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The U.S. dollar and Japanese Yen have ripped higher after President Obama said that he may let automakers go bankrupt.
Although this is not much of a surprise since he threatened GM and Chrysler with bankruptcy on Friday, the fact that he reiterated the threat this evening indicates that it is not just a scare tactic. Obama is very serious about making sure that the automakers will only be given the money to survive if they have any chance of returning to profitability.
There are many supporters of a GM or Chrysler bankruptcy but the actual announcement could have colossal impact on the financial markets because it means that the “too big to fail” mentality is being thrown out of the window. Unless Obama “clarifies” his comment, we could see the sell-off in higher yielding currencies extend in Asia and Europe. The dollar and yen are benefiting from safe haven flows even as Japan reports the weakest level of business sentiment (Tankan report) on record.