The View From 1776
Friday, January 25, 2008
A Money Manager Views the Fed and the Dollar
Read The Dollar and the Market Mess by Bill Wilby in the January 23, 2008, edition of the Wall Street Journal.
Lenin was surely right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
—John Maynard Keynes
Currency debauchment is a choice. Most governments don’t want to debauch their currency—it’s just that they don’t want to take the actions that might prevent it, because those actions are perceived to be intolerably painful. Thus it was that last fall, the Federal Reserve, the world’s central bank, decided to “let the dollar go” because staying the course on interest rates might threaten the world’s financial system (or so the argument goes)...
In a world of fiat currencies, where trust is your most powerful policy tool, dollar strength is a far better indicator as to the appropriate stance of monetary policy than “core” inflation.