The Falling Dollar

First off let me state that I think a portion of the reason Mr Greenspan resigned was because he forsaw the current crisis and he did not want to deal with it. He helped build the house of cards, and he had no idea how to keep it from being blown over.

And into the picture steps Ben Bernanke. He's looking at the mess Greenspan left him and he is looking at a nearly impossible mess to clean up.

Word is (see here) that Bernanke is considering another decrease in the Fed overnight rate to resolve problems he sees in the financial markets.

Is Ben considering the overall impact on worldwide values of the dollar from such a move? He's trying to increase liquidity? Isn't the worldwide market signalling that already too much liquidity exists? Isn't the availability of existing dollars in the market too much without Mr Bernanke throwing additional dollars into the fire?

Mr Bernanke seems to be pursuing a hyperinflationary monetary policy. Some decrease in the value of the dollar is beneficial to the long term health of the American economy. However a freefall value of the dollar is foolish. Mr Benanke is considering adding fuel to the fire with a decrease in the fed rate. Mr Benanke is seeking to provide that everyone in every investment will make money by providing enough dollars for this to happen. Yeah everybody will make money in such a market. Just everybody will also lose in real value in their savings.

The dollar has fallen enough to benefit the American economy. It will take time for the benefit to be realized. Any additional descent could lead to the currency being viewed as worthless. I am not sure the American economy will benefit by sliding back to the barter system. I have plans for dealing with this, however things would be simpler if the dollar retains at least some value.

Mr Bernanke, please do not add fuel to the fire. We need adjustment, however we do not need a fireside sale of the dollar. There is plenty of liquidity of dollars that could be provided by foreign recipients of those dollars.


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