Comments on: The Fed starts to solve the problem http://www.johnredwoodsdiary.com/2007/09/19/the-fed-starts-to-solve-the-problem/ Conservative Party Member of Parliament for Wokingham Mon, 13 Oct 2008 17:51:02 +0000 http://wordpress.org/?v=2.6.2 By: Tony Makara http://www.johnredwoodsdiary.com/2007/09/19/the-fed-starts-to-solve-the-problem/#comment-6322 Tony Makara Thu, 20 Sep 2007 00:15:57 +0000 http://www.johnredwoodsdiary.com/2007/09/19/the-fed-starts-to-solve-the-problem/#comment-6322 John, do you feel the dollar could be in danger from foreign central banks offloading US treasuries? Over the last few weeks 48 billion dollars have been sold. This could have a huge impact on budget deficits. The dollar is becoming a maligned currency, which at one time was unthinkable. Meanwhile China for its part has talked openly about ending western economic pre-eminence in the world. Recently the Chinese even went so far as to describe their accumulation of US dollars as being the equivalent of an 'economic nuclear option' which could decimate the US economy. So it seems the dollar is under attack from all sides. What could be the implications of a debased dollar for the global market in the long run? Reply: There is always the possibility that large holders of dollars will wish to sell some. A very large holder like China would be unlikely to sell too much too clumsily, as they would be the main loser from too sharp a fall in the dollar. Ahead of the Olympics China is also likely to want to avoid political controversy through its actions in the markets. John, do you feel the dollar could be in danger from foreign central banks offloading US treasuries? Over the last few weeks 48 billion dollars have been sold. This could have a huge impact on budget deficits. The dollar is becoming a maligned currency, which at one time was unthinkable.

Meanwhile China for its part has talked openly about ending western economic pre-eminence in the world. Recently the Chinese even went so far as to describe their accumulation of US dollars as being the equivalent of an ‘economic nuclear option’ which could decimate the US economy. So it seems the dollar is under attack from all sides. What could be the implications of a debased dollar for the global market in the long run?

Reply: There is always the possibility that large holders of dollars will wish to sell some. A very large holder like China would be unlikely to sell too much too clumsily, as they would be the main loser from too sharp a fall in the dollar. Ahead of the Olympics China is also likely to want to avoid political controversy through its actions in the markets.

]]> By: Tony Makara http://www.johnredwoodsdiary.com/2007/09/19/the-fed-starts-to-solve-the-problem/#comment-6296 Tony Makara Wed, 19 Sep 2007 09:56:03 +0000 http://www.johnredwoodsdiary.com/2007/09/19/the-fed-starts-to-solve-the-problem/#comment-6296 I feel that by cutting rates the Fed may well have dealt with the short term problem of liquidity but will suffer in the long run because of the weakness of the dollar. This will surely lead to inflation, particularly if the Fed cuts again. On the UK front I feel sure that underlying inflation will surface once the pound depreciates. Therefore the BOE dare not cut interest rates, nor would Brown sanction that. Reply: I do not agree. Yes, the dollar has weakened, but it needs to do, as the USA has to - and will -shift resources out of home consumption into exports. Inflation is under good control. There is excess supply in world manufacturing, with falling prices in many areas. House prices are falling rapidly in the USA. There can only be inflation if there is excess money over goods. The problem recently has been a shortage of money, which the Fed is now moving to ease. Inflation on the official measure in the UK is below target at 1.8%. Additional inflation in the wider RPI is coming from higher interest rates, and public sector charges. I feel that by cutting rates the Fed may well have dealt with the short term problem of liquidity but will suffer in the long run because of the weakness of the dollar. This will surely lead to inflation, particularly if the Fed cuts again. On the UK front I feel sure that underlying inflation will surface once the pound depreciates. Therefore the BOE dare not cut interest rates, nor would Brown sanction that.

Reply: I do not agree. Yes, the dollar has weakened, but it needs to do, as the USA has to - and will -shift resources out of home consumption into exports. Inflation is under good control. There is excess supply in world manufacturing, with falling prices in many areas. House prices are falling rapidly in the USA. There can only be inflation if there is excess money over goods. The problem recently has been a shortage of money, which the Fed is now moving to ease. Inflation on the official measure in the UK is below target at 1.8%. Additional inflation in the wider RPI is coming from higher interest rates, and public sector charges.

]]> By: Letters From A Tory http://www.johnredwoodsdiary.com/2007/09/19/the-fed-starts-to-solve-the-problem/#comment-6290 Letters From A Tory Wed, 19 Sep 2007 09:15:38 +0000 http://www.johnredwoodsdiary.com/2007/09/19/the-fed-starts-to-solve-the-problem/#comment-6290 The "bail out" was a shocking attack on capitalism, and sets an alarming precedent for any future difficulties that a major bank might face. http://lettersfromatory.wordpress.com/2007/09/19/the-puppet-master/ The “bail out” was a shocking attack on capitalism, and sets an alarming precedent for any future difficulties that a major bank might face.

http://lettersfromatory.wordpress.com/2007/09/19/the-puppet-master/

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