Fed between a rock (keep bubbles inflated) and a hard place (falling dollar).
Something ominous is happening when the United States reports its biggest surge in productivity in 20 years, as it did Wednesday, and yet the dollar plunges to an all-time low against the euro.
The dollar is sinking these days on good news and bad, and the explanation is pretty simple: Investors around the world are worried that the Bush administration's policies are eroding the value of the U.S. currency. So they're rushing to unload greenbacks, in what could soon become a full-blown financial crisis.
"The dollar crisis is the story," warns James Harmon, an investment banker who headed the Export-Import Bank during the Clinton administration. "A lot of smart money has moved out of the dollar in the last six months," he explains. "Now the late-comers are rushing to sell, and that's adding to the momentum."
The "smart money" includes financial guru Warren Buffett. He disclosed last month in Fortune that since the spring of 2002, he has been making "significant investments" in foreign currencies, for the first time in his career. What worries Buffett is that the U.S. trade deficit has "greatly worsened," and is now running at more than 4 percent of GDP. That puts the U.S. economy at the mercy of foreigners, and their willingness to hold surplus dollars.
...
from
cincypost.com
One scenario I toying with is the Fed remains accommodative today, and then with the dollar plunging, is forced to raise rates. That should roil the markets.
We'll see.
lurqer |
