You read that right. Bloomberg.com has reported that The bank of England has lowered it's benchmark interest rate to it's lowest point since the bank was founded in 1694. How much more proof is needed to make obvious the fact that people and businesses just aren't borrowing money any more?

Even if some stalwart soul had the inclination to borrow some money, are there banks out there which are lending it? In the face of unemployment levels which some say honest calculations put up as high as 16%, banks are becoming adverse to lending money to anyone who might actually need it. Of course I can get you credit card applications all day long, if you're willing to pay upwards of 19% interest on new money.

So you have to wonder, when is it all going to break loose. Honestly folks, if the promise of increased revenue reserves was in any way going to help us, don't you think the contraction would have slowed by now? The only way additional cash will correct anything is if that cash is put directly into the hands of the people who pay the bills. Of course, we all know that will never happen. Our government will continue to drop wads of our yet unpaid tax dollars into the laps of their corporate sponsors. That, for now, is where the buck now stops.

Minutes from the August Bank of England meeting may reveal a panel divided on an interest rate cut, but don't tell that to the currency market.

The pound fell about 1 cent to $1.8552 versus the dollar Wednesday -- approaching a 2-year low -- as sentiment grew regarding the need for the central bank to cut rates to avoid a recession.

In its August 7 meeting minutes (pdf), during which it kept its benchmark interest rate at 5%, some members argued for a rate cut after private banks in the United Kingdom cut GDP forecasts, while others said a rate increase was needed to check inflation expectations.

U.K. slowdown mirrors U.S. slump

London-based economist Mark Chandler told BloggingStocks Wednesday the inflation pressures stemming from oil's rise are real, but so is Britain's economic slowdown.

"Based on data I've reviewed, we're patterning America, only about a quarter late. GDP in Q2 slowed to 0.2% this year from 0.8% in Q2 last year, which is about the same deceleration rate as Q2 in America," Chandler said. "Almost certainly GDP will be negative for Q3, and I think the currency markets sense this and see a Bank of England rate cut or two up ahead."

The great Bob Dylan once wrote "so you better start swimmin', or you'll sink like a stone, because the times they are-a changin'."

The dollar bears better start swimming, or at least change their positions, because the dollar's improbable rise continues.

The British pound fell to a two year low versus the dollar Wednesday, plunging 3 cents -- a gargantuan move in the currency market for one day -- to $1.8651, after the Bank of England lowered its GDP growth forecast for the United Kingdom, Bloomberg News reported Wednesday. The pound, which traded at $2.0157 last month, has now fallen about 7.5% versus the dollar in two weeks.

The pound also fell about five yen to 202.68 versus Japan's yen Wednesday morning.

Bank of England Governor Mervyn King said 2009 will be "painful" with zero growth and high inflation, The Telegraph reported Wednesday.

Further, although the Bank of England underscored the need for monetary policy vigilance to control inflation, currency traders interpreted the bank's GDP comments as a sign that an interest rate cut is likely from England's central bank, currency trader Andrew Resnick said.

If you are of the mind that the American economy can't falter much worse than it already has, does that make a case for investing in the dollar right now? I would tend to think so. A weak dollar that has been mercilessly pinned against the floor for so long looks mighty appealing to me right now. The big questions are, how long shall this domestic economic sluggishness continue and what, if anything, are the growing industrial economies willing to do about it? If the undeniable rule of buy low and sell high applies to the dollar as with any other investment, someone is going to start scooping these greenbacks up in large chunks as their value bottoms out.

The World Bank suggests that oil prices shall decline to the middle 70's this year, giving a needed reprieve to currencies the world over. They also envision upwards of 3% economic growth globally for 2008 and history shows that growing economies have always hungered for American consumer dollars. Couple these factors with the reality that phantom value is finally being painfully peeled away from the American economic landscape and you have a recipe for a return to real economic growth here at home.

I've pointed offshore for the past two quarters when discussing my perspective on safety in short term investment, yet one cannot deny that we're still fairly strong here at home. Let no one claim that the dollar has met its doom. I'm expecting some very heartening economic news as we go through Q2 '08, and I might suggest being poised to grasp a dollar that could rebound remarkably then.

In the "counter-intuitive thesis of the month" category, Morgan Stanley's global head of currency research Stephen Jen is predicting a rise in the dollar during a possible U.S. economic slowdown, Forbes reported Wednesday.

Jen said his research shows that, historically, the dollar tends to rise when the U.S. economy is either growing 1.5% a year or contracting by 1.5% or more a year, and Jen is predicting that the dollar's 2008 performance will be similar to 2005, when the dollar climbed 10% against the largest European currencies.

On Wednesday, the dollar was higher against the world's major currencies, improving 0.21 cents to $1.4684 versus the euro, 0.50 yen to 108.39 versus Japan's yen, and improving 1.35 cents to $1.9596 versus the British pound.

Andrew Resnick, independent currency trader, told BloggingStocks Wednesday that Jen's thesis is plausible.

The British Pound sank to new all-time lows against the Euro, as the market is counting on more interest rate cuts in the UK. What is interesting to note that with all the cynics out there saying how lousy the US economy is and that the Dollar is a "has-been" currency, it's not the only major currency to get hit.

This news follows the Bank of Israel raising rates by 0.25%, this move was made in part to slow down potential inflation. The currency markets are at a crossroads. In some countries the dreaded inflation has already arrived, and central banks have no choice but to raise rates. Other countries are doing their utmost to stay out of recession and have relaxed a tight money policy, trying to create more money supply.

2008 promises to be an exciting year in the Forex markets as the inflation/slow growth war is played out among the world's currencies.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. Disclosure: Writer has no position in any stock mentioned as of 12/24/07.

The dollar rose to one-week highs against the world's major currencies Wednesday, as currency traders took profits following extensive dollar declines over the past 10 weeks.

Traders said Abu Dhabi Investment Authority's $7.5 billion investment in Citigroup (NYSE: C) contributed to the trading session's pro-dollar sentiment, on the belief that deep-pocketed, patient global investors may be able to provide capital to help keep key credit markets liquid in the quarters ahead.

The dollar improved to $1.4768 against euro, to $2.0681 against the British pound, and to 109.70 yen against the Japanese yen.

Currency trader Andrew Resnick, formerly of Next Capital of New York, told BloggingStocks Wednesday that the dollar's rise should not delude one into thinking there's been a fundamental change in currency conditions:

"I see nothing changing structurally. We've got the U.S. trade deficit, a slowing U.S. economy, and the possibility of another rate cut by the Federal Reserve, so pressure will resume on the dollar," Resnick said. "We may not see as many players in the carry trade, but the long-term bias remains dollar-lower."

Venezuela, which earlier this month at a summit of oil producing nations suggested that producers add political objectives to their agenda, Tuesday called for oil to be priced in a basket of currencies, and not the U.S. dollar, Reuters reported.

Venezuela's Energy Minister Rafael Ramirez blamed the United States for high oil prices, which he attributed to both political pressure on oil producing nations by the U.S. and the weak U.S. dollar.

Oil drops

Ramirez's comments had little upward impact on the oil markets Tuesday at mid-day: oil fell more than $2.50 to $95.17 on word that OPEC will be able to fulfill its stated goal to increase oil production by 500,000 barrels per day, Bloomberg News reported. Equally important, the markets are now more-confident that Saudi Arabia, which has the most spare capacity in OPEC, is increasing its production. Saudi Oil Minister Ali al-Naimi said Saudi Arabia is now pumping 9 million barrels per day, according to Bloomberg News.

The dollar hit a new low against the euro Tuesday, with the euro trading above $1.48 for the first time, on word the Gulf Cooperation Council was debating whether to keep its dollar pegs.

Currency Trader Andrew Resnick, formerly of Next Capital of New York, told BloggingStocks Tuesday that the elimination of dollar pegs will add to pressure on the dollar.

"The pegs support the dollar to a degree, but the real factors here are the slowness of growth in the U.S. economy, and the U.S. trade deficit," Resnick said. "Until we see those two factors change, the trend is likely to remain dollar lower, across the board."

While some OPEC oil ministers who attended this weekend's Riyadh summit continued to express support for shifting a portion of their cash reserves to the euro and away from the dollar, oil market traders and analysts focused on OPEC's failure to boost oil production. This helped move oil prices higher in mid-day trading Monday.

Oil, which traded around $94.50, is priced in dollars, hence when the dollar falls, the purchasing power of nations with petro dollars declines. Some OPEC members, including Iran and Venezuela, voiced strong support for converting cash reserves to a currency other than the dollar. Iranian President Mahmoud Ahmadinejad called the dollar a "worthless piece of paper," the Associated Press reported.

The U.S. dollar's decline is having the predicted effect on sales of U.S. goods abroad - - but it's a positive metric that may draw more international debate, if the current dollar-lower trend continues.

The U.S. trade deficit narrowed 0.6% to $56.4 billion in September 2007, as international demand for goods like aircraft engines and machines increased, the U.S. Commerce Department announced. In September 2007 imports totaled $196.6 billion; exports, $140.2 billion. Further, through September, the trade deficit is running at an annual rate of $703.4 billion, down 7.4% from the same period a year ago.

The euro and pound have risen to $1.4677 and $2.0905 against the dollar - - a trend that has reduced the cost of American products purchased by foreign companies. The lower dollar also lowers the cost for Europeans to travel and buy goods in the states. Each has helped narrow the trade deficit, the Commerce Department noted.

U.S. Federal Reserve Chairman Ben Bernanke told Congress Thursday he sees a slowing U.S. economy heading into 2008.

Bernanke, in a prepared testimony to the U.S. Congress' Joint Economic Committee, said he expects the economy to slow "noticeably" from its third-quarter growth rate and remain sluggish in the first half of 2008. The U.S. economy grew at a 3.9% rate in Q3.

Further, Bernanke added the Fed will make sure that the potential inflationary effect from higher import prices -- stemming from a falling dollar -- does not work itself into the general economy and increase inflation.

In the coming weeks, bloggingstocks.com will review those stocks most likely to benefit under each scenario: a weak dollar or a strong dollar.

Commodities expert Jim Rogers is on-record with where he thinks the U.S. dollar is headed in 2008: down. That, in and of itself, is not news.

"It doesn't take a genius to figure out that it's a currency that's going to be going down for some time to come," Rogers said in an interview with the Financial Times. Rogers added that in his interpretation the U.S. Federal Reserve's and the U.S. Treasury's willingness to print money and drive down the greenback is clear.

Among other consequences of the dollar's continued fall, Roger sees higher commodity prices, a rise in U.S. inflation, and a rise in China's currency, the yuan (if the Chinese government lets it rise more). Rogers, chairman of Beeland Interests Inc., said he is also shorting shares of Citigroup (NYSE: C). [Citigroup's shares closed down $1.92 to $35.81Monday after the company said it will have to write-off $8 billion-$11 billion to account for the reduced value of subprime mortgage-related securities.]

All of which begs a good question by the investor / reader: How did the U.S. dollar drop so much in value?

In the weeks ahead, BloggingStocks will take an in-depth look at the U.S. dollar's decline, its impact on the global and U.S. economies, as well as on job creation, trade, and investment.

Remonstrations about the weak U.S. dollar are getting to be a little bit like what Mark Twain said about the weather:

"Everyone seems to complain about the weather, but no one ever seems to be able to do anything about it," Twain said.

Similarly, everyone seems to complain about the weak U.S. dollar, but no one ever seems to be able to do anything about it.

This time it was former U.S. Treasury Secretary Robert Rubin, who Tuesday told Bloomberg News that relying on a falling currency to increase exports isn't a "sound approach" and said policies should be implemented to strengthen the dollar.

Managing Director Bill Gross, who manages the world's biggest bond fund for Pacific Investment Management Company, wrote in a report published on the firm's web site, that he expects the U.S. Federal Reserve to lower key interest rates to 3.50% to avoid a U.S. recession.

Wall Street may interpret lower interest rates as good news for stocks, long-term, but that will not be the case with the U.S. dollar. Along with the current account, and investment performance in a particular country, a major factor in a currency's strength is the interest paid on deposits. Generally, currencies with high interest rates are valued higher than currencies with low interest rates, all other factors being equal.