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Dollar holds strong despite bailouts

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KAI RYSSDAL: As I think we’ve mentioned, the government’s getting the cash to plug the holes in the banking industry two different ways. One, it’s borrowing by selling Treasury bonds. And two, it’s printing money like crazy. That — the printing money part — is traditionally a recipe for a couple of equally bad things. Rampant inflation, which we haven’t got because the rest of the economy’s still dragging. And a falling dollar. But, in fact, the greenback’s holding up pretty well.

We asked Ashley Milne-Tyte to look into why the old rules don’t seem to apply any more.

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ASHLEY MILNE-TYTE: The U.S. economy may be battered, but Johs Worsoe, senior executive vice president for Union Bank, says currency buyers are still willing to place bets on the dollar.

JOHS WORSOE: People, I think, are buying the dollar right now because there’s so much uncertainty in the world that they can’t really figure out who’s weaker than the other guy. And when that’s the case they kind of revert to old habits, which is, The dollar is still the ultimate safe haven and that’s what we’re gonna buy.

Win Thin, currency strategist with Brown Brothers Harriman, points to something else. He says, Sure, with the government printing money and pouring it into the bailout you might expect the dollar to weaken. But he says that scenario would assume there’d be a glut of dollars floating around.

WIN THIN: But what we’re finding is that there really is not excessive supply out there, that in some instances there’s actually been a shortage of dollars that have built up in the market.

Because, he says, banks are sitting on their cash, not lending it out. And because foreigners need dollars to buy all those Treasury bills.

On the other side of the world the yen is strong too. Like the U.S., Japan is printing money to bail out its financial system, and its interest rates are also near zero.

Axel Merk is president of Merk Investments.

AXEL MERK: As long as the Bank of Japan is not intervening in the currency markets, whenever we have this panic that the financial system may implode there is a flight over to the Japanese yen precisely for that reason.

Investors are putting money into Japan and the U.S. because they think their economies will not only survive, but thrive.

In New York, I’m Ashley Milne-Tyte for Marketplace.

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