Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24
At These Levels, Buying Silver Is Like Getting It At $5 In 2003 - 28th Oct 24
Nvidia Numero Uno Selling Shovels in the AI Gold Rush - 28th Oct 24
The Future of Online Casinos - 28th Oct 24
Panic in the Air As Stock Market Correction Delivers Deep Opps in AI Tech Stocks - 27th Oct 24
Stocks, Bitcoin, Crypto's Counting Down to President Donald Pump! - 27th Oct 24
UK Budget 2024 - What to do Before 30th Oct - Pensions and ISA's - 27th Oct 24
7 Days of Crypto Opportunities Starts NOW - 27th Oct 24
The Power Law in Venture Capital: How Visionary Investors Like Yuri Milner Have Shaped the Future - 27th Oct 24
This Points To Significantly Higher Silver Prices - 27th Oct 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

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

© 2005-2022 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