Walmart's New Health Food Push: Is It Too Hard to Swallow?
Bonds Are a 'Safe' Investment: A Big Lie Gets Even Bigger
Why would the government want a weak dollar? To get some perspective on the dilemma facing the Fed, let's go back to the Clinton years. During the 1990s, we had a booming economy. That booming economy fostered a strong dollar policy (i.e., strong economy equals a strong dollar).
Now the tables are turned and we are in the worst recession since the 1930s. We are mired in debt and our unemployment keeps rising. The housing market, while improving somewhat, is still in shambles. Banks are short of money to lend, keeping a lid on expansion, and on and on. So then we have the reverse of the 1990s.
What to do? The government is spouting a strong dollar while at the same time knowing that a strong dollar would only exacerbate the deflationary spiral that we are in. So Pimco's Bill Gross and others suggest that policymakers will opt for a weak dollar. Gross states: "Typically the Fed does not move in times of tightening until unemployment has been going down for at least 12 months and job creation has been 200,000 or more."
What is the Fed trying to do with a weak dollar? Again Gross says that one of the ways a country can get out of debt is to devalue. The government wants to pay off some of the huge debt we are holding in weak dollars,
A weak dollar will also chase commodity prices higher. The last thing the government wants is for commodity prices to collapse, a move that would throw us further down the deflationary rat hole. If you notice commodity prices have rallied from their January lows and are forming a base here. Raw commodity prices set the prices for finished goods, and finished goods set the prices at retail. So we are keeping the ship afloat, barely afloat.
Now to the stock market. We've had a good run, up about 50% since the bottom. Perhaps we need a breather here, so we may see some downward pressure on the Dow and S&P 500. The bleak news on the unemployment front (263,000 jobs lost in August) is another factor weighing on the market.
Do you for see a correction in the stock market at these levels?
Goldman Earnings Sink After Buffett Dividend
Johnson & Johnson's Income Falls 23%
Burberry Shares Leap on Sales Update
