Yet the current landscape is not the best of all possible worlds. Certainly in many regions, it does not appear to be a very happy one. Worries continue, both in regulatory pastures and in the playgrounds of the so-called real world. Recent growls from economic watchdogs and noises from diverse corners of the statistical garage suggest that further thrilling and chilling episodes remain in the worldwide economic crisis.
The long-running ABC television series, “Desperate Housewives”, offers an archetypal title for our devoted central bankers and their allies in their epic and frequently frantic saga to promote prosperity. This widely-watched show does not confine itself to its crew of leading actresses. The economic domain likewise contains a wide cast of characters.
Why shouldn’t television inspire the production of a mini-series of essays analyzing dramas on the economic stage? Part of this perspective should chronicle and assess the words and actions of the Federal Reserve, their friends, and other marketplace players.
How much dollar weakness is the US prepared to endure relative to current levels? What about foreign holders of dollar denominated assets? The broad real trade weighted US dollar in September 2010 averaged 87.00, quite a distance from its February 2002 peak at 113.04. It is not far from major support around 84.00. Recall the April 2008, July 1995, and October 1978 troughs. How long will the Fed be able to keep its policy rates low if it engages in a money printing party? US melodies about its love of a “strong dollar” do not necessarily inspire everyone to sing along. Also, what will holders of US securities do if the dollar depreciates quite a bit at a fairly rapid pace, and especially if that weakness occurs alongside a noteworthy increase in US interest rates? See “Goldilocks, Green Shoots, and the US Dollar” (9/7/10).
FOLLOW THE LINK BELOW to download this market essay as a PDF file.