Brazil joins Southeast Asia in dollar support

Two weeks ago, Southeast Asian nations stepped up their dollar support. Now Brazil is trying to stop the rise of its currency:
Forex Effect From Brazil Tax Move Could Prove Short-Lived
Monday night, Finance Minister Guido Mantega announced a 2% tax on foreign portfolio investments into fixed-income and equities accounts.

Mr. Mantega stated frankly that the purpose of the move was to support the U.S. dollar against the surging Brazilian currency, the real. A strong real, he said, was "threatening local companies."

That threat comes partly from cheap imports, which soak up market share among Brazilian consumers, and partly from exports made less competitive by a strong local currency.
These efforts will fail because the central banks cannot control the market, no matter what they believe. The real story is that for all the inevitability of a weaker dollar, there is a lot of dollar support. What are the chances of a miscalculation?

Also, with respect to currencies, please see this David Einhorn speech to the Value Investing Congress. ZeroHedge plucked out several gems, but the one below is the most important and why I believe precious metals and hard assets are the best choice for anyone concerned about a weak dollar:

The failure of Lehman meant that barring extraordinary measures, Merrill Lynch, Morgan Stanley and Goldman Sachs would have failed as the credit market realized that if the government were willing to permit failures, then the cost of financing such institutions needed to be re-priced so as to invalidate their business models.

I believe there is a real possibility that the collapse of any of the major currencies could have a similar domino effect on re-assessing the credit risk of the other fiat currencies run by countries with structural deficits and large, unfunded commitments to aging populations.

Einhorn Vic 2009 Speech

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