28 June 2008
The Real Situation with the Dollar
Posted by Joy Bischoff under: World Economy .
Financial Sense is a great place to get good information. Thank you Peter Anderson for sending this.
Intervention Will Not Stop the Dollar’s Slide
by Peter Schiff, Euro Pacific Capital
This week the Federal Reserve took a step closer to acknowledging reality. Unfortunately it didn’t let that admission move it from a policy course firmly guided by fantasy. In its policy statement, Bernanke & Co. took the important step in noting that inflation expectations had taken hold in the country at large. However, in asserting that it expects inflation to moderate this year and next, the Fed gave no indications that these heightened expectations are gaining traction within the Open market Committee itself. As a result, it signaled no likelihood that it was actually prepared to do something to fight a problem which it doesn’t really believe exists in the first place.
In fact, by indicating that they expect inflation to moderate, the Fed is saying that elevated expectations are unwarranted. In other words, Bernanke claims that despite the fact that so many people are carry umbrellas, he still believes it will be a sunny day. The takeaway from the statement is that no rate hike is forthcoming. The markets saw this position for what it is….capitulation to inflation and a weakening dollar. No surprise then that the gold responded with the biggest single day gain in more than 20 years! . . .
Since we can’t count on any help from our friends, the only option would be for the Treasury to intervene unilaterally. However, the U.S. government should think twice about bringing a knife to a gunfight. The Treasury only has about $75 billion in foreign currency reserves with which to intervene. The war chest is just a spit in the ocean. To put this number in perspective, Poland has $77 billion, Turkey has $78 billion, and Libya has $79 billion. On the other end of the spectrum, China has $1.7 trillion (not counting Honk Kong’s 150 billion) Japan has $1 trillion, Russia has $550 billion, India and Taiwan each have about $300 billion. Singapore, a nation with fewer than 5 million people, has $175 billion. In fact, the United States holds just about 1% of the world’s $7.6 trillion of foreign currency reserves, and our total position amounts to just 2.5% of the total daily volume of foreign exchange trading. Talk about Bambi vs. Godzilla! In other words, if the dollar is going to fall, the Treasury is completely powerless to do anything to stop it.
http://www.financialsense.com/fsu/editorials/schiff/2008/0627b.html
Mail this post
3 Comments so far...
T. Fan Says:
28 June 2008 at 7:16 pm.
Hey Joy, where ya been?
This article is NOT comforting. What the heck are we going to do about it?
Hank Says:
28 June 2008 at 11:36 pm.
Hi everyone. I have been enjoying long summer evenings and not spending much time on the computer. I needed a break from politics and have been spending fun time with the grandkids. After reading this blog I remember why I was getting tired of politics. Nowdays its depressing.
Joy Bischoff Says:
29 June 2008 at 12:19 am.
T. Fan, I have been working on research for articles on my religious website. Luckily, the others have been filling in for me and I am so grateful for that.
Hank, glad you are enjoying the summer with family.
Leave a Reply
You must be logged in to post a comment.
