Thursday, April 24, 2008

Paulson, the Fed and the Economy

I am beginning to wonder why the administration is not jumping on opportunities to get the dollar higher and in turn drive crude oil lower. Today is an example. Crude is showing weakness, currently at 115.64 dollars per barrel. When Paulson comes out with statements like

Strong dollar in U.S. interest, G7 forex language speaks for itself.

U.S. economy in a rough path but fundamentals strong and will be reflected in dollar value.

Paulson declines to comment on whether dollar has overshot to downside.

It seems that the market gave him an opportunity today to at least start the reversal of the Dollar. Why not come out with a strong statement saying that the dollar HAS overshot. Of course maybe he doesn't believe this but I think that the Fed (and as an extension the Administration) is in a very difficult situation. Inflation is high, very high. The Economy is very weak. In Egypt and India there are riots in the streets over Food. Here in the states Costco is limiting purchases of rice to it's customers. Vietnam and India, two of the world largest rice exporters have placed temporary bans on some rice exports due to soaring inflation and poor harvests in the region. This according to an article in todays WSJ.
All in all a scary situation and one that I think the administration could make better by being more aggressive. Rate's really need to be higher. Inflation, which is much higher then reported through CPI, is a killer. Gas is at $3.70 per gallon. Wait till it gets to $6.00 , and it will if crude is left unchecked, the economy will collapse.
I am not wishing this happens, and would be quite happy to be wrong.
Good Luck and Good Forex Trading.



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