Friday, November 5, 2010

US Dollar Will continue Collapse Even with Temporary Reprieve

The decision by the Federal Reserve Thursday has ended up producing upheaval in the Forex market Friday, as heads of central banks around the world reiterated their concerns over U.S. policy, with Asians unsurprisingly voicing their opposition the most.

The USD is plummeted around the globe, although rebounded Friday afternoon on the news jobs created in the U.S. were higher than anticipated.

With the promise by the Federal Reserve to inflate again through acquiring more government debt to the tune of $75 billion a month over the next eight months, the stock market took off, as many believed it would.

Gold prices have also soared, closing in on the $1,400 an ounce mark, which it will reach sometime within the week. Gold went against the grain again as the U.S. dollar rose, although the Euro only managed a slight gain because of a huge increase in CDS and cash spreads within Europe. The battle is beginning by nations against the move by the Fed, as they must defend their currencies against the fall in value of the U.S. dollar. That's great news for gold, as it remains the only real alternative as a currency, rising against many currencies around the world, one of the more overlooked, but important metrics to watch. Other commodities should continue to do well going forward as well with the misguided practices of the Federal Reserve continuing on.

Incredibly, the hapless Ben Bernanke, chairman of the Federal Reserve, continues to spew his unprovable assertion that the first round of quantitative easing or inflating saved the U.S. economy, when in fact things are as bad as they have ever been.

Saying the economy would have been worse is another way of admitting QE was an abysmal failure. You can't prove something that can't be measured, and you can't measure an economy that did nothing by saying it was the intervention of the Fed that protected it from getting worse, even as it didn't get better.

Bernanke knows this, but is playing games with those that don't understand how it all works, and who assume the printing of all that money had to have had some positive effect.

The truth is Bernanke admits, in spite of his other assertions, the first round of QE didn't work, which is why there is now a second round being enacted. His saying he wants inflation to be higher during this round of QE shows it failed the first time, generating the question as to how it's going to be different this time.

No matter what one may think in regard to this, the US dollar is in for a rough ride, and the Forex will be interesting to watch as countries implement measures to protect their currencies and exports.

No comments: