US Dollar Index Target

                                                        US dollar index 2004 - 2007

                                                        US dollar index 2007 - 2010


A global move toward safety appears on the rise prompting a rush toward the US dollar. As the European recovery looks weaker than anticipated and stock markets begin to fall, we should see a substantial move to dollars. Our target is based on past performance of the US dollar index and on the increasing tensions that appear to be building as austerity takes hold.

Short term target for the US dollar range - 91 to 92.

Our longer term target for the US dollar is negative at present because we expect that the Federal Reserve will begin to expand its balance sheet again within months as the recovery falters.

We expect, given the present course of the Fed and Treasury, that the US will default on bonds sometime in the next two years or so. We do not have a target for the long term, as policy decisions made in the future will have a large impact on how the dollar performs.


  1. PW,

    >>We expect, given the present course of the Fed and Treasury, that the US will default on bonds sometime in the next two years or so

    Very interesting comment! In the past has the US defaulted over its bonds ?


  2. A good question Walter.
    The US defaulted on its Fourth Liberty bond (a war bond) issued in 1929. The US was on the gold standard at the time. The following are some details:
    The first three bonds were retired during the course of the 1920s but the fourth Liberty Bond lasted into the 1930s leading to a technical default on the bond the terms of which were for payment in gold. The fourth Liberty Bond had the following terms:

    Date of Bond: October 24, 1918
    Coupon Rate: 4.25%
    Callable Starting: October 15, 1933
    Maturity Date: October 15, 1938
    Amount Originally Tendered: $6 billion
    Amount Sold: $7 billion

    The U.S. Treasury called this bond on April 15, 1934, but refused to redeem the face value of the bond in gold as required by the terms of bond which read:

    The principal and interest hereof are payable in United States gold coin of the present standard of value.

    The legal basis for the refusal of the U.S. Treasury to redeem in gold was House Joint Resolution 192, dated June 5, 1933. This resolution was later held to be unconstitutional by the U.S. Supreme Court.

    Since the United States had devalued the dollar from $20.67 per troy ounce of gold (the 1918 standard of value) to $35 per troy ounce in the preceding year the 21 million bond holders lost $2.866 billion dollars, approximately 41% of the bond's principal.

  3. PW - Thanks for your research, time and effort.



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