ÿþ<html> <head> <meta http-equiv="content-type" content="text/html;charset=iso-8859-1"> <title>OnlineColumnist&reg;.com: Duke's Damage Control</title> <meta name="generator" content="Adobe GoLive 4"> <style type="text/css"> .style1 { font-size: x-large; font-weight: bold; } </style> </head> <body bgcolor="white" vlink="black"> <center> <table cool width="624" height="2719" border="0" cellpadding="0" cellspacing="0" gridx="16" showgridx gridy="16" showgridy> <tr height="79"> <td width="116" height="118" rowspan="2" valign="top" align="left" xpos="0"><a href="aboutdiscobolos.html"><img height="110" width="62" src="images/discobolos.logo.transp.gif" border="0"></a></td> <td width="24" height="118" rowspan="2"></td> <td width="465" height="79" colspan="2" valign="top" align="left" xpos="140"><img height="75" width="450" src="images/banner.GIF"></td> <td width="18" height="118" rowspan="2"></td> <td width="1" height="79"><spacer type="block" width="1" height="79"></td> </tr> <tr height="39"> <td width="182" height="39"></td> <td width="283" height="39" valign="top" align="left" xpos="322"><a href="aboutdiscobolos.html"><img height="14" width="267" src="images/divisionofNEW.GIF" border="0"></a></td> <td width="1" height="39"><spacer type="block" width="1" height="39"></td> </tr> <tr height="26"> <td width="624" height="26" colspan="6" valign="top" align="left" xpos="0"> <table border="0" width="100%" bgcolor="black" cellspacing="0"> <tr> <td> <table border="0" width="100%" bgcolor="#99ffcc" cellspacing="0" cellpadding="4"> <tr> <td align="center"> <div align="left"> <a href="index.html"><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong>HOME</strong></font></a><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> &#149; <a href="articlesindex.html">ARTICLES</a> &#149; <a href="books.html">BOOKS</a> &#149; <a href="teflon.html">THE </a><a href="teflon.html">TEFLON</a><a href="teflon.html"> REPORT</a> &#149; <a href="mailto:letters@onlinecolumnist.com">REACTIONS</a> &#149; <a href="aboutdiscobolos.html">ABOUT DISCOBOLOS</a></strong></font></div> </td> </tr> </table> </td> </tr> </table> </td> </tr> <tr height="1"> <td width="116" height="2574" rowspan="2" valign="top" align="left" xpos="0"><img height="172" width="111" src="images/johninframe3.jpg"></td> <td width="489" height="1" colspan="3"></td> <td width="18" height="2574" rowspan="2"></td> <td width="1" height="1"><spacer type="block" width="1" height="1"></td> </tr> <tr height="2573"> <td width="489" height="2573" colspan="3" align="left" xpos="116" content valign="top" csheight="2573"> <font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="5"><b> <br /> U.S. Dollar&#39;s Demise</b></font><p><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><b>by John M. Curtis<br> (310) 204-8700</b><br> </font></p> <p><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"><i>Copyright May 23, 2009<br> All Rights Reserved.</i></font></p> <p><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;<span class="style1">&nbsp;</span></span><span class="style1">S</span>liding against the foreign currencies, the U.S. dollar hit new 2009 lows in part due to the Federal Reserve Board s historic effort to add liquidity to frozen credit markets.<span style="mso-spacerun: yes">&nbsp; </span>Called a once-in-a-century event by former Fed Chairman Alan Greenspan, the U.S. has reeled from a banking crisis not seen since the financial panic of 1907, where the stock market nearly collapsed.<span style="mso-spacerun: yes">&nbsp; </span>Four years later, Congress created the Federal Reserve Board, modeled directly on the European Central Bank to assure a stable money supply to cash-strapped banks.<span style="mso-spacerun: yes">&nbsp; </span>During the financial panics of 1873, 1893 and 1907, history repeated itself in 1929, where panicked borrowers withdrew savings, causing the liquidity crisis nearly destroying Wall Street.<span style="mso-spacerun: yes">&nbsp; </span>When the stock market crashed in 1929, it became clear that bank holding companies could no longer play he market without catastrophic consequences.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>By 1933, the U.S Congress enacted the Glass-Steagall Act, creating the Federal Deposit Insurance Corporation, protecting depositors and prohibiting bank holding companies from risky stock market investing.<span style="mso-spacerun: yes">&nbsp; </span>Glass-Steagall worked well until repealed in 1999 by the Gramm-Leach-Biley Act, opening the door for banks to once again engage in risky market investing.<span style="mso-spacerun: yes">&nbsp; </span>Last year s 60% drop in the stock market and banking liquidity crisis was directly related to once banned investing known today as  derivative investing.<span style="mso-spacerun: yes">&nbsp; </span>Unprecedented borrowing and bailouts of failed banks by the Fed, totaling over $10 trillion, has now devalued the U.S. dollar, driving up commodity prices like gold and oil.<span style="mso-spacerun: yes">&nbsp; </span>When the dollar declines, it simply costs more to buy commodities, causing inflation.<span style="mso-spacerun: yes">&nbsp; </span>While the Fed had to act aggressively to save the economy, massive borrowing devalued the U.S. dollar.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>European Central Bankers rejected supplying comparable liquidity into their national banks, leaving the system less leveraged than the U.S.<span style="mso-spacerun: yes">&nbsp; </span>Added leverage results in higher borrowing costs and a dilution of value, whether it s currency, in the case of nations, or public traded shares for corporations.<span style="mso-spacerun: yes">&nbsp; </span> The general theme today is clearly broad-based U.S. dollar weakness, largely triggered by mounting concerns over U.S. government debt AAA ratings, said Omer Esiner senior market analyst at Travelex Global Business Payments in Washington.<span style="mso-spacerun: yes">&nbsp; </span>Weakness in the U.S. dollar has resulted in a spike in commodity prices, especially gold and oil.<span style="mso-spacerun: yes">&nbsp; </span>Higher oil futures translate into increased pump prices, fueling inflation in transportation costs.<span style="mso-spacerun: yes">&nbsp; </span>Foreign investors have become reluctant to buy U.S. treasuries given their low yields and current devaluation of U.S. currency.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>Regardless of the sluggish pace of economic growth, Bernanke can no longer watch the dollar s devaluation eat up foreign investments.<span style="mso-spacerun: yes">&nbsp; </span>Raising interest rates makes U.S. treasuries more attractive to foreigners.<span style="mso-spacerun: yes">&nbsp; </span> Investors are coming to a realization that interest rates are heading higher and the dollar is going to be under pressure, said Alan Lancz, president of Alan B. Lancz &amp; Associates, an investment advisors firm in Toledo, Ohio.<span style="mso-spacerun: yes">&nbsp; </span>Rising interest rates should stem the slide in the U.S. dollar, in part caused because other fixed interest rate investments are more competitive overseas.<span style="mso-spacerun: yes">&nbsp; </span>Bernanke knew the trade-off of lowering interest rates:<span style="mso-spacerun: yes">&nbsp; </span>Devaluing the U.S. dollar.<span style="mso-spacerun: yes">&nbsp; </span> Devaluing the currency induces foreign investors to buy U.S. exports, reducing the U.S. traded deficit.<span style="mso-spacerun: yes">&nbsp; </span>A weak dollar policy also keeps more capital inside the U.S., making foreign travel and goods more costly.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>White House economic advisors are watching commodity prices carefully, concerned that a sudden spike in pump prices could torpedo economic recovery.<span style="mso-spacerun: yes">&nbsp; </span>During the reign of former President George W. Bush, oil and gasoline prices went through the roof.<span style="mso-spacerun: yes">&nbsp; </span>He allowed ExxonMobil, Chevron Texaco and other big oil companies unprecedented profits during recession.<span style="mso-spacerun: yes">&nbsp; </span>President Barack Obama can t make the same mistake, allowing oil companies to profit at the expense of the economy.<span style="mso-spacerun: yes">&nbsp; </span>Nothing causes more inflation and tanks the economy than high pump prices.<span style="mso-spacerun: yes">&nbsp; </span>Big Oil already blames the recent run-up in pump prices on China s insatiable appetite for fossil fuel.<span style="mso-spacerun: yes">&nbsp; </span>Unlike Bush, Obama needs to be more vigilant keeping the oil industry from gouging consumers and tanking economic recovery.<span style="mso-spacerun: yes">&nbsp; </span>Weakness in the U.S. dollar, not China, has caused the latest price spike.</p> <p class="MsoNormal"> <![if !supportEmptyParas]>&nbsp;<![endif]><span style="mso-tab-count:1">&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; </span>President Obama must continue stimulating the U.S. economy, even if it means increasing the money supply, more bailouts and growing the national debt.<span style="mso-spacerun: yes">&nbsp; </span>Most economists agree that inflation is preferable to deflation, where commodity prices plummet because of a weak economy.<span style="mso-spacerun: yes">&nbsp; </span>When the economy recovers and the Gross Domestic Product increases, the fraction of the budget deficit and national debt shrinks when compared to the overall economy.<span style="mso-spacerun: yes">&nbsp; </span>When goods and services increase relative to debt, the dollar should eventually recover.<span style="mso-spacerun: yes">&nbsp; </span>A weak dollar helps the U.S. economy during times of recession by giving more incentives grow exports and retain more business activity inside the U.S.<span style="mso-spacerun: yes">&nbsp; </span> When Standard &amp; Poors warned May 22 about downgrading Britain s AAA credit rating, it raised similar concerns about the U.S., driving down the already weak dollar.</p> <p><u><b>About the Author</b></u></p> <p><b>John M. Curtis</b> writes politically neutral commentary analyzing spin in national and global news.&nbsp; He&#39;s editor of OnlineColumnist.com and author of <a href="books.html">Dodging The Bullet </a>and <a href="books.html">Operation Charisma</a>.<u><br> </p> <p></p> </td> <td width="1" height="2573"><spacer type="block" width="1" height="2573"></td> </tr> <tr height="1" cntrlrow> <td width="116" height="1"><spacer type="block" width="116" height="1"></td> <td width="24" height="1"><spacer type="block" width="24" height="1"></td> <td width="182" height="1"><spacer type="block" width="182" height="1"></td> <td width="283" height="1"><spacer type="block" width="283" height="1"></td> <td width="18" height="1"><spacer type="block" width="18" height="1"></td> <td width="1" height="1"></td> </tr> </table> <table border="0" cellpadding="0" cellspacing="2" width="597"> <tr> <td><font size="1" face="Arial,Geneva,Helvetica"> <hr noshade size="1"> </font><a href="index.html"><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong>Home</strong></font></a><font face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular" size="2"><strong> || <a href="articlesindex.html">Articles</a> || <a href="books.html">Books</a> || <a href="teflon.html">The Teflon Report</a> || <a href="mailto:letters@onlinecolumnist.com">Reactions</a> || <a href="aboutdiscobolos.html">About Discobolos</a></strong></font> <div align="left"> <p><font size="1" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">This site designed, developed and hosted by the experts at</font><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular"> <a href="http://www.cmeonline.net" target="_blank"><img height="30" width="138" src="images/cmelogoANIM.gif" border="0" align="absmiddle"></a></font></p> </div> <p><font size="2" face="Arial,Helvetica,Geneva,Swiss,SunSans-Regular">&copy;1999-2002 <a href="aboutdiscobolos.html">Discobolos Consulting Services, Inc.</a><br> (310) 204-8300<br> All Rights Reserved. </font></td> </tr> </table> </center> </body> </html>