Interest Rate Roundup

Thursday, March 19, 2009

Bonfire of the Dollar

It's hard to characterize just how nasty the action in the currency market is here. The Dollar Index got clubbed to the tune of 2.69% yesterday in the wake of the Fed's monetization move. That is one of the biggest declines ever (the move against the euro was the worst since 2000). DXY is down another 2.2% as I write, extending its streak of daily losses to eight (chart above). As you might expect, gold is rocking and rolling in response, up to roughly $956 an ounce from an intraday low of $884 yesterday.

Now I'll be the first to admit the stock market doesn't care -- and that most mainstream economists don't seem to care either. They are saying the Fed HAS to do anything and everything to save the economy from deflation. But the Fed is playing a dangerous game here.

Printing money at your central bank -- and using that newly created cash to buy your country's sovereign debt -- is the kind of stuff you typically see in emerging markets and Banana Republic countries. It's not what you'd expect the U.S. to do. And it's certainly not what you'd expect a country that is deeply in hock to foreign creditors to do. After all, the Fed is deliberately devaluing the greenback, and in the process, devaluing the bills, notes, and bonds those creditors are holding. We'll have to see if there's any pushback in the days ahead.


  • It's also possible that this was done with the knowledge/consent of the Chinese and the Japanese. Fed announces a T-binge. China and Japan sell some of their holdings into the rally. Sell the resulting dollars against other currencies. They get protection on their assets but are under pressure to begin consumption (their exports just got more expensive). We get to export/earn our way out of the mess and we have to replace foreign money with our own savings (deferred or avoided consumption). It's what would need to happen anyhow.

    By Anonymous Anonymous, at March 19, 2009 at 10:37 PM  

  • The US gov't has reached the end of its rope. It has no choice but to monetize debt.

    By Anonymous Anonymous, at March 20, 2009 at 6:56 PM  

  • Obama and the feds are purposely devaluing the greenback which will eventually in American becoming a third world country. the powers that be think that when we're all poor it will be easier to force socialism down our throats.

    By Anonymous Anonymous, at March 20, 2009 at 8:42 PM  

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