In this environment tamny recommends buying great defensive

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Reference no: EM13619330

Please read the following excerpt from an article:
"There's been a strong correlation over the last several months: as the dollar losses value, stocks rally. It's leading some to endorse the idea that a weak dollar is good for the economy. Nonsense, argues John Tamny, editor of RealClearMarkets.com. "If this was the path to prosperity then Argentina would be the richest country in the world right now."

Tamny believes the weak dollar creates inflation: an "anti-investment mechanism." History proves, Tamny says, periods of weak dollar and strong gold prices - i.e. the 1970s and again this decade - have proved disastrous for the stock market and the economy.

In this environment, Tamny recommends, buying "great defensive investments" such as gold and real estate. Unfortunately, he says, "it's terrible for the economy" since money invested in these hard assets means less capital for private enterprise.

If we continue to support a weak dollar the U.S. is in danger of losing its reserve currency status. But, that's actually something Tamny doesn't seem to mind. "I'd love to see some competition for the dollar, whereby the Treasury and Fed realize unless we get serious about maintaining a credible and stable dollar that has the same value today as in 10 years from now someone else is going to take our place." Because as he puts it, "there's no way to devalue your way to success."

The discussion above is on the short term benefits of devaluing US dollars from the US perspective. This article talks about the long term consequences of devaluing US dollar. According to the article, why would US investors be unhappy about higher inflation? Does that increase or decrease their real returns? Remember the comparative advantage of US as the economy with lots of investment opportunities which enables the US to attract capital from all around the world. With a high inflationary environment is that sustainable? What will be the consequences?

Reference no: EM13619330

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