Tag: US dollar

An exercise in discontinuity

From The Big Picture comment section:

When the bank for the British royal family (RBS) is “forecasting” continued credit market troubles … when the European Monetary Union is essentially declaring war on the Fed with threats to drive the exchange rate value of the dollar into the depths of hell … you must appreciate how these are, indeed, extraordinary times in which we are living.

“Declaring war?” Sounds like a lack of cooperation to me.

It’s the Dollar, Stupid (and Taxes, Too)

Forbes himself: “The bottom line: No strong economy has a weak currency.”

Just above the “bottom line”…no strong currencies are built on negative real interest rates, bloated trade deficits, or $10 trillion on the right side of the balance sheet.

Is Bernanke facing a death spiral?

Damned if you do, and damned if you do something else:

Should Bernanke and his cohorts drag their feet with interest rate cuts, there is more than a sporting chance of the US economy slipping into recession and dragging the rest of the world down. This will, in my opinion, unleash the forces of deflation with rather dire consequences, especially given the highly-leveraged state of the US economy.

On the other hand, should Bernanke throw increasing amounts of money at the problem and cut interest rates aggressively, the dollar can fall down a precipice. Inflating the economy out of its quandary seems to be the policy being pursued as was again seen last week with the Fed pumping $41 billion into the US financial system on November 1 – the largest cash infusion since September 2001.

This raises the question of how foreign investors are going to react to the trillions they have invested in the US dwindling in non-US currency terms.

Maybe all Bernanke needs is a new economic model.

(h/t to B. Ritholtz)

And the #1 sign the economic world as we know it is about to end…?