Keynesian economic doctrine is analogous to the medical profession’s lethal use of bleeding in earlier ages to cure illness: it makes practitioners feel knowledgeable, but it’s likely to be fatal to the patient.
An April 29, 2009, Wall Street Journal report describes continuing damage to the economy.
Dollar Hits Weakest Level Since July 2008
By JAVIER E. DAVID
NEW YORK—Suffering its worst monthly performance since September 2010, the dollar weakened to a new 2½-year low as investors turned increasingly pessimistic about the U.S. economy and the policy prescriptions designed to improve it.
Longstanding worries among market participants about the Federal Reserve’s ultra-loose monetary policy have converged with growing concerns about the widening U.S. fiscal imbalance. Both are considered legacies of crisis-era stimulus policy that has kept U.S. interest rates at rock bottom, but sent the federal debt soaring to unsustainable levels.
As a result, the dollar is hunkered at multiyear lows against most of its major counterparts, many of which offer higher returns that make the greenback pale in comparison. In addition to the dollar’s lack of yield advantage, data this week have fanned concerns that the U.S. economy could be losing momentum at the very moment the Fed is poised to wrap up its controversial $600 billion bond-buying program, scheduled to end in June.
“A weaker dollar is a consequence of what [policy makers] are doing,” said Peter Schiff, president of Euro Pacific Capital and a critic of the Fed. He expects the euro to retest its record high against the dollar above $1.60 within the coming months, if not weeks.
The Fed’s loose monetary policy “is better than the alternative. They could raise interest rates to protect the dollar, but it would crash the housing market all over again and send the economy back into a recession,” Mr. Schiff said. As a result, policy makers have little alternative but to behave indifferently to the dollar’s slide.
Late Friday, the euro was at $1.4808 from $1.4821 late Thursday. The dollar traded at ¥81.10 from ¥81.54, while the euro was at ¥120.09 from ¥120.85. The U.K. pound was at $1.6696 from $1.6636. The dollar bought 0.8656 Swiss franc from 0.8733 franc.
The ICE Dollar Index, which tracks the U.S. dollar against a trade-weighted basket of currencies, was at 73.03 from 73.121.
Friday’s closing level put the dollar at its lowest point since July 2008, and its near 5% fall makes it the currency’s worst monthly decline since September 2010.
Data from the Commerce Department showed American incomes grew in March but their spending slowed, as rising prices for food and energy squeezed consumers and restrained the economy.
Meanwhile, Friday’s figures followed a government report this week that showed the economy slowed sharply in the first three months of 2011.
“Growing risk appeal outside of the United States has turned to a mild concern that the world’s number one economy is possibly losing its head of steam at a time when the Federal Reserve no longer has use of relief” in the form of quantitative easing, said Andrew Wilkinson, senior market analyst at Interactive Brokers, in a Friday research note to clients. “The recovery in global growth has marked a similar rebound in inflation-bothersome commodity prices.”
Because the Fed is seen not tightening monetary policy well into next year, market observers are increasingly convinced that the dollar is likely to remain pressured across the board.
Back to summary...
