Grotesque Money Printing Thanks to the Fed, the Dollar Is Going Down

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Many American
economists say the greenback is falling because the global economy
is recovering – so investors no longer need the dollar as a
"safe haven".

That’s nonsense.
The reality is that "safe haven" status has shifted away
from the dollar and towards tangible assets that the US government
can’t debauch by printing more of them.

That’s why
gold just hit a fresh all-time high of well over $1,000 per ounce.
That’s why commodity-backed currencies like the Australian dollar
are now soaring – causing howls of protest from Aussie exporters.
Meanwhile, global investors are quitting the US currency because
they’re worried it’s a sinking ship.

It’s hard to
disagree. America is still running a current account deficit equal
to almost 3pc of national income. In a single month over the summer,
the gap between America’s imports and exports widened no less than

America’s external
imbalance remains sizeable in part because the country is the world’s
biggest oil importer. When crude prices rise, Uncle Sam’s trade
deficit increases, which, in turn, pushes down on the dollar.

As every financial
analyst knows, a falling dollar means rising oil as the black stuff
is priced in US currency. But the relationship also operates in
reverse. When oil strengthens, the dollar tends to weaken as America’s
trade deficit suffers. Crude is now more than 50pc above its mid-February
low – ergo, a weaker dollar.

The dollar
is also falling because that’s what the White House wants. "It’s
important America continues to have a strong currency," said
US Treasury Secretary Timothy Geithner last week. "We’ve made
clear our commitment to a strong dollar," added Larry Summers,
the Head of President Obama’s National Economic Council.

These men insult
our intelligence. The US government desperately wants a weaker dollar
– so boosting exports while lowering the value of America’s
massive foreign debt. The currency markets will keep betting against
the greenback as they know the Federal Reserve will do nothing to
stop a weaker dollar coming true. "Benign currency neglect"
is the cornerstone of Obama’s recovery strategy.

the rest of the article

12, 2009

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