hi earlie,
>I agree that the Fed has to be concluding that a weak dollar is an inevitability.<
If you leave out the Wall St stock pumping, CNBS hype, phony accounting, foolish share repurchases related to stock option grants, and greed among novice investors aspects of the bull market, the typical “bubble analysis” goes something like this:
The Fed’s very easy money policy during the early 90s banking crisis sowed the seeds for a financial asset bubble. If was further fueled by repeated IMF bailouts and injections of liquidity during periods of financial crisis etc…. throughout the 90s.
Essentially, money and credit were extremely easy during the 90s.
At the same time, strong US financial markets attracted tons of foreign investment into US securities. That further fueled our financial asset markets.
I have a problem with the notion that the Fed, Treasury Dept, Foreign Central Banks, the Federal Government or anyone else actually had a major impact on the dollar during the 90s or that they will have a major impact now.
If money and credit were as easy as many of us believe it was during the 90s, it certainly didn’t matter to currency markets at the time. Other than that, the US clearly wasn’t doing anything to encourage a strong dollar other than lip service.
So why would lip service or Fed desire lead to a weak dollar now?
I think what we have is a fundamentally flawed international financial system.
It is essentially designed to socialize the risk of banking on a global scale – which more or less translates into it being a giant wealth transfer mechanism that takes wealth from the bottom and moves it to the top to protect banking and financial interests.
It is also a way for government to inflate its way out of its uneconomical political promises – again essentially a wealth transfer mechanism.
Aside from “free market types” finding the “socialism” aspect of this repulsive and others for political reasons finding wealth transfers in the wrong direction even more repulsive, it is a system incredibly prone to excess.
I think those unsustainable excesses blow up when they get too big to be supported.
I agree that the dollar is going to weaken, but I don’t think the Fed’s desire or belief is going to have much to do with it. The Fed was easy for a long time and the dollar was strong.
The dollar is going to weaken under the weight of the current account deficit, weak economy, foreign indebtedness - no matter what "al the printer" wants.
It’s the accumulation of excess that will get the job done. |
