Dollar Falls on Speculation U.S. Bailout May Boost Government Debt Sales

Sept. 22 (Bloomberg) -- The dollar fell for the first day in three against the yen on speculation a U.S. government plan to buy soured mortgage-related assets from banks will widen the country's budget deficit.

The dollar traded near a two-week low against the euro on speculation the combination of spending $700 billion on mortgage securities and $400 billion to guarantee money-market funds may rattle investors' confidence in the U.S.'s ability to repay debt.

``Problems with the U.S. deficit will haunt the dollar,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``This is a reason for the dollar to go lower. Spending such a large amount on this rescue package will remind traders that the fiscal health of the U.S. is set to worsen.''

The dollar fell to 106.99 yen as of 7:48 a.m. in Tokyo, from 107.45 in New York late on Sept. 19. The U.S. currency traded at to $1.4456 per euro, near a two-week low of $1.4541 reached on Sept. 18. The euro bought 154.70 yen from 155.46 yen. The dollar may decline to 106.30 yen today, Ishikawa said.

Treasury Secretary Henry Paulson's plan, sent to Congress Sept. 20, would mark an unprecedented government intrusion into markets and increase the nation's debt ceiling by 6.6 percent to $11.315 trillion. Officials may also start a $400 billion Federal Deposit Insurance Corp. pool to insure investors in money-market funds.

Crushed

``As we get to the other side of this, the dollar will get crushed,'' said John Taylor, chairman of New York-based International Foreign Exchange Concepts Inc., the world's biggest currency hedge-fund firm, which manages about $15 billion.

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if the dollar falls.

That said, the refiners on the Gulf Coast seem bound and determined to milk Hurricane Ike for all they can.

the government could take over these mortgages, then sell them at a higher interest rate.
I remember buying a house in 1980 with a Fannie Mae loan and the interest rates being
near double digit.

Seems to me there may be something more profitable long term in this scheme.