So far the Weak Dollar policy appears to be working. Generations are required to build global confidence in a currency. However, that confidence can be lost in a matter of a few years and rebuilding it can take decades. The Weak Dollar policy is creating inflation and causing reductions in the exports for US trade partners, especially in Europe. Business confidence in the euro zone is low and falling dramatically as a result. The Fed is relying on a Weak Dollar policy versus on domestic monetary reflation via rate cuts that would ordinarily have occurred at this point in the economic cycle. The ultimate costs of the Weak Dollar policy are yet to be felt.

We note that the Fed policy interest rates are a bit of a distraction in terms of system stability; only really relevant for certain aspects of bank liquidity, but this is an interesting discussion nonetheless. And of course, the rates do strongly dictate the value of the dollar and where global arbitrage money flows. But if you want to know what is being done to (attempt to) shore up the banking system, look instead at what is going on with the M-LEC/"super-SIV", the Fed's 23A exemptions, and the Federal Home Loan Bank balance sheets.

Comments: Be the first to add a comment

add a comment | go to forum thread