From: NYPOST.com
Treasury Secretary Tim Geithner hit a new low this week in denouncing Standard & Poor's for downgrading its outlook on US government debt.
In dropping the outlook from "stable" to "negative," S&P on Monday said there's a one-in-three chance it will feel obliged to downgrade Treasury's coveted AAA credit rating within two years. The big question: Will President Obama and Congress reach agreement on dealing with the exploding national debt and out-of-control budget deficit?
This should have come as no surprise to anyone: The national debt has soared under Obama, from $10.7 trillion to nearly $14.3 trillion -- and Obama's "tax the rich" rhetoric suggests he's only focused on re-election, not on making a deal with Republicans in Congress that would require real spending cuts.
When it comes to advance notice of impending crises, S&P and the other two federally recognized credit-raters, Moody's and Fitch, have records about as good as the crow's nest lookout on the Titanic. They failed to spot the coming bursting of the Internet and housing bubbles and the Enron crisis.
That is, by the time they call it, it's usually too late.
Yet Geithner actually further reduced their credibility by attacking S&P. In interviews on Fox Business News, CNBC and Bloomberg TV, he said there is "no risk" of an actual downgrade and that S&P was "absolutely" wrong.
Showing posts with label Monetary Oilicy. Show all posts
Showing posts with label Monetary Oilicy. Show all posts
Friday, April 22, 2011
Sunday, April 17, 2011
The Weak Dollar Problem
From: The Cato Institute
About the only thing that has boomed during the last two years are prices, particularly commodity prices. The accompanying chart traces the producer price index for both crude materials (primarily food and energy) and for finished goods. Measured by both of these sensitive metrics, prices are booming, with the PPI for crude materials up by 14% since the Fed announced its second quantitative easing program in November 2010.
But, those prices are not the ones that Chairman Bernanke and his inflation-targeting colleagues at the Fed are looking at. Rather, they focus on the consumer price index, absent food and energy. By doing so, they exclude those items that are experiencing price surges. Never mind. The Chairman and his colleagues continue to play down the inflation threat. But, the public isn't buying their story. Most people are going to the gasoline station and grocery store several times a week and know what's happening to gasoline and food prices. Not surprisingly, the credibility of the Fed has all but disappeared, with even the taxman commanding more favorable ratings.
If the Fed is in denial about the inflation threat, it's blind to the possibility that the weak dollar is causing energy and food prices to surge. Oil and most other food and industrial commodities are invoiced in dollars. .
Accordingly, when the dollar goes "down" the price of primary commodities tend to automatically go "up," and vice versa.
The accompanying chart, which traces the course of the U.S. dollar-euro exchange rate and the price of crude oil since January 2011, tells the story. During that period, the dollar has lost value against the euro and the price of oil has increased. For each 1% decline in the dollar against the euro, there was on average a 0.5% increase in the price of oil. The biggest single contributor to oil price increases in recent months is not located in Libya, but at the headquarters of the Federal Reserve in Washington, D.C.
The Chairman of the Federal Reserve Ben S. Bernanke has embraced a weak dollar policy. And he is not alone. The weak dollar mantra is very much in evidence on most of the boulevards and in the back alleys of Washington, D.C. The idea even has a certain appeal to the common man on the street. After all, a cheap dollar is advertised as an export stimulant and the fuel for an economic boom. But, the common man is often wrong, and so is Chairman Bernanke.
But, those prices are not the ones that Chairman Bernanke and his inflation-targeting colleagues at the Fed are looking at. Rather, they focus on the consumer price index, absent food and energy. By doing so, they exclude those items that are experiencing price surges. Never mind. The Chairman and his colleagues continue to play down the inflation threat. But, the public isn't buying their story. Most people are going to the gasoline station and grocery store several times a week and know what's happening to gasoline and food prices. Not surprisingly, the credibility of the Fed has all but disappeared, with even the taxman commanding more favorable ratings.
If the Fed is in denial about the inflation threat, it's blind to the possibility that the weak dollar is causing energy and food prices to surge. Oil and most other food and industrial commodities are invoiced in dollars. .
Accordingly, when the dollar goes "down" the price of primary commodities tend to automatically go "up," and vice versa.
The accompanying chart, which traces the course of the U.S. dollar-euro exchange rate and the price of crude oil since January 2011, tells the story. During that period, the dollar has lost value against the euro and the price of oil has increased. For each 1% decline in the dollar against the euro, there was on average a 0.5% increase in the price of oil. The biggest single contributor to oil price increases in recent months is not located in Libya, but at the headquarters of the Federal Reserve in Washington, D.C.
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