Don't Like a Weak Dollar? Might as Well Get Used to It

iVillage Member
Registered: 02-05-2011
Don't Like a Weak Dollar? Might as Well Get Used to It
8
Mon, 04-25-2011 - 8:28am

This administration has worked hard to create a weak dollar. All that time it has looked for any credentialed economist who will deny the weak dollar is inflationary. All we need to do is drive by a gas station and view daily the impact of quantitative easing (FED policy to print dollars). The result of our tremendous deficits over the past 2 years is a planned weak dollar, which will increase the cost of most staples, and decrease the standard of living for most Americans. The administration policy of printing more than 40% of the money it spends every year transfers wealth from the people (collectively) to the government via inflation. Eventually, to stop the fall of our dollar, we will have to stop printing it, and will need much higher interest rates. Until this administration stops forcing inflation on our currency, we will continue to see the dollar slide.

A MSNBC story about the weak dollar follows

http://www.cnbc.com/id/42703813/print/1/displaymode/1098/


Weakness in the US dollar, which is causing everything to go up—including gas prices, food and stocks—is unlikely to go away soon as a selling frenzy hits the currency market.

The greenback is approaching pre-financial crisis lows and threatening to smash through its all-time low when measured against the world's predominant national currencies.

A combination of factors accounts for the weakness, with the Federal Reserve's easy-money policies, huge national debts and deficits and the consequential possibility of a debt downgrade because of the financial mess in Washington leading the way.

In short, as trader Dennis Gartman noted Thursday, "the rout of the US dollar" is in full effect.

"Panic dollar selling is setting in," Gartman, a hedge fund manager and author of "The Gartman Letter," wrote in his daily commentary. "This may carry farther than any of us dream of or, worse, have nightmares of."

How low can it go?

Rick Bensignor, chief market strategist at Dahlman Rose in New York, said the dollar index , which measures the greenback against a basket of select other global currencies, has scant technical support "that has any meaning" between its present level and the historical low of 70.70.

That's a widely shared view, even as currency pros wonder how the dollar could be falling against the euro considering the near certainty of sovereign debt defaults in smaller European Union nations.


Gartman described the dollar as being in "serious jeopardy" because of its status against the euro, which was defended recently as European Central Bank President Jean-Claude Trichet announced a rate hike in the zone.

No such defense is being offered in the US, where neither Fed Chairman Ben Bernanke nor most of the rest of the central bank's Open Market Committee seems much in the mood to raise rates despite the anemic dollar. Though the Fed is ostensibly apolitical, there is no pressure as well from the Obama administration to boost the dollar's value.

"If things were to somehow go into freefall or there were disorderly markets, or if it is associated with a rise in interest rates, there could be some concerns there," said Josh Feinman, chief global economist at Deutsche Bank Advisors. "But that's not happening at all. Rates in the US are still very, very low. At the margin, (a weak dollar) is a slight easing in financial conditions."


That, of course, is not the case for consumers buying food and energy. Some economists believe that a weak dollar is contributing heavily to the surge in prices at the pump, with one speculating that gas could reach $6 a gallon or beyond by summertime, given certain conditions.

Food prices also are on a steady climb higher. In both cases, a weak dollar is at least somewhat to blame as it drives commodities, which are priced in dollars and therefore cheaper and more attractive to speculators in the global marketplace.

But the stock market has enjoyed the weak dollar.

The Standard & Poor's 500 and the dollar have had almost a perfectly inverse relationship this year, with the stock index gaining just over 6 percent in 2011 and the dollar losing 6.5 percent.

"At the margins it helps US exporters, and the US importers probably also increase profits as they're repatriated," said David Resler, chief economist at Nomura Securities in New York. "I don't see the dollar as having a significant intermediate-run effect on the performance of the economy."


With Wall Street shaking off the dangers of a possible downgrade from S&P, the market is likely to prevail against any thought that it's time to start enacting policies that defend the currency.

The only thing on the horizon that appears to be dollar-friendly is the end of the second leg of the Fed's quantitative easing program—or QE2—in June.

Even then, the central bank is likely only to stop its $600 Treasury-buying operations. There are no indications that the Fed will be selling back into the marketplace any of the securities it has purchased, so a rise in rates is unlikely until inflation becomes more widespread and indicated through government economic metrics.

"That's probably just a warm-up for a QE 3 program later on. All these things are undermining the fundamentals for the dollar," said Sean Hyman, currency director for World Currency Watch. "It doesn't help anything that commodities keep going through the roof. There are a few dynamics working in a concerted effort all at once, and that's killing it."

iVillage Member
Registered: 11-13-2009
<> I hope, really hope, that's wrong. We have a poster on the board that says he believes the US needs even a higher deficit. Maybe he'll pop in here. Some days I feel optimistic, other days more like gloom and doom over the future of the US, my family, my possible grandchildren, my friends, etc.....

 

iVillage Member
Registered: 11-13-2009
Ugh. I'm back to not being able to edit, use quick reply, and few other things. I had copied and pasted your title in the << >>, but when it posted it was blank. Hope it makes a little more sense now.

 

iVillage Member
Registered: 02-05-2011
Huge deficits, and spending cash we don't have, eventually lowers our standard of living. For a government the size of ours it takes many years of mismanagement, but eventually we suffer from overspending just as anyone who charges to live far above their means.

Inflation is the most likely cost, and as it comes after the money is spent, often years later, politicians don't mind.

Paying the piper is an old expression, and one that comes to mind whenever I read about quantitative easing and other such things our government has been up to lately.

It seems to even cut a penny from the budget will starve the elderly and kill millions of children. At least per Democrats. The same Democrats ironically who thought increasing the federal debt under Bush was a bad idea. Republicans who thought increasing debt under Bush was a good idea are not opposed (though in fairness they aren't all the same Republicans, the Tea Party has had an effect on the Republican caucus).
iVillage Member
Registered: 11-13-2009
The wars are what has been devastating the US economy, imo. 10 years in Afghanistan alone? Ridiculous.

 

iVillage Member
Registered: 02-05-2011

The wars are small in comparison to other government spending. If we stopped the wars today, it would have virtually no effect on the federal deficit. The wars cost $269 billion this fiscal year, if we ended them today, our deficit would remain at nearly $2 trillion dollars.

iVillage Member
Registered: 11-13-2009
I agree that the wars aren't the only problems with our deficit, but I believe they began the devaluation of the dollar. As far as Afghanistan, I think the Taliban is still running that place. Didn't they just break into a prison and allow 450 Taliban members to escape over the weekend? Makes me wonder why we're still there, we won't win. It'll be a long stalemate with more and more deaths.. << And weren't the 911 terrorists from Saudia Arabia? All 19? The terrorists are all over and we can't fight every country. As far as Libya, we shouldn't have gone there to begin with, either.

 

iVillage Member
Registered: 02-05-2011
I believe terrorists can come from any country. Afghanistan and Iraq supported terrorism, and our troops have been trying to install governments which aren't pro terrorism. Iraq is winding down. Afghanistan may be tougher. I'm not at all certain why we are in Libya, but assume Obama has a reason.

Our dollar has been up and down over the years ... however Obama has taken devaluation of our dollar to a new level. He ran as much of a deficit in 2 years as Bush did in 8, he plans to have trillion dollar deficits into the indefinite future.

Any attempt to cut, is met with claims millions of seniors will starve, or millions of kids will die, or somehow women, minorities, or pick your favorite group will die, suffer, starve, or endure some other ugly fate.

When you don't make enough, you have to cut. Cutting isn't fun, but many families are familiar with it. Republicans have proposed some cuts, some are bad imo. I don't believe for example in the proposed Medicare cuts, I believe we need to increase revenue (taxes) as it won't be possible to cut enough to balance the budget.

Republicans have proposed specific budgets and budget cuts. The President and Senate seem to take this as a political opportunity, rather than offer anything serious. Obama's plan is to keep spending even more now, and after he is re-elected, to consider maybe some cuts, maybe not.

We need a plan to produce more of the energy we consume, to balance our budget, and to encourage domestic industry and services. Our government seems hostile to most industry and energy production.
iVillage Member
Registered: 08-30-2002

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