Managing the USD slide

[Timmy]

OK, the background is zero interest rates in the US combined with Quantitative Easing, making the USD basically free to borrow and, in terms of lost opportunity cost, quite expensive to hold as cash. Result, a fall in the value of the USD against other currencies (mostly). So far, so obvious.

This post is about the management of that fall in value. My contention is that while a falling USD is not much of a concern for the Fed and US Treasury, (in fact it is a positive, though that is not being said) - again, I think all this is pretty obvious (I don't not have a Nobel Prize in Economics for nothing) - what would be a concern is a rapid fall in the value of the USD; a rapid fall could well shake confidence in US markets (selling of US equities and Treasuries etc.).

So, how is the USD fall being managed?
Really, really well, IMHO.

The most recent statement from the FOMC said rates were to be on hold for an 'extended period of time'. Basically, a green light for continuing to sell the USD.

But, look what is happening when the USD starts to slide.
Tuesday the head of the Philadelphia Fed gave a speech which was reported as saying he is calling for an interest rate hike, for example:
Fed's Plosser calls for higher interest rates
http://www.marketwatch.com/story/feds-plosser-calls-for-higher-interest-rates-2009-12-01

Wednesday the head of the Richmond Fed, Jeff Lacker, gave a speech which was reported in a similar manner:
Richmond Fed's Jeff Lacker who joins the chorus demanding an end to Bernanke's insane monetary policy of drowning the market with unprecedented liquidity
http://www.businessinsider.com/feds...in-fed-excess-liquidity-dissent-panel-2009-12

It looks to me like there are two alternative explanations:
1. These speeches are Fed regional heads simply speaking their mind;
2. These speeches are Fed regional heads speaking their mind, but being actively encouraged to do so because such statements lend support to the US dollar (short-covering is generally induced when statements such as the above are reported).

I think the main implication of 2 is that the (unstated) policy of allowing the USD to fall is going to stay in place for some time to come and management of the fall will continue.

Oh, there are 2 other alternatives:
1. I am talking my book;
2. I have simply misplaced my tinfoil hat and will feel much better when I find it.

Any thoughts on this?

 

[joeyr46]

OK, the background is zero interest rates in the US combined with Quantitative Easing, making the USD basically free to borrow and, in terms of lost opportunity cost, quite expensive to hold as cash. Result, a fall in the value of the USD against other currencies (mostly). So far, so obvious.

This post is about the management of that fall in value. My contention is that while a falling USD is not much of a concern for the Fed and US Treasury, (in fact it is a positive, though that is not being said) - again, I think all this is pretty obvious (I don't not have a Nobel Prize in Economics for nothing) - what would be a concern is a rapid fall in the value of the USD; a rapid fall could well shake confidence in US markets (selling of US equities and Treasuries etc.).

So, how is the USD fall being managed?
Really, really well, IMHO.

The most recent statement from the FOMC said rates were to be on hold for an 'extended period of time'. Basically, a green light for continuing to sell the USD.

But, look what is happening when the USD starts to slide.
Tuesday the head of the Philadelphia Fed gave a speech which was reported as saying he is calling for an interest rate hike, for example:
Fed's Plosser calls for higher interest rates
http://www.marketwatch.com/story/feds-plosser-calls-for-higher-interest-rates-2009-12-01

Wednesday the head of the Richmond Fed, Jeff Lacker, gave a speech which was reported in a similar manner:
Richmond Fed's Jeff Lacker who joins the chorus demanding an end to Bernanke's insane monetary policy of drowning the market with unprecedented liquidity
http://www.businessinsider.com/feds...in-fed-excess-liquidity-dissent-panel-2009-12

It looks to me like there are two alternative explanations:
1. These speeches are Fed regional heads simply speaking their mind;
2. These speeches are Fed regional heads speaking their mind, but being actively encouraged to do so because such statements lend support to the US dollar (short-covering is generally induced when statements such as the above are reported).

I think the main implication of 2 is that the (unstated) policy of allowing the USD to fall is going to stay in place for some time to come and management of the fall will continue.

Oh, there are 2 other alternatives:
1. I am talking my book;
2. I have simply misplaced my tinfoil hat and will feel much better when I find it.

Any thoughts on this?

absolutely as the US dollar has gone down in perfect elliot waves is the fed in control ? I dont think so
As every on is bearish the US dollar it could turn out to be the trade of the year (OK 2010)
If it is the trade of next year then Gold is probably finished for the short to medium term
Those are my thoughts

 

[sinner]

Any thoughts on this?

Where is the thumbs up emoticon when you need it?

What is the old saying? When someone owes you $100,000 they are in trouble. When someone owes you $11,400,000,000,000 then you are the one in trouble. In this case that is the accurate number, not hyperbole by the way.

What is the easiest way to get out of such a sticky mess without, you know, paying off your debts? Devaluation baby. So the fight is on, USD wants to drop against its debt holding nations (China, Japan number 1 and 2 respectively) but those countries want the same thing (weak currency against worlds largest consumer economy currency to stimulate manufacturing and exports).

Who is winning? The better manager of course. Like you said, we are talking about really, really good management here.

Let's take a quick peak at a chart of the long term value of the USD vs its two largest debt holding counterparts. I have included the euro for posterity.

This chart is titled: Your big pile of USD. Now with 20% less value.