October 29, 2007 02:40 pm
The Feds cut rates by 1/2% and this resulted in a "mini run" in the US dollar. I am not sure if there was any other time in recent history when in dropped so quickly in such a short period of time. The market seems to be anticipating an other cut in rates this Wednesday. IMO - this is quickly becoming a counter productive strategy on the Fed's part as this will most certainly cause another run on the US dollar. International creditors want a return on there money and over the past number of years, holding US dollars has been a loosing proposition for them. Poor US economic policy has resulted in a huge trade deficit lower dollar, the sub prime fiasco and inflationary pressure. The last interest rate drop shows that under these conditions foreign holders of US debt will not accept a lower return with out punishing the currency.
IMO - The feds are stuck between a rock and a hard place. It is just before the US election and so the pressure is on them to go easy on the US economy. Easy means a run on the dollar and increased US inflation with much more drastic action required down the road.
Let’s see what happens Wednesday - Dammed if they do and Dammed if they do not!!!!!!!! IMO