Impact of the Dollar Decline

It is hard for most Americans to get a grasp on what has been happening with the dollar. It’s not like the stock market where its price is quoted on the nightly news.  Now if you frequently travel abroad – you have a better understanding.  Your dollar buys less stuff every time you step off the plane, but  that’s a relatively small number of people.  Regardless to what Bernanke says about inflation - people are quite aware that prices are going up more than 2-3%. However, most have not connected the dots. 

I like how U.S. Representative Ron Paul describes the situation.  “This decline in the value of the dollar is simple to explain. The dollar loses value as the direct result of the Federal Reserve and U.S. Treasury increasing the money supply. Inflation, as the late Milton Friedman explained, is always a monetary phenomenon. The federal government consistently wants to spend more than it can tax and borrow, so Congress turns to the Fed for help in covering the difference. The result is more dollars, both real and electronic– which means the value of every existing dollar goes down.” 

Whether people realize it or not, we experience the impact of the declining dollar every day. Dollar goes down – prices go up.  So what is one to do? Continue reading “Impact of the Dollar Decline”

Fed Has Lost Control Over Interest Rates

I found another article our optimistic homebuilder CEOs should read.  Jim Jubak, MSN Money Editor, in his latest article suggests that the Fed has lost control over interest rates.   

Jubak states, “The dollar’s tumble and Federal Reserve Chairman Ben Bernanke’s attempts to placate overseas investors are the clearest signs to date that the foreign investors who finance the huge U.S. trade deficit have gained significant control over the U.S. economy. A few more weeks like that, and it will be clear to everyone outside of Washington that the Fed has lost control over U.S. interest rates.”

I find it interesting that so many reports are starting to surface about the state of the dollar.  It is almost like it is become socially acceptable to write that a $750 billion trade deficit is not healthy. Continue reading “Fed Has Lost Control Over Interest Rates”

Dollar Traders on Edge as They Suspect Fed is Wrong

It has taken some time for the fundamentals of the dollar to work its way to the front page. After the pounding it has taken over the past month, it is certainly drawing attention now.  Just remember gold moves in the opposite direction of the dollar.

Source: Financial Times

Currency markets will open on edge on Monday after last week’s sharp decline in the dollar, with traders looking to new economic data and the tone from the European Central Bank for fresh reasons to trade on the dollar.

The latest bout of dollar weakness has occurred as currency markets have developed a growing belief that the US economy is in worse shape than the Federal Reserve claims. They have also been encouraged to buy the euro by the lack of concern expressed so far by ECB officials about the rise of the single currency.

On a trade-weighted basis, the dollar has declined nearly 4 per cent since the middle of October, with more than half that fall being recorded since November 20.

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An Email from Fed Chairman Bernanke

This is one of the best post that I have seen in awhile. Bernanke is taking transparency to a new level.

From Ben Bernanke:
Speaking on behalf of all the Fed members we thought it was time to honestly address the situation the country is facing. This is part of our new policy to be as candid and honest as possible. Quite frankly we are frightened by the rapid falloff in housing permits, the rise in jobless claims, the rise in inventories, and the slowdown in consumer spending. It now appears the landing is not going to be soft and it is also doubtful the financial markets are fully prepared for it.

This slowdown in jobs and wages could not have come at a worse time because consumers are cash strapped already. We now forecast a downward spiral in construction jobs that will spill over into other segments of the economy resulting in additional losses in wages and jobs. Compounding the problem is the fact that many home buyers took the advice of former chairman Greenspan by taking out adjustable rate mortgages with teaser rates that are now about ready to be reset.

the rest of the email

How I Would Have Blown a Housing Bubble? – If I Had Done It

Fortunately, the world was spared from O.J. Simpson’s book “If I had done it.”  Unfortunately Alan Greenspan’s book with the same title has already been published and is climbing up the best sellers’ lists.   Ron Peebles describes in a somewhat humorous manner Greenspan’s contributions to our biggest bubble to date – the housing bubble.

Source: Prudent Bear . com
by Ron Peebles

People are always asking me about bubbles. Like do I believe in bubbles? And how do you blow them?

Well, I’m not sure I have all the answers on bubbles. I’m just a former central banker who spending his twilight years playing bridge and looking at the correlation coefficients of economic variables. Typical retirement stuff. So when it comes to bubbles, I don’t know. A few years ago Beannie Babies got a little out of hand, but you know, the market is the market and who’s to say what’s a fair price?

Back in the day, some people thought I had the power to make things happen, you know, like I was Bono or something. If you want to know the truth, I spent a lot of time sitting around a big table shuffling boring academic papers and wondering why the hell we couldn’t get some decent coffee.

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