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The U.S. dollar has been under siege since June when the U.S. dollar futures index reached a high of 89.11. In today's trading the index traded at 77.34. According to Federal Reserve minutes released Tuesday, it looks like the Fed is behind this -- engineering a weaker dollar to boost commodities and the stock market and give U.S. exporters an edge in world trade, The Wall Street Journal reports.
The very fact that the Fed plans additional purchases of U.S. Treasuries to stimulate the economy is almost a sure bet to further devaluation of the dollar. The Fed prefers inflation because it is deathly afraid of deflation. The Fed sees inflation as the better of the two evils.
The weak dollar worked well during the first leg of the recovery, with little inflation. Since then, however, commodities have begun a slow but steady rise. Increases in the prices of raw materials are being passed on to consumers. Food prices are rising and gas prices are just shy of $3.00 per gallon.
At the International Monetary Fund meeting last week, there was talk of currency wars. Already, Thailand has approved measures aimed at containing the baht's rapid rise, the Journal adds. Japan has said it will take action if needed. Brazil's finance minister complained that the U.S. and Japanese economic policies are fueling a flight of money into emerging markets.
There could be a deeper hidden agenda on the Fed's part. With such huge deficits, why not keep interest rates low, print tons of money and pay off the debt with worthless dollars?
Right now, the Fed is having a field day with the one-two combination of already low rates and further quantitative easing. It has been able to issue trillions in Treasuries to finance the debt with little difficulty. How long this will last is the key question going forward.
Would you want to buy low rate bonds and see your money being devalued? And what about foreign buyers like China and Japan?
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Reader Comments (Page 1 of 1)
10-13-2010 @ 12:59PM
Iridium said...
Deflation is the greatest thing that could happen for the common main street man. Problem is that deflation is the worst thing for the mega multinational traded on the open exchange. Who controls Washington right now? It isn't little main street USA.
The Fed wants inflation and a devalued dollar because it helps the bottom line of the publicly traded corporation that is increasingly decoupling from the US consumer. As long as Goldman Sachs and the other criminal institutions can keep funneling money to a select group of the immensely wealthy, this song is going to keep getting played over and over.
Stock analysts predict the doubling of share prices for companies. They want DOW 15,000. To someone investing $2 billion a doubling of a share price means $4 billion. That is a pretty good return. To a small time guy with $10k to invest, doubling his money is still a good return but $20k doesn't really change his life.
A drop of gas prices back to $1.50 a gallon. Or meat prices returning to normal levels does change his life. $5 a gallon gas doesn't mean anything to a billionaire if he can double his billions.
10-13-2010 @ 9:59PM
matthew said...
It would be better if we had deflation because then prices would go down and we could buy more which would help stimulate the economy. If they would increase the value of the dollar then it would be worth more and you can buy more with that dollar. if we continue to devalue the dollar then i would be worth less which means that buy less for example in 1930's germany their dollar was toilet paper money people were burning their money to light their stoves instead of paying for gas because it was so expensive.
10-14-2010 @ 5:55AM
Dan Barnett said...
Matthew,
The problem is that you don't get to keep your pre-deflation wages.
Every financial panic of the 19th Century was deflationary in nature, '37, '73, '93 & throw in 1929 for good measure. Farmers were ruined as they received less for their produce, manufactures reduced wages or laid off workers. Workers without jobs can't be consumers.
Do you really want to see DJI 1000? Many if not most retirement plans & insurance companies would be ruined. Annunities would be worthless. Federal Minimum wage laws will have some impact, but do you want to work for $7.15/hr.?
The alternative is not hyper-inflation as in Weimar Germany. The alternative is strictly Keynesian: stimulate the economy now & pay down the resulting debt with increased productivity. As firmer VP Cheney said, the amount of the deficit doesn't matter.