Archives: 2008 March

The US Federal Reserve Bank has made it clear to currency traders that the US dollar will be sacrificed in a desperate effort to prop up the US economy.

In testimony before congress last Tuesday and Wednesday, The Fed Chairman, Ben Bernanke, spoke primarily of further downside risks to the economy while stating that he thought that inflation, while obviously increasing, could be controlled.

Neither Ben Bernanke nor President Bush seem capable of speaking about a recession that is probably already underway. They both state that a recession will be avoided.

However, they seem joined at the hip in a misguided effort to flood the markets with liquidity and to further lower interest rates in an effort to prevent what can not likely be prevented. I fear that with present policies the dirty “R” word will perhaps be avoided only to be replaced by something worse, stagflation.

The Fed seems to completely ignore the fact that it was a policy of  low rates for far too long that caused the bubbles that are now collapsing. Thinking that you can correct economic conditions by reverting to the same policies that caused those conditions in the first place  seems to me to be more like wishing and dreaming than sound policy. 

In my opinion, the first quarter of 2008 will mark the beginning of a recession that will be made more dangerous to the health of the US economy by the desperate actions on the part of the Fed to lower interest rates. Lower interest rates will place further pressure on the dollar and lead to even higher inflation as the dollar falls.