Dollar Loses More Value

[Junket]

Federal Reserve interest rate cuts drop the dollar once again

The decision of Ben Bernanke, the chairman of the U.S. Federal Reserve Board, on Wednesday to lower interest rates by another 0.5% after the surprise cut of 0.75% only a week earlier, has led the dollar to fall even further against the shekel and other major currencies.

The greenback fell 0.6% against the shekel yesterday and the representative exchange rate was set at NIS 3.625 - the lowest rate in a decade.

After the representative rate was fixed, the dollar continued to weaken in late trading.
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The dollar is now down 5.7% since the start of 2008, and off almost 10% percent since its slight recovery in the middle of December.

According to forecasts, the dollar will continue losing ground against the shekel as the Bank of Israel Governor Stanley Fischer, is not expected to lower Israeli interest rates in the near future due to forecasts of lower inflation. Dollar interest rates are now 3.5%, well below the Bank of Israel's 4.25% level; as well as that of most major currencies.

Those hurt the most from the dollar's weakness are companies which export to dollar bloc countries, and other firms whose income is fixed in dollars. Of course, there are those profiting from the fall of the American currency, such as importers who buy their goods in dollars.

[url]http://www.haaretz.com/hasen/spages/950217.html[/url]

Federal Reserve Bank announces drop in prime rate
Decrease will give relief to those having trouble

CARBONDALE, Ill. (AP) - Although money does not grow on trees, a recent drop in lending rates could make it easier to come by.

Last week the Federal Reserve Bank announced a half-percent drop in a key interest rate, referred to as the prime rate.

The lower rate applies more to home equity and commercial loans than auto and mortgage loans, but could also affect private student loans. One downside to the change is the possible increase in prices of daily goods.

Akm Morshed, assistant professor of economics at Southern Illinois University, said the lower rate helps people who had problems affording loans.

"The interest rate will be going down a little bit so the people who had a hard time repaying loans will get some relief there," Morshed said. "So basically it's the cost of money going down."

Steve Schauwecker, senior lender for First Southern Bank in Carbondale, said the rate would mostly affect people looking to refinance their home.

"Anybody who has taken out a home loan previously, and they've been waiting for the rate to drop to refinance, it stirs up a lot of interest in that market," Schauwecker said. "It can also affect the purchase market but it's not quite as discernible."

Although home purchase loan rates are not directly tied to the prime rate, Schauwecker said they did experience a small drop last week.

"After the prime dropped, home loan rates went down about an eighth of a percent," he said.

SIUC students who need student loans could find that private loans have also dropped now.

Billie Jo Hamilton, director of financial aid at SIUC, said the federal student loans are not affected by the cut of the interest rate.

"The federal student loans that most students have are tied to the T-Bill, not the fed lending rate," she said. "The federal government sets the rates for student loans each July 1 for the upcoming year."

Loans through private banks and lenders could be tied to the prime rate plus a certain percentage," Hamilton said.

"A lot of those lenders do base their rates on prime, so I'm assuming there could be some immediate relief for some people who have prime-based loans," she said.

There could be an effect on the federal loans, but it would not be seen until next year because this year's rate is already set, Hamilton said. Although more money in people's pockets seems positive, Morshed said it could cause prices to rise over the next few months.

"If they keep the interest rate low, in six months down the road we'll have higher prices," he said.

[url]http://media.www.dailyvidette.com/media/storage/paper420/news/2007/09/27/Features/Federal.Reserve.Bank.Announces.Drop.In.Prime.Rate-2994487.shtml[/url]

How does this shit affect me?

Dear ANTHONY,

We are writing to inform you that based on the recent drop by the Federal Reserve, HSBC Direct has adjusted your Online Savings Account rate to 3.55% APY*. At 8x the national savings average**, you are still earning one of America’s highest savings rates.

HSBC Direct will continue to evaluate and respond to market changes so we can provide you with competitive rates. And if your rate changes, whether up or down, we are committed to always letting you know.

My interest rate has dropped from slowly 5.05% when I signed up for HSBC back in 2006, to about 4.75%...then in just the past few weeks has dropped several times to this 3.55%.

Somebody blow up the Federal Reserve.

[Junket]

Social Decay and the Federal Reserve

[url]http://www.lewrockwell.com/orig/englund7.html[/url]

I've been saying this since I joined AmeriCorps.

America has far too many issues within itself to be running around the world shooting people.

Fúck everybody else!

It's about time we return to an isolationist foreign policy and fix the wrongs here.

America is no longer a true superpower.

[squirrley]

Every monring my husband and I have this conversation. Its scary what's happening and most people are oblivious it. I was and probably still am to most extent. He was telling me yesterday the FDIC is setting up things to be ready when more banks fail. Tells me something more is happening.

[Junket]

People won't be so oblivious when the cost of milk goes up.

No, wait.

Yes they will.

[Ashliejae]

Ohhh i love this topic, and speaking on the price of milk hell yeah you notice. Im in college so i only actually grocery shop about once a mth. So i went before chirstmas, and eggs where like 80 cents okay i went last week eggs where like a $1.44 at first i was like wow i must be crazy things dont go up that much that fast. So i got home and dugg out my tickets from shopping in December. And yep not only that my milk went from 4.52 a gallon to 6.35. This to me this is very scary.

[Junket]

I just don't trust that the democrats, or McCain have any real radical plan of addressing the economy.

Unless they completely overhaul the dollar and get rid of the IRS and the Federal Reserve, we will need some major taxing to alleviate the nation's debt. And who wants that?

I think Ron Paul is the only one who's willing to pull the E-brake.

[misombra]

we need to keep our money to ourselves and quit giving it to israel and occupying other countries who didn't do anything to us.

[TheSphinx]

Here's one for you, Fras.

I was reading up on Greenspan the other day, and he actually states that he thinks the U.S. did just as well, if not better, when there wasn't a federal reserve.

He was a constituent of Ayn Rand and gave input for her book, Atlas Shrugged. I mentioned the book on another thread, but I think you'd be the type to enjoy it.

~Sphinx

[Ashliejae]

yay, some one else like Ron Paul, you know. It seems hes very popular on the internet.

[boobaa]

its some good news and bad news altogether, it could be a concpiracy for the NWO, in wich case, it is going to drop even more.
But I don't live on dollars, nor buy any gasoline, so i don't give a **** and have a big laugh.

[squirrley]

My hubby would like Romney to win, but he knows that wont happen. Hes the closest of them all that represents what Chris is looking for in a candidate. Too bad, because the bigger powers to be will have who they really want in the big house.

[Illusional]

eggs and milk.. it's two things that you are already supposed to buy locally. c'mon, help out your friendly neighborhood farmers.

raverboy

[Tone]

Every great empire fall starts with the collapse of it's economy.

[GrkScorp]

How does this shit affect me?

Ugh, where to start..

First, let me knock out the Forex issue out of the way..

For the moment, Core Inflation is increasing from 2%, to 2.5%, and expected to pass 3% in the next 5 years (that was already the case prior to January rate-cuts)

Basic principle in macroeconomics, when you increase the interest rate, you control inflation (this is why it's done during a boom, to prevent economic overheating which will lead to higher prices "inflation").. when you decrease the interest rate, you stimulate spending (you add more money into the economy, thus lowering the cost of money "interest" and you stimulate investment spending and consumption on durable goods; but by doing so, prices adjust "higher" even though output isn't really higher, and this results in inflation)

As far as Forex goes, for the moment, our inflation rate is relatively low (core inflation ignores the price changes of food & energy, these are highly volatile and core inflation aims to see meaningful trends uninhibited by short-run variations).. More US Dollars simply means that each one is worth less, and a higher price level and expected inflation (due to lower rates) will weaken the dollar even further.. What does it mean for you?

1. You can't go on vacation in Europe (boo-hoo).. which will keep spending local
2. Europeans love NYC & LA, because of a weak dollar, tourism is up, and tourism related revenue is increasing (leading to higher sales; which will act to stimulate the economy)
3. Aside from tourism, our net export defecit is closing, in the next 5 years, we're actually expected to have a surplus!
4. Thanks to China & India's growth, their price levels are actually increasing faster than our own, which causes our real Forex rates to favor trade towards us! Which means more imports from us, more sales (exports) for us, more money to firms and workers, more output, and more economic activity!

That's all nice and dandy, but we don't live in a Forex world..

If the interest rate is 3% and inflation is 2.5%, then the real interest rate is 0.5%; and in 5 years when inflation is at 3%, the real interest rates on federal funds will be 0%! (Obviously the fed can't sustain this policy for too long)

In fact, monetary policy can't help.. Not only are we facing low GDP growth (usually the Fed would cut rates to stimulate activity), but we also face increasing inflation (usually the Fed would increase rates to control inflation).. The Fed is left to pick the lesser of two evils (in this case, high inflation).. Monetary policy will increase Investment spending (relieve the housing crisis & renew investment in residential housing, lower the interest rates on Corporate Debt and stimulate business growth) & Consumption Spending (financial sectors will realize gains which will poor over to employees and spill over to other sectors of the economy, increase consumption of durable goods which are tied to long-term financing)..

This will have the effect of increasing GDP growth, but will also bring price levels higher (artificially) and increase inflation.. Fiscal Policy will also kick in (Government stimulus package), and pump $150 billion into the economy.. since the velocity of money is around (5), this will translate to $750 billion in economic activity (it really doesn't matter if it's a tax cut or government expenditure, in fact, it would be less effective if it was a tax cut "take my word on it, it's too technical/long to explain").. combine this with the Forex effect, and GDP growth will be back on track, helping us avoid a serious recession.. but at a cost (higher prices, inflation)

It will get interesting because after the 5 year mark, the Fed will have to adjust the rates, Inflation will be just over 3% so the rates will have to be at least that much, or else a negative real interest rate would mean the banks could borrow federal funds at a bargain! (they would make money borrowing money! it would be a negative real interest rate!) This would lead to extreame overheating and inflation; and we'd have the hyperinflation Germany faced during WWII where people would burn money because it was cheaper than buying wood or paper.. (Germany's WWII inflation rate was over 1,000% btw).. So GDP growth will have to be a priority and actually be fixed prior to the 5-year mark or else we'll really be in a tight spot! But GDP growth looks like it should improve well within those 5 years, so the Fed will be able to increase rates to control inflation & not hurt GDP afterwards..

The reason your Saving Acc. rate fell is simply because you have competition.. Imagine, the bank could borrow money from the Fed at 4.25% (but had to pay it over-night; that's the rate on over-night loans), OR it could borrow it from you at 5.05% (and take a whole year to pay you the interest).. Now the rate they have to pay on overnight loans is down to 3%, OR they can pay you 3.55% (over one year); honestly, they are getting a better deal if they borrow from you since the spread is smaller than it was before.. (you're obviously worse off, but there's nothing you can do about it, it's not your bank's fault) You should have purchased Bonds prior to January (stay away from them now, rates can only go up from here, which means bad news for bonds; inverse price relationship!)

If you want my opinion on where to invest your money:

- Merck (Drug companies such as Merck usually do well during economic downturns, plus a weak dollar adds to the 50+% of their total sales which are outside the U.S.)
- MSFT (Microsoft, in case you haven't heard, they're buying out Yahoo; which will place AOL under strain, and make Google look like a more attractive buy to the more qualitative investor; but quantitative analysis points to Microsoft's business diversity and focus on investing in growing sectors which will allow it to keep earnings per share strong in the 3rd & 4th quarters of this year)
- Financials (DO NOT go solo with I-Banks, instead invest in Mutual Funds which have a portfolio rich in Real-Estate Development, Banks, I-Banks, and Municipal Bonds "Munies".. they will hedge the risk for you, and are expected to return 4-8% per year "since the final rate cut")
- Buy Land (I have 1 acre in Florida in the middle of nowhere just north of Tampa; I got it 4 years ago for $4,000.. "I thought, for that money, and 1 acre, why not!", Since I have nothing but trees all over the property, I get a credit which reduces my annual taxes to just $157.. 3 months ago, the most recent appraisal valued it at $38,000.. hint, it's just outside Tampa, and I was just there, Tampa is booming, they're moving the US's 2nd largest port to Tampa to avoid Miami traffic, in just 8-10 years, you won't be able to touch property in Tampa, and obviously the values of property around it will shoot up to reflect this change; buy it and let it sit there; the rate of appreciation will more than justify locking in your funds to such a long-term investment)

[boobaa]

Every great empire fall starts with the collapse of it's economy.

todays USA was built from the benefits of the collapse of its economy... Crisis changed everything and so some corporations became the todays rulers because of that. Crisis is a good way to expand the playground really cheaply disguised, if you know what I mean. What do you think how Texaco got its power?