US Federal Reserve’s Interest Rate Cut Damns the US Dollar

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“Today’s action, combined with the policy action taken in September, should help forestall some of the adverse effects on the broader economy that might otherwise arise from the disruptions in financial markets,” the Federal Open Market Committee said in a statement after meeting today in Washington. “After this action, the upside risks to inflation roughly balance the downside risks to growth.”

We guessed that the Fed would surprise us…and do nothing. But 91 out of 108 economists interviewed by Bloomberg were sure that they would choose a quarter-point rate cut. They were right; we were wrong.

Not that it matters. Financial officialdom has already made itself clear: they’ll do whatever is necessary to keep this expansion going; the dollar be damned.

And so, the dollar was damned. Yesterday, it fell to another record low against the euro – it now takes more than US$1.45 to buy a euro. Ouch! Shortly after the euro appeared, in 1998, it sank as low as 88 cents. Now look at it. Americans in Europe have lost half their purchasing power in just seven years…most of it because of the falling dollar; the rest because of rising consumer prices. Americans in America have lost wealth too; they just don’t know it yet.

Your poor editor is going to have to move to a cheaper place…a backward country where people don’t expect to earn much money…where property prices are low…and where you can still get a cup of coffee for less than US$4. Hey, we can move back to the US!

Bill Bonner
The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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Alan
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I have a question. Logically if the US dollar is doomed,what would happen to the “profitability” of oil companies and miners ? I suppose that a basket of currencies, which presumably would include initially an overweighting of US dollars, would be established for the settlement of contracts. It has already been suggested that this may be on the agenda at the next OPEC meeting. Since there are differing national interests, such as whether a country is pegged, or maybe a trading partner, it seems unlikely that a consensus would be achieved. However in a doomsday scenario presumably this would happen,… Read more »
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