The Dollar Melts as Iraq Burn

[acmejack]

Published on Monday, December 4, 2006 by the Guardian / UK
The Dollar Melts as Iraq Burn
by James K. Galbraith

The melting away of the dollar is like global warming: you can't say that any one heat wave proves the trend, and there might be a cold snap next week. Still, over time, evidence builds up. And so, as the greenback approaches two to the pound, old-timers will remember the fall of sterling, under similar conditions of deficits and imperial retreat, a generation back. We have to ask: is the American financial empire on the brink? Let's take stock.

It's clear that Ben Bernanke got buffaloed, early on, by the tripe about his need to "establish credibility with the markets." There never was an inflation threat, apart from an oil-price bubble that popped last summer. Long-term interest rates would have reflected the threat if it existed, but they never did. So the Fed overshot, and raised rates too much. Now long rates are falling; Bernanke faces an inverting yield curve and even bank economists are starting to call his next move. That will be to start cutting rates, after a decent interval, sometime next year.

Once again, all you monetary policy buffs, in unison please:

The grand old Duke of York, he had ten thousand men.
He marched them up to the top of the hill. And marched them down again.

This is not good news for the dollar.

http://www.commondreams.org/views06/1204-33.htm