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Politics : Don't Blame Me, I Voted For Kerry -- Ignore unavailable to you. Want to Upgrade?

To: BEEF JERKEY who wrote (24736)	5/22/2004 8:17:11 PM
From: Bearcatbob	Read Replies (2) \| Respond to of 81568

BEEF JERKY -- your post shows absolute ignorance of what is going on in the world! High gasoline prices in the US are the sign of the ultimate victory of the left and the radical environmentalists. Even if more oil is available it has to be refined. Imports of products no longer works because foreign products do not meet our standards.

To: BEEF JERKEY who wrote (24736)	5/22/2004 8:38:23 PM
From: lorne	Read Replies (2) \| Respond to of 81568

Strong Dollar Policy Set For a Comeback Published: 02/24/04 dailyfx.com Not Your Older Brother's Strong Dollar Policy The strong dollar policy of the 1990s is long dead, gone, and due for a comeback when the reflation ends. Ask any Treasury official to comment on the greenback's swoon versus its G7 counterparts and you'll witness an odd sort of rationalization: Of course (all evidence to the contrary), the Administration favors a strong dollar, its long-standing policy for nearly a decade. Yet when did a strong dollar come to mean one that was merely difficult to counterfeit, as Secretary Snow commented last year? It wasn't always like this Under President Clinton's Treasury Secretary Rubin, the strong dollar policy meant exactly that: support for a relatively high value and steadily appreciating US currency. During the boom times of the late 1990s, a rising greenback was warranted as the economy grew at a blistering pace far above its sustainable "full employment" potential. For a rapidly expanding US economy, the strong dollar yielded an array of benefits--chief among them it kept inflation at bay while attracting international capital flows necessary in fueling the "economic miracle." And with inflation less of threat, interest rates remained tame, saving billions in debt service. By 1999 a booming stock market had created nearly $5 trillion in wealth in only two years, sending personal consumption, the main engine of American growth, into overdrive. A strong dollar helped satisfy this surging demand by lowering relative costs of imports and increasing the overall quantity of goods and services supplied. A casualty of much of this excess was the relatively tiny export sector, which suffered under the weight of the appreciating greenback and sluggish foreign demand. Between 1996 and 1999 the trade deficit increased three-fold from $89 billion to an all-time high of $254 billion. "Strong" dollar (wink, wink) As the bubble burst and the economy stumbled, the strong dollar policy as originally envisioned began to make ever less sense. Faced with a massive supply overhang and intense competition from overseas, American businesses lost significant pricing power. Rather than the central banker's traditional problem of inflation, falling prices became a real and much more imminent danger. With growth plummeting and unemployment rising, the Federal Reserve's focus turned to reflating the economy--lowering interest rates and flooding the system with dollars in order to stimulate economic activity. Successive easings by the Fed contributed to a considerably weaker dollar over 2002 and 2003. Indeed, over the past 12 months the greenback declined against the euro by 20%--against the Australian dollar, the currency's fall has been even more precipitous at over 30%. Not wanting to green light a potentially destabilizing dollar rout, the Bush Treasury Department has retained the "strong dollar policy" in little else but name only. Hence representatives from the Secretary on down maintain their official support for a strong dollar even as the Administration gives its implicit approval for the currency to drop. And drop it has. So far, so good Like the strong dollar policy of the late 1990s, the "strong dollar" policy of today has paid dividends for the economy and Bush Administration. Driven by easy money and negative real interest rates, consumer spending continues to grow at a healthy clip while exporters enjoy the competitive price advantages bestowed by a depreciating currency. Moreover, in an election year comes the added benefit of aiding hard-hit manufacturers in key swing states via a weaker dollar. Rising prices, the usual side-effect of a falling currency, are nowhere to be seen thanks to what the Fed refers to as existing "slack" in the economy's use of capital and labor. Essentially this amounts to a free ride for the US, which is currently enjoying all the gains from reflation while feeling none of the pain from inflation--at least not yet. All good things… Despite the benefits of the current "strong dollar" policy, the conditions that called for it in the first place can easily change. As Fed Chairman Greenspan noted in recent testimony, interest rates cannot remain at these extreme lows forever--at some point the central bank must confiscate the proverbial punch bowl and tighten monetary policy. Although when this happens is anyone's guess, why may be less of a mystery. On the heels of the largest monetary and fiscal stimulus measures in recent memory, rising inflation is bound to follow, later if not sooner. As inflation eats into the value of US debt, foreign bondholders, notably Asian central banks, may become less willing to finance insatiable American consumption and seek to diversify into other holdings, causing yields to spike and the bond market to tank. All this spells potentially bad news for a private sector filled with individuals and businesses grown used to leveraging rock-bottom rates to finance consumption and investment. In what is far from a worst-case scenario, the US economy could eventually be in for a prolonged period of inflation, reduced consumer spending power, falling asset prices, and dwindling investment from abroad. The policy response to such capital flight? Higher short-term interest rates and a stronger currency; in other words, a strong dollar policy in both word and deed. Thus when the time comes, US authorities will have to pay more than just lip service to a strong dollar. Backed by a more hawkish Fed, Treasury will actually need to mean what it says. Exporters, consumers and investors alike beware.