Dollar Carry Trade?

Is dollar going the way of Yen?  "Ahead of the Tape" column in WSJ looks at similarities between dollar and yen last decade. 

With the housing bubble bursting, the interest rates might be low for many years to come.  Could this make it a favored currency for carry-traders?  If it does, it may complicate fed's life as it will drive dollar down. 

US being a net importer works in dollars favor as other nations economies depend on US.  And they also have large amount of dollar reserve whose value goes down when dollar depreciates. 

It's hard to tell if there is going to be a dollar crisis as other economies are dependent on the US.  But as these economies replace use consumers with other consumers, the dollar will keep declining.

One thing is for sure.  Dollar is no longer the worlds leading currency.  It's hard to believe how hard it has come down in last 10 years. 

 

The developments have some currency traders asking the previously unthinkable: Could the U.S. dollar slowly be turning into the Western equivalent of the yen?

 

"The dollar is now generally looking like a low-yielder," says Alan Ruskin, international strategist at RBS Greenwich Capital. "If the fed-funds rate got below 3%, it would establish itself as that."

 

There are good reasons to doubt this scenario. If economic pain overseas deepens, foreign interest rates will likely come down, too, closing the gap with U.S. rates. This is one reason the dollar didn't become a carry-trade currency when the Fed cut its target rate to 1% after the 2001 recession.

 

By the time the U.S. banking crisis is resolved, the dollar might look nothing like it does today.

http://online.wsj.com/article/SB120147966674720853.html?mod=todays_us_money_and_investing