Thursday, December 27, 2007

Flight to Safety-Flight From the Dollar

As most of you have probably already heard, former Pakistani Prime Minister Benazir Bhutto has been assassinated. This was probably the work of jihadists, judging not only from the fact that the assassin committed suicide immediately after he had killed her, but also by the fact that this will leave them as the only real alternative to the present dictator, Musharraf. A jihadist takeover of Pakistan would be troublesome for many reasons, not least because that would mean that jihadists would control nuclear weapons. However, for that to happen, Musharraf would have to be killed to, and that have still not happened.

One interesting economic aspect of this is the fact that the "flight to safety" move in the currency markets, did not involve a flight to the U.S. dollar. Quite to the contrary, this news intensified the dollar sell-off triggered by weak U.S. economic data. This is yet another sign that the U.S. dollar is losing its safe have status-with gold, the euro, the swiss franc and the yen instead serving that role.


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