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US Strongest Economy Around

The United States is faced with a huge budget deficit that makes foreign investors nervous about holding dollars. But as a percentage of GDP, that deficit isn't that much worse than those in Europe and better than the one in Japan, the homes of the two major competing global currencies. In addition, the U.S. economy is growing faster than those of Europe and Japan, and our budget-busting demographic burden isn’t as serious as those faced by the Europeans and the Japanese.
If foreign central banks stopped buying dollars entirely, Wall Street estimates, the dollar would have to drop another 30% and U.S. bond yields would have to climb by 4.5 percentage points to attract enough private capital to fill the gap. For example, even today, the yen makes up only 5% of central-bank reserves because Japanese government bonds yield almost nothing and because the attractiveness of the yen is dampened, shall we say, for anyone who understands Japan's impending budget meltdown. The same with the euro, where euro-denominated bonds yield less than U.S. treasury's, making diversification out of dollars and into euros prudent in the long run but painful in the short run. Closing that dollar/euro yield gap doesn't seem to be in the cards, either, because raising interest rates in Europe would slow those slow-growing economies even more. the United States, thanks to its faster economic growth rate, has more room to raise interest rates -- without producing a recession -- than the economies of its currency competitors. Thanks to Jim Jubak for the article. US investors should have some exposure to international equities. Foreign currency movements are accounting for more then 50% of gains when translated back to dollars. And it serves as a diversification tool. Closed end and country funds are one option

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