Dollar’s wounds reopen
By W Joseph Stroupe
“Be careful what you wish for, you may receive it.” The adage applies well to the US Federal Reserve as it enters what may turn out to be an entirely new and more dangerous phase of the financial and economic crisis that is still firmly centered in the US - notwithstanding the ongoing Wall Street rally and increased hopes that the worst is now over.
The Fed wished away the hysterical risk aversion reflex of global investors, which came to a head in autumn 2008, when big Wall Street banks collapsed, sending shockwaves around the globe. The position of Fed officials is, after all, that this is a crisis sparked mostly by panic-stricken investors who’ve artificially driven the value of America’s innovative financial assets far below their true values, wrongfully smearing massive sums of such assets with the label, “Toxic!”.
The Fed believed it could breathe new life into those assets and into America’s asset bubble-based economy by getting credit flowing again and by replacing investor fear with investor confidence - which inevitably translates into a greater appetite for risk. A significant measure of risk appetite is now returning. But the problem is, the US dollar isn’t getting the benefit. Instead, its wounds are only being reopened.
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