Posted on 09/18/2007 11:17:42 AM PDT by NaturalGorilla
Federal Reserve Cut Fed Funds Rate by Half Point, to 4.75%. Discount Rate Cut Half Point, to 5.50%.
(Excerpt) Read more at economicsbriefing.com ...
Most recent check today shows Euros at $1.40, a 10 year high.
Bernanke's caving to speculators and reflating the bubble curses holders of dollars. He's inflating his way out of a problem originally caused by the Fed's negative real interest rates of 2003 and 2004.
Blood in the streets.
Considering my line of work it’s a damn good thing for the value of my dollar...as in making many dollars worth X vs. not making any dollars worth X * 1.03.
Ahem...lest we not forget what your good friend RR does for a living, shall we? ;-)
My last vacation to Wales was in 1999. The exchange rate was $1.63 per UK pound. It is now hovering around $2.00. To add insult, products in the UK are priced at a similar number of pounds as we would pay for the product in USD inside the US. That essentially means a US tourist pays 2X as much for goods compared to purchasing them in the US. At that rate, I don't need to visit the UK. The huge pile of frequent flyer miles that I might use to travel to the UK or European destinations will stay on the table.
I deal with a few German companies for CAN related software. My contract funding is really getting pinched with the Euro trading at $1.38 (USD) per Euro. That simply translates to fewer purchases. It isn't a matter of product quality...it's just more than I have in the budget. We'll make do with less.
I’m allowing my portfolio to trend heavily towards international markets. That is a less leveraged bet against the dollar. I’m not rebalancing against the international gains. This horrid action by the fed proves me right. Those international gains will accelerate in dollar terms as people flee dollar denominated investments that lose money due to inflationary expectations.
We don’t even know who is holding the bad mortgage paper yet. The bad loans haven’t shown up on income statements yet. Until then, the market craves information, and instead of information (which steady interest rates might get us), we get more money supply.
“INFLATION IS ALWAYS AND EVERYWHERE A MONETARY PHENOMENON.”
Because of the weak dollar, I am going to have to spend Christmas vacation in Aspen as oppposed to St Moritz this year.
Yup Euro imports are expensive now.
Now exporting to Euroland, that’s where the action is.
Looks like the NASDAQ bubble, it will probably end as well for the Euro.
NASDAQ bubble was speculation, as was housing, as was tulips. Those speculative bubbles have a life of their own, and I don’t sense that about the Euro.
In fact, looking in today’s WSJ, the dollar was down over 52 week against about 30 currencies, many for 52 week lows yesterday, and was up against only 3 currencies. That is a weak dollar. The Euro is just a handy comparison. I think the Euro is perhaps a bit tight, and deflationary, so it is heading a bit in the opposite direction.
But still, against the usual measures of currency stability (gold, oil, food, baskets of currencies, etc.) the dollar is very weak (inflating), weakening, and this rate cut will not help. Injecting more liquidity when the markets all tell you there are too many dollars chasing too few goods is a bad decision.
Stagflation: Reduced economic growth combined with high inflation rates.
Bernanke begets Carter.
The market may be up today, but tomorrow’s profit taking will make it a wash
Bernanke's caving to speculators and reflating the bubble curses holders of dollars. He's inflating his way out of a problem originally caused by the Fed's negative real interest rates of 2003 and 2004.
Item one -- so? You are going to be SO surprised when the US$ actually gets stronger than the Euro...
Item 2 -- this is the same guy who said he was going to throw money out of a helicopter several years ago. If you haven't figured it out yet, politicians will NEVER allow the US $ to deflate. People will walk away from their homes. The economy will crash. Much better to inflate the dollar and let the people in the future worry about it.
Solution? Buy gold and bury it in the back yard. If you keep it in the bank and the bank is under Fed regulation (and most banks are), there is always a chance that the Fed Govt. will confiscate your gold in the safe deposit boxes. Remember, they did ban the ownership of gold for 50 years...
So if you follow a philosophy of buy low, sell high what would be a good strategy regarding the dollar vis-a-vis other currencies?
My post to which you responded disproves that statement.
Plus which, politicians have virtually no impact on inflation (only through the relatively weak fiscal lever.) Money supply is mainly expanded or constrained by interest rates, among which the Fed Funds rate is a key one.
You are speaking sideways. Do you KNOW what the heck you are talking about?
politicians have virtually no impact on inflation
Now you are speaking in semantics. Bernanke is a politician whether you believe it or not.
Unfortunately, the rear view mirror is sharp, but the windshield is cloudy. You cannot really see very well forward, and if you could, you'd be rich and wouldn't be posting on FR.
Today's action by the fed was taken into account in the last month or so by the markets, which made oil, gold, and non-dollar currencies rise against the dollar. All those smarter-than-me people figured an unwise rate cut was in the offing, and sold off dollars to buy something that wouldn't deflate in value against an inflationary dollar. So, the impact of the fed move was already baked into the market before today happened.
The key next step is whether the economy really falls apart, in which case further fed rate reductions would be wise. Or, if the economy stays strong, and fed intends to lower interest rates further, then the previous strategy is correct, sell dollars and buy gold, oil, and other currencies. Or, if the economy stays strong and the fed holds on interest rates, then there will be little further impact.
I'm horrible at prediction, thus I post.
But you can look at the recent history here to see the Fed just threw money at a problem of undefined size, shape, direction, etc. It appears from the price impacts recently that those dollars were just burned up on the bonfires of inflationary expectations. What a waste. Some fraction of my dollar denominated investments were harmed as a result.
The stock markets are short sighted, I think, about the improved prospects for stocks. If I were to make a stock bet, I'd buy industries helped by inflation (raw materials suppliers), and sell industries harmed by inflation (don't recall which those are.)
Insofar as the opportunity cost of a stock investment is a federal bond the interest rate on which went down, stocks become a more attractive investment, thus stocks rise as a substitution effect. But the fed move is (IMHO) not a long term advantage to the economy or companies. Short run, interest expense for companies may go down. But there is just not that much debt left on the balance sheets of the F500.
I'm an inflation and dollar hawk, and the fed has been doing a liberal job of supplying money since 9/11, which I hate. They take tightening actions too late (2005), only after inflationary expectations are well into the market, and they loosen at the first hint of clouds on the horizon (i.e. now.)
< / rant>
Econ, CMC, Cum Laude, 1984. Net worth well over 7 figures.
I misread you. You are correct. Neither the Fed nor the politicians can withstand actual DEFLATION. I read you saying INFLATION. I was wrong.
The fed action was necessary and best for the economy in the long run. All the doom and gloom inflation fears and tight monetary policy is what made the Great Depression what it was. We were headed towards an economic recession and this will help keep us out of it, which in the long run is good for the dollar. Come back a year later and the dollar will be stronger against the Euro than it is today. Good job Ben!
Based on what facts?
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