FX Trading – The dollar’s Achilles Heel?

If you have been reading our daily missives you probably know that we’ve dubbed the problems in central and eastern Europe as the Achilles Heel for the euro as these problems can easily be transmitted into big trouble for European banking. But we haven’t spiked out an Achilles Heel for the US dollar (silver bullet so to speak), though we know it’s there. Maybe the growing woes facing US state and local pensions represent it. Here is a scenario, we’re not sure how plausible any of it really is, but thinking about this stuff we think helps no matter your position.

The potential ticking time bomb is the massive US state and local pension funding problem highlighted on the front page of the Financial Times this morning. Why this the Achilles Heel for the dollar? Because it could eat away at the domestic pool of US savings we expected to materialize.