Fed Chairman Ben Bernanke said he thought the current high unemployment and low inflation environment would linger into 2011 and as a result there is a "case for further action" on the monetary policy front. Mr. Bernanke said the Fed might expand its holdings of longer-term securities. He also said that the Fed has little experience in judging the economic effects of more asset purchases.
..the dollar will fall lower and probably substantially lower. $1.50 to $1.70 to the euro is on the cards. The Yen, the Swiss Franc and the Pound Sterling and just about all other currencies will try to follow the dollar down. This isn't just a ‘pebble in the pond", but a great big boulder. The ‘ripples will likely start over this weekend. They will hit every market there is.
EACTIONS IN THE GOLD, SILVER AND OIL MARKETS
· A look in the last week at these three markets has shown quick reactions to the falling dollar. All three went up, but both silver and gold went up the amount that the dollar fell. If that were to continue and the dollar to fall say to $1.70 against the euro, then without the gold price being pushed up by demand, the gold price would go up to $1,663.57 from the current $1,370. In the euro the gold price would not rise at all.
· Silver would follow a similar path too. Technically to discount the dollar's fall alone the price would go from $24.3 to $29.51.
· We know that O.P.E.C. members are calling for a $100 oil price to remove the impact of a falling dollar at current levels. With a $1.70: €1 dollar we should be looking much higher here too.
The U.S. Balance of Payments would look great initially [except on the China account]. But internally there would be howls, as inflation took off at a rate of knots. The point made by the Fed that they don't have experience in this area worries us. They might have a tiger by the tail. When Volker shattered 25% inflation in the mid-eighties, there were very different circumstances, such as a healthy economy and undisputed dollar hegemony. The U.S. dominated the gold market - with European cooperation. This time they have none of these and such actions won't work without them!
Possibly the end of the beginning of the decline and fall of the American Empire!
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