Thursday, March 19, 2009

Fed Creates $1Trillion---Dollar Dumps v. Euro

"Helicopter Ben" has finally grabbed the reciprocal. And the recession? It's YOUR fault!

The Federal Open Market Committee, ...moved markets this afternoon with its announcement that it was going to buy lots more mortgage securities (up to $750 billion more) and start buying long-term Treasuries (up to $300 billion worth) for the first time in a very long time

But the financial world and America's position in it are... complicated.... We now owe lots of money to creditors outside the U.S., and when they see the Fed buying long-dated Treasuries they're bound to start worrying about what that means for the dollar. If they get too worried, they could drive up interest rates here and counter the impact of the Fed's purchases. So there are limits to the Fed's magical powers, and they already began showing up in currency markets this afternoon, with the dollar falling sharply against the euro and other foreign currencies. The adventure continues.

Next effect: FoMoCo and AutoNation will get their wish. Petroleum WILL go up in price; the only question is whether gasoline will hit the "target" of $4.00/gallon.

We learn that the recession is YOUR fault:

Jan Hatzius...said the Fed had adopted a “kitchen sink” strategy of throwing everything it had to jolt the economy out of its downward spiral.

But while Mr. Hatzius applauded the decision, he cautioned that the central bank could not solve the economy’s problems by expanding cheap money.


“Even if the Fed could make interest rates negative, that wouldn’t necessarily help,” Mr. Hatzius said. “We’re in a deep recession mainly because the private sector, for a variety of reasons, has decided to save a lot more. You can have a zero interest rate, but if you just offer more money on top of the money that is already available, it doesn’t do that much.”

Mr. Hatzius knows about blowing money away--which is what he wants from the "private sector."

He's the Chief Economist for Goldman Sachs, which recieved $$UmptyZillion in taxpayer dollars through AIG and through the "bailout" program.

1 comment:

J. Strupp said...

The dollar's slide yesterday will be a temporary one. Considering the nightmare facing almost every other currency in the world, the dollar is still the currency of choice. It's not that the dollar is strong, it's that the rest of the world is in horrible shape. We'll see.