happening in the last month.

"Many companies -- such as HSBC, GM, Merrill Lynch, and Citigroup -- used default assumptions based on higher interest rates to calculate cash flow yields and wrote off billions in mortgage-backed CDO assets. This could be way off the mark," McDonald goes on to say.

Although the Federal Reserve controls short-term interest rates, longer-term rates are ultimately controlled by foreign investors who are the primary buyers of U.S. Treasury securities. Japan and China together own nearly 60% of the U.S. Treasury debt.

McDonald sees this as setting the stage for a near-future, long-term rise of the Dollar against other major currencies.

"The worry that the Dollar could free-fall does not seem to worry foreign investors today...With much lower interest rates, many people with variable mortgages will find they can afford the new re-set payments after all. Foreclosures should drop dramatically, the housing glut should level off, and housing prices will then rise," McDonald asserts.

However, some other currency analysts have cautioned that while a gradual and organized decline in the Dollar can periodically help correct the United States' excessive deficit while increasing profits from exports, too rapid a fall, as some believe we are now seeing, runs the risk of causing high inflation as the Fed feels pressured to continue to cut interest rates and other nations with stronger currencies decide to play "beggar thy neighbor" through the use of increases in protectionist trade measures that would cut off the profitability of United States exporters.

These analysts feel that what needs to be done is for the Secretary of the Treasury to institute policies that promote fiscal responsibility by decreasing taxes and, even more importantly, encouraging and rewarding saving more instead of rabid consumption.

The Dollar has been falling for nearly five years. The housing market bubble-bursting, which was caused by irresponsible borrowing and often frivolous lending, hastened the pace of its plunge.

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