Uncovered Interest Parity

James Grant featured the 'Dollar Debasement Index' (in place of Kerry's 'Middle Class Misery Index') in his latest Interest Rate Observer. It combines foreign central bank holdings of Treasuries and agencies, the current account deficit, the price of gold and the federal budget deficit. He notes: "The index has risen sharply on Bush's watch, indicating a rapid pace of debasement and latent debasement."

I'm not an economist, or very skilled with math, but I find the discussion about the value of the dollar fairly interesting and not inconsequential for Americans who can expect to pay off today's deficits over the long haul.

Today, you may have noticed, Warren Buffet has reportedly acknowledged dollars are a bad currency to hold (so far as Berkshire is concerned anyway). I tried to examine the case a little today in my month-old blog, but don't really have the tools to analyze the implications of currency markets.

I'd like to know how an economist views this apparent 'defection' to expectedly value sustaining currencies.

Off topic and since I'm asking questions at the website of a certified economist, what is the outlook for the shilling in Kenya? Since the election of the anti-corruption styled government, I've been entertaining the notion that Kenya might be an ideal candidate for speculation.

Well, I think the investor can do well by buying dollars forward with his funds. This will place him in a better position to enjoy both interest-income differencial and forward premium.