Monday, September 10, 2007
watch for fireworks
the dollar took friday's news as reason to mark its lowest close since 1992 -- some 15 years ago. forecasters today are talking about at least 50 bps of fed funds rate cuts, although comments from some fed governors are not nearly so presumptive of economic action.
starting out on a rate cutting program is likely to compel the dollar yet lower -- particularly in anticipation of other irresponsible fiscal steps in response to the insolvency-driven credit crunch -- and really into unknown and unpredictable territory. letting it slide may have massive unintended consequences. what china feels it must do might become more than what it merely hints at the capacity to do. and there are already hints of a foreign capital flight.
if the dollar collapses in the near term, the damage will be widely felt. keep an eye open.