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[zedor]

Most average Americans are either oblivious or ambivalent to the decline in the DXY from 120 to 80 since Jan 2001. ie a 33 % eviceration of the value of the USD. I wonder how oblivious and ambivalent they will remain be for a new 50% decline in a much shorter period.

Edited by zedor, 28 September 2007 - 02:09 PM.

[linrom1]

Most average Americans are either oblivious or ambivalent to the decline in the DXY from 120 to 80 since Jan 2001. ie a 33 % eviceration of the value of the USD.



I wonder how oblivious and ambivalent they will remain be for a new 50% decline in a much shorter period.

I think that the FED is attempting to head off deflation. DISCOUNT and FED rate cuts in conjunction with dollar devaluation are classic Bernanke tools to fight deflation before it starts paradigm as outlined in his 2001 speech.

In that speech he suggests that rates could be cut to zero, and if that fails other measures could be taken by the FED to stave off deflation at any cost. He also says that FED could attempt to put a peg or cap on Treasury bond prices and yields of all maturities. He even recommends that FED purchase private debt and Dept of Treasury purchase private assets that then could be offset by corresponding Fed purchase of Treasury Debt. Of course, full monetization would be yet another option.

However, I don't think that these FED liquidity injections will work without ameliorating increase in wages to offset rising costs, which will not increase for lower and middle classes. What will happen to future value of Social Security payments? I think that we could be relegating the whole generation to Soviet era collapse poverty. On the other hand, your next door neighbor, a bureaucrat, will fight you to raise your taxes and cut your SS benefits so that his own pension benefits would be maintained.

Regardless, the future standard of living for an average American will decline for the benefit of emerging economies and global enterprises. It is not difficult to envision how a wealthy American can inoculate himself from the ravishes of rising costs, but, lower income earners are going to suffer.

There is a large degree of risk that the system could collapse because what the Bernanke FED is doing will not work as workers will not be able to increase their wages fast enough to sustain additional liquidity injections---but now, will also needlessly suffer consequences of reduced savings, decreased future value of Social Security benefits and diminished purchasing power due to lower dollar.