Good job Fed!

Perhaps you should travel outside the US. Then come back and tell us how much your dollars are worth.

 

Correct.

 

I want you to go to London belly up to a pup, order a pint of Guinness offer to pay in US Dollars, then report back and tell us what that pint cost.

 

they cant print gold

 

Hey Mak, always enjoy reading your posts. They at least have sound reasoning and thought put into them. I may not always agree, but you do always provide food for thought. In response to your dollar post, don't you think we are past any point of return? We chave no intention of defending our currency, and we are just mortgaging the future like we have been since the '80's. At what point do we pay the bill? At what point are the chinese going to say the hell with this, why am I buying worthless paper? It is an interesting conundrum, but as long as the fed wants to keep reinflating, the party will go on. I guess it makes no sense to be repsonsible, savers and conservative investment is now a punishable offense here. Recklessness and stupidity is rewarded, this can't go on forever. I am long some crap, and short some good things, just to keep hearing the music! Have a great weekend!

 

Fridge magnets. You can still choose from a wide selection of fridge magnets at 2005 prices. This whole "inflation" thing is sooo overdone.

 

No but the dollar crash is dumbshit. Have you not seen a dollar index chart before?! For fucks sake get a clue.

Im sick of your stupid posts. Give it a rest.

 

So what happens if BOE cuts rates, will that spur more inflation, and cause commodities to rise further?

What if the whole world start lowering rates and printing more paper money what happens to inflation then?

 

The ‘Greenspan put’ is alive and well, even as the old man himself tries to drum up publicity for his new book by saying that interest rate cuts won’t save the US economy this time.

The credit crisis has given ‘Helicopter’ Ben Bernanke the excuse he’s been waiting for to slash US interest rates. Bernanke’s been desperate to push the rate cut button since he first heard that US house prices were falling, but couldn’t for fear it would destroy his dubious inflation-fighting credentials.

Now he’s still trying to insist that he cares about inflation, but yesterday’s half-point US rate cut told the markets otherwise. Stocks soared in the US yesterday, and will soar across the world today.

There‘s only one thing for a sensible investor to do. Buy gold, and plenty of it…

Faced with the choice of propping up the US dollar or propping up the US consumer, Ben Bernanke was always going to opt for the consumer. The American way of life is non-negotiable, after all. And it’s very hard to explain to people whose houses are being repossessed that keeping interest rates at a reasonable level is actually a good thing in the longer term.

And unlike his predecessor Alan Greenspan, Bernanke actually believes that the best way to clear up the mess from one bubble is to blow up another one. Greenspan, as we pointed out a couple of days ago, always knew the true consequences of his actions. He pinned the blame for the Great Depression squarely on too much loose credit in the lead-up to 1929.

Bernanke on the other hand, takes the more popular view that the real problem was that the Fed didn’t cut rates fast enough after bubble burst. So his somewhat drastic-looking action of slashing rates by a half-point was to be expected.

Stock markets loved it. Bernanke might as well have written a blank cheque, and posted it to every dodgy lender and over-hyped hedge fund on Wall Street. He could have enclosed a little note saying, “Don’t worry guys. Screw up as much as you like - the American taxpayer will bail you out.”

Our own government did exactly that with Northern Rock and the banking sector yesterday - even more explicitly promising that taxpayers’ money would be put on the line to prevent any UK bank, no matter how badly or recklessly run, from going to the wall.

Small businessmen might think it unfair. After all, right now they are feeling the squeeze because the big banks who loan them money are tightening their lending criteria because of mistakes that those same banks made in the first place. If they run their business into the ground, then they go bankrupt, and often lose their homes. If the bank they borrow from runs its business into the ground, the government twists the Bank of England’s arm up its back until it bails them out.

And people who lost their company pensions and are still fighting for compensation from a government that advised them wrongly that they were safe, might wonder at how Gordon Brown can deny them money but then turn around and promise billions, if necessary, to Northern Rock savers.

It’s all about scale, of course. A few thousand impoverished pensioners or homeless entrepreneurs can’t hurt the government. Pictures of rioting outside banks can.

But enough of the unfairness of life and the evils of big government (of whichever flavour, Tory or Labour). What was that I mentioned about gold earlier?

Ah yes. The one thing about slashing interest rates is it also means that you pay less to the unfortunates who hold your debt. And at the moment, the US relies on foreigners to fund it, particularly foreigners in China and Japan. All those Japanese housewives are going to find other homes for their carry trading now. And China may well accelerate its moves to find other homes for its vast currency reserves.

You see, despite the sub-prime carnage, our leaders still just don’t get it. Bad debt doesn’t just disappear - it spreads like a bad smell until it's permeating the entire financial system. Mortgage lenders sold loans to people who could never repay them. They went bust, but they’d passed the debt to the investment banks. The banks thought they’d sold the risk to the markets, but that rebounded on them when everyone in the markets realised they could no longer trust anyone else, and the money markets entirely froze over. Now that the US and UK governments have bailed the markets out, they have effectively taken those bad debts and dumped responsibility for them onto their nations’ taxpayers and savers.

Do you want to put your money into a country whose financial system is riddled with the economic equivalent of woodworm? As Jim Rogers puts it: “Every time the Fed turns around to save its Wall Street friends it makes the situation worse. The dollar’s going to collapse, the bond market’s going to collapse. There will be a lot of problems in the US.”

And indeed, the dollar tanked after the ‘Bernanke put’ swung into action. It fell to an all-time low on the euro, and even the pound - the currency of a country that has just narrowly avoided a full-blown banking crisis - leapt back to above the $2 level.

But how could the dollar collapse, really? After all, it’s the world’s reserve currency - isn’t this all a bit far-fetched? It does seem hard to imagine. But then, if I’d told you a month ago that there’d be a run on a major high street bank before 2007 was out, you’d have thought that was scaremongering claptrap (and to be fair, I’d have been pretty sceptical too).



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Huge head and shoulder top in dollar index.