4 replies to this topic

[arbman]

I don't think so. Will the Fed sit and watch the dollar crash from here? It makes no sense to devalue the currency while the inflation pressures pretty much every equity growth index for the short term and the entire financial system in the long term...

- kisa

[pdx5]

Since FED was formed back in 1913, inflation has gone up by orders of magnitude. So, why trust FED to fight inflation? They talk the talk but are beholden to political pressures to keep easy money flowing and avoid tanking the economy.

[arbman]

The Fed can not follow an inflationary policy while the currency is at risk. USD used to be the reserve currency, now it is "a" reserve currency along with Euro, it can not significantly devalue one more time. Europe is playing the hard ball by keeping their unemployment up and inflation low against the USD, now all of a sudden BoJ switched the gears toward more tightening too... We have the long term implications lining up for either a currency devaluation or a continued equity market correction and the dollar destruction. If the Fed goes out for the short term gains and devalues, this might push the equities first down a bit more then bounce or rally, but in the long run they will have much bigger problems such as even higher rates and severe RE correction or outright deflation. This is exactly what happened in last April with the USD devaluation, we had a short correction in May-June and the indices rushed to the new highs and consequently the subprime market fell out since the rates stayed elevated, another such attempt will take the entire housing market down, imho. Do you think they can repeat the same now? I don't think so... - kisa

Edited by kisacik, 16 March 2007 - 11:06 AM.

[pdx5]

Kisa...I have no argument with your logic. The Fed SHOULD defend the dollar and help keep inflation low because in the LONG RUN that is best for the economy. However, I just heard the new congressional committee chairman is already considering a bailout of sub-prime borrowers. How is that not stoking fires of inflation? How is that not spending more money which they don't have? They are already in deficit spending or IOW borrowing. So, the politicians will push for keeping the economy from going into recession versus controlling inflation. The big spenders in congress have always done that. They don't care for the LONG RUN. All that matters is the next election cycle.

Edited by pdx5, 16 March 2007 - 07:15 PM.

[arbman]

It is all talk, they won't walk the walk when they see the cost and the longer term implications... They just can't... It is all politics... BS. The Fed will most likely take a neutral stance here and I doubt the USD will tank, the market destroys the dollars for them if they don't anyway, they are thinking about a year out, not now. The gold is probably moving because of this. The Fed will find itself cutting at the middle of the year, imho. The next year is an election year for God's sake, they can't wait until the end of the year... Yet, the question was whether the Fed will wait to see some real destruction or act in advance. I don't think they have too many reasons to act in advance much, they will loose credibility, so it should correct more first until summer, but the market will probably fake out next week since the liquidity is still plenty for what it is... If it declines, I will be buying. I don't mind if it crashes too. Those who do not properly hedge in these fast markets are deserving to loose money, imho... - kisa