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To maintain the policy of dollar strength would be to play chicken with the Chinese, who apparently were able to get Rubin to blink first. I agree that the strong dollar would be a backdoor way for Greenspan to slow the earnings down and allow the market to potentially correct itself through a price earning adjustment. This is the only acceptable way to do this, given that an increase in rates is out of the question.But, this option of continuing to let the dollar strengthen carries with it a different risk reward calculation, thanks to the Chinese threats. A further risk of a stronger dollar is that the money flows into bonds as the currency problems exacerbate, thereby lowering rates and further stimulating our economy(an outcome which Greenspan probably doesnt want either). Seems like a rock and a hard place. In these kinds of situations, is there any doubt that the only solution will be to take the easiest way out and inflate, defer, and deny? And furthermore, if Greenspan thinks that this market can ever correct itself in any type of an orderly manner, well, then he must be smoking some real good weed. Accumulate gold. |
