pardon my scorn regarding the president, the treasury secretary and the princeton clown professor, but i just can't help it after a day like today. the dollar is a referendum on how badly that trio has screwed things up, meaning the housing problems and the economy in general.
the dollar's weakness is not a function of our interest rates and their need to decline further on the short end. the dollar's weakness is testimony to their lack of creativity, their inability to recognize that the monoline problem plus the housing losses may have eliminated the excess capital the banks have to lend, and their insistence that laissez-faire works when it comes to broken markets.
the dollar's decline is a statement that ben bernanke will not do what he said he would do in 1992, which is have the fed buy the bad collateral that the banks are stuck with.
the dollar's plummet is a statement that the government would rather give out $600 to those who need it than take stakes in the companies that could have built the capital reserves, the pmi's, mbi's and abk's.
the endless slide has to do with the recognition that the markets are beyond the grasp of the president himself or the democrats who think the answer is punishing the banks with bank holidays.
the government has to get involved to solve this problem. without the fha getting engaged, it just makes too much sense to walk away from your home if you cannot pay.
the government seems unable to recognize that the issue here is simply the need to get houses to stop depreciating!!
is it that bailouts are favored? that higher home prices are favored; that "deadbeats" need to be helped? i think that if one is one of those in trouble and has stuck it out this long in your house, you are not a deadbeat. walking away from a home is a horrible decision, predicated at this point on the need to feed your family. does it matter at that point that the borrowers should have been smarter or the lenders less rapacious? the glut of homes needs to shrink and the desire to buy a home needs to not be a fool's game, as it is now.
like it or not, without some engagement by the government, the dollar will continue to fall. it's my humble opinion that the bulk of our inflation is mandated by the futile attempts to get ethanol jumpstarted while we put tariffs on sugar and we keep cheap brazilian ethanol out.
if the housing problems subside, rates could then be raised and the money be brought back in. the banks need more money to lend! that's what tma yesterday was all about. that's what the hedge fund margin calls are about. the banks are not lending right now because their number one priority, right or wrong, is to raise capital.
most banks are working very hard at shrinking their balance sheets so they won't run up against capital requirements, which, because of non-performing loans, they are in danger of doing. by cutting the short rates to well below the two-year mark, you allow the banks to take your deposits, invest in the "curve," make money every day and rebuild capital. you also allow hardship borrowers to refinance from the FHA.
it will work.
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