Watching what is going on in the stock markets and commodity markets has left
me rather speechless. Maybe it's nature's way of trying to turn me into "A Wise
Old Owl".
The theme de jour is whether the western economies are falling into a deep
trough and as a result deflation is descending over the land like some pall of
gloom.
The dollar surged to multi-year highs against the Canadian dollar, British
pound and 15-nation euro Wednesday on anxieties about the deteriorating
economies overseas and growing expectations that central banks will cut interest
rates.
Cutting interest rates can prompt economic growth by encouraging lending but
it can also undercut a currency's value on foreign exchange markets. Lower
interest rates can prompt investors to transfer funds to currencies with higher
interest rates, where they can earn higher returns.
"There are expectations that interest rates in Europe and abroad will be cut
more aggressively than U.S. interest rates in the near term," said David Gilmore
of Foreign Exchange Analytics in Essex, Conn.
The dollar has been accumulated through "safe-haven" buying as investors rush
to snap up short-term government debt and sell off positions in emerging-market
currencies that they see as less stable, Gilmore said.
"The global deleveraging of markets is forcing a run into the yen and the
dollar, which are arguably the two cheap funding currencies from the credit
boom," Gilmore said.
"I'd be hesitant, however, to assert that somehow the strength of the dollar
reflects a global surge in confidence in the U.S. economy and U.S. markets. This
is a rally in the U.S. currency that is a sign of stress, not a sign of
relief."
Recently a ready a an article at SeekingAlpha.com, by
Jason Tillberg. He was weighing in on a hot topic of discussion,
and that is, "From this point forward, are we going to
enter an age of deflation (commodity prices going
down)
or inflation (commodity prices going up
and the purchasing power of the dollar going down)? Here's what he
wrote:
"It is and has been my belief that we are likely to be getting a more
inflationary recession/depression over the next few years. So, as we are seeing
the signs of deflation happening, commodities falling, house prices falling and
stocks falling, we can take a look at what our Fed Chairman had to
say about this.
He has provided us with his take on deflation and how it affected America in
the great depression of the 1930's. He does not want America to have
deflation and has provided us with his views on how to prevent
deflation if it was to occur from a speech he gave in November of 2002 known as
his "Helicopter Speech".
Here are some samples from that speech that bear reading now as this credit
crisis and wealth destruction occurs.
The U.S. government has a technology, called a printing press (or, today, its
electronic equivalent), that allows it to produce as many U.S. dollars as it
wishes at essentially no cost. By increasing the number of U.S. dollars in
circulation, or even by credibly threatening to do so, the U.S. government can
also reduce the value of a dollar in terms of goods and services, which is
equivalent to raising the prices in dollars of those goods and services.
(ME: That's inflationary) We conclude that, under a paper-money
system, a determined government can always generate higher spending and hence
positive inflation.
Of course, the U.S.
