The United States and the currency that drives it is attracting much attention over the financial crisis, and possibly providing a place to stash assets, giving a bit of hope to markets and exchange traded funds (ETFs).

American investors are ditching foreign ventures and bringing their dollars home, entrusting them to the supposed bedrock safety of United States government bonds, explains Peter S. Goodman for The New York Times. China is also purchasing large chunks of American debt. Both events are adding value to the U.S. dollar.

These moves can provide the Obama Administration with the fuel it needs to finance the trillions of dollars toward rescuing banks and stimulating the economy, enabling the government to pay for these efforts without lifting interest rates.

This comes with consequences, however, and the tilt of money toward the United States appears to be exacerbating the crisis elsewhere. The pursuit of capital suddenly seems like a zero sum game. A dollar invested by foreign central banks and investors in American government bonds is a dollar that is not available to Eastern European countries desperately seeking to refinance debt.

Thus, emerging markets and developing nations are going to suffer a hard hit, as their private capital flow is gone. This may be the third wave of the financial crisis brewing.

  • PowerShares DB US Dollar Index Bullish (UUP): up 4% over one month

  • PowerShares DB U.S. Dollar Index Bearish (UDN): down 3.9% over one month

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.