Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
What happens To The Global Economy If Oil Collapses Below $40 – Part II - 15th Nov 19
America’s Exceptionalism’s Non-intervention Slide to Conquest, Empire - and Socialism - 15th Nov 19
Five Gold Charts to Contemplate as We Prepare for the New Year - 15th Nov 19
Best Gaming CPU Nov 2019 - Budget, Mid and High End PC System Processors - 15th Nov 19
Lend Money Without A Credit Check — Is That Possible? - 15th Nov 19
Gold and Silver Capitulation Time - 14th Nov 19
The Case for a Silver Price Rally - 14th Nov 19
What Happens To The Global Economy If the Oil Price Collapses Below $40 - 14th Nov 19
7 days of Free FX + Crypto Forecasts -- Join in - 14th Nov 19
How to Use Price Cycles and Profit as a Swing Trader – SPX, Bonds, Gold, Nat Gas - 13th Nov 19
Morrisons Throwing Thousands of Bonus More Points at Big Spend Shoppers - JACKPOT! - 13th Nov 19
What to Do NOW in Case of a Future Banking System Breakdown - 13th Nov 19
Why China is likely to remain the ‘world’s factory’ for some time to come - 13th Nov 19
Gold Price Breaks Down, Waving Good-bye to the 2019 Rally - 12th Nov 19
Fed Can't See the Bubbles Through the Lather - 12th Nov 19
Double 11 Record Sales Signal Strength of Chinese Consumption - 12th Nov 19
Welcome to the Zombie-land Of Oil, Gold and Stocks Investing – Part II - 12th Nov 19
Gold Retest Coming - 12th Nov 19
New Evidence Futures Markets Are Built for Manipulation - 12th Nov 19
Next 5 Year Future Proof Gaming PC Build Spec November 2019 - Ryzen 9 3900x, RTX 2080Ti... - 12th Nov 19
Gold and Silver - The Two Horsemen - 11th Nov 19
Towards a Diverging BRIC Future - 11th Nov 19
Welcome to the Zombie-land Of Stock Market Investing - 11th Nov 19
Illiquidity & Gold And Silver In The End Game - 11th Nov 19
Key Things You Need to Know When Starting a Business - 11th Nov 19
Stock Market Cycles Peaking - 11th Nov 19
Avoid Emotional Investing in Cryptocurrency - 11th Nov 19
Australian Lithium Mines NOT Viable at Current Prices - 10th Nov 19
The 10 Highest Paying Jobs In Oil & Gas - 10th Nov 19
World's Major Gold Miners Target Copper Porphyries - 10th Nov 19
AMAZON NOVEMBER 2019 BARGAIN PRICES - WD My Book 8TB External Drive for £126 - 10th Nov 19
Gold & Silver to Head Dramatically Higher, Mirroring Palladium - 9th Nov 19
How Do YOU Know the Direction of a Market's Larger Trend? - 9th Nov 19
BEST Amazon SMART Scale To Aid Weight Loss for Christmas 2019 - 9th Nov 19
Why Every Investor Should Invest in Water - 8th Nov 19
Wait… Was That a Bullish Silver Reversal? - 8th Nov 19
Gold, Silver and Copper The 3 Metallic Amigos and the Macro Message - 8th Nov 19
Is China locking up Indonesian Nickel? - 8th Nov 19

Market Oracle FREE Newsletter

How To Buy Gold For $3 An Ounce

Bernanke Squirms As the US Dollar Burns

Currencies / US Dollar Nov 09, 2007 - 01:47 PM GMT

By: Brady_Willett

Currencies Best Financial Markets Analysis ArticleBernanke's larger than expected 50 bps cut on September 18 helped spark a sell off in the U.S. dollar. A deteriorating outlook for the U.S. economy and another Fed rate cut on October 31 accelerated the dollar's decline.  Fear has taken over in November…

It is not surprising that against this backdrop talk about how wonderful a weaker dollar is for America has nearly vanished. As a quick example, head of currency research at Morgan Stanley, Stephen Jen, was claiming a few weeks ago that although the dollar may weaken further, “…investors should keep in mind that the dollar is undervalued and ready to appreciate as soon as the economy regains traction.” The most recent sell off in the dollar now has Mr. Jen rattled, not to mention many others:


“This is the first time in my career that I am really worried about the dollar   I didn't know it was going to go so far. The dollar is in trouble. What has so far been an orderly move can easily degenerate into a more violent event.” Little hope on horizon for troubled dollar

Whether or not a U.S. dollar crisis is imminent is, of course, impossible to say.  Sometimes volatility can presage more volatility while other times it simply marks tops and bottoms.  However, what can be assured is that regardless of any bounce in the dollar (perhaps coinciding with next weeks G20?), the longer-term outlook for the greenback remains negative.

Not surprisingly, Fed Chairman Bernanke offered few assurances on the dollar yesterday as he did a fish out water routine in front of the Joint Economic Committee:

"We're going to make sure that the inflationary impact that may come from the weakening dollar is not passed into broader prices" Reuters

Beyond keeping the inflationary statistics rigged, how exactly can Bernanke accomplish such a feat?  Well, he could go so far as to raise interest rates to try and save the dollar, or he could raise bank reserve requirements to help slow credit growth and/or he could tightly monitor the Fed's windows (i.e. slow the money supply).  But what Bernanke definitely can not do to save the dollar is bailout Wall Street, save the U.S. economy from recession, and keep the U.S. equity markets rolling along at the same time.

Does Bernanke Have The Right Stuff?

Bernanke's Fed is only two fed fund rate cuts into what could be a prolonged easing campaign and the dollar is already collapsing.  This is deeply unnerving in that it suggests the Greenspan doctrine of cutting interest rates first and asking questions never is broken. Having little to show for his meetings, phone calls, and rate cuts relating to the subprime mess, will Bernanke really be able to amass a coalition of the willing to support the U.S. dollar when the time comes? Secretly or openly negotiating an FX intervention plan with other central banks isn't exactly something Bernanke would have learned to do in Academic circles.

In recent weeks the markets have speculated that the Saudis may drop their peg , that other Gulf states and sovereign wealth funds in the area are lightening their exposure to the dollar, and that OPEC continues to eye settling in Euros instead of dollars. Also recently China and Japan dumped a combined $33 billion is U.S. Treasuries ( in August ), and Chinese officials have continued to discuss reducing exposure to the dollar. Suffice to say, that against an already uncertain backdrop U.S. dollar holders are coming forward threatening to fan the flames and talk of the dollar era being over is running hot is hardly encouraging. Less encouraging still is the fact that those who previously cheered the dollar's decline are turning scared.

“The dollar will trade at $1.51 per euro by year-end, compared with a previous forecast of $1.42, and it will fall to $2.13 per pound and 108 yen, compared with previous forecasts of $2.03 and 112.” Jen. Bloomberg

In short, while a weakening U.S. dollar was supposed to bring about a much needed global ‘rebalancing', dollar weakness has instead coincided with a global economy ‘de-coupling'.  This situation threatens to idle Bernanke's helicopter, quicken the pace of confidence erosion in the U.S. dollar, and, potentially, turn a ‘much needed' dollar devaluation into a historic conflagration. With his bailout checklist quite full, Bernanke can temporarily be forgiven for not running to the dollar's rescue. But with Wall Street prodding the Fed for another rate cut in December and international confidence in the dollar potentially near a snapping-point, Bernanke may need to quickly consider breaking further from the Greenspan script and adopting a firm and transparent policy stance to support the U.S. dollar.  More focused on the art of combating deflation than anything else, no wonder Bernanke is squirming…

 

By Brady Willett
FallStreet.com

FallStreet.com was launched in January of 2000 with the mandate of providing an alternative opinion on the U.S. equity markets.  In the context of an uncritical herd euphoria that characterizes the mainstream media, Fallstreet strives to provide investors with the information they need to make informed investment decisions. To that end, we provide a clearinghouse for bearish and value-oriented investment information, independent research, and an investment newsletter containing specific company selections.

Brady Willett Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules