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Sunday, April 10, 2011

Killing The Dollar Soflty with QE

Kudos to Congress-- If I acted that way at my job I would have been fired. 

Make sure you read between the lines over the next few weeks to notice the consumer trends that are changing fast in the economy.  I have been saying since January that rising costs will cripple this fragile recovery, but at this point I do not believe the Feds have an exit plan-- and I am not only talking about QEII.   

Consumers are spending less and less each month as they are forced to pay more for beer, smokes, gas and diapers.  The biggest problem-- The dollar getting punished like a sex offender in a Peruvian prison.

Consumers are 70% of the economy.

2010 was a great year to be a consumer.  Things were cheap.  That was before the Master Wizard Ben Wizzie decided to pimp the S&P and begin his assault on the dollar..  Killing the Dollar Softly with QE

"Strumming My Pain With His Fingers..."



Before QEII:  $580 @ $2.90/ GALLON

Today:  $744 @ $3.72/ GALLON

Increase to consumer:  23% increase in 5 months


30 year fixed payment on a $250,000 loan

Before QEII:  $1208 @ 4.1%

Today:  $1326 @ 4.9%

Increase to Consumer:  9% increase in 5 months


Will 2008 and 2011 be looked at in the same light-- rising costs, falling dollar and eventually a recession to follow?

Dollar Crashes through trend line... Wizards winning the battle?

The Green Back has crashed through an important trend line that has held since 2008.  Wizards seem to be winning the battle of killing the dollar softly with QE.  Unless a 9.0 quake hits So Cal in the next 45 days the green back looks to fall further and fast as other countries scramble to tighten monetary policy.

"Killing Me Softly With His Song" 

Is this really ...Duh... WINNING...?

The combination of the Fed’s recent round of credit creation and the very public, political wrangling over the budget and debt ceiling will continue to impact the value of the dollar. Here’s how it will impact you:
† Higher interest rates. The world will demand higher interest rates on U.S. debt to offset the risk of dollar devaluation. That means higher interest rates ahead could impact the cost of mortgages, the financing for businesses and the value of bonds in your portfolio (when interest rates rise, bond prices fall). Of course, it could also mean better returns for savers.
† Higher energy prices.You’ve already seen the impact at the gas pump, but that was from supply fears during the Libyan crisis. The next round of higher oil prices will come as a result of the falling dollar. And rising oil prices will impact not only your commute to work but the airline fares you pay. As well, it will impact the price of stuff you buy, since every product has a transportation cost component.
† A slowing economy. All of those added costs will be a drag on the economic recovery. People who have to pay more to drive to work won’t be able to shop for other goods and services. That leads to bleak prospects for job creation.
Of course these are not all bad things (minus the last point of course) if there is any ACTUAL economic growth.  Consumers in 2011 are in a far worse position that in 2007/2008.  Unemployment is much higher, savings have been destroyed over the past few years and home values are crashing at unchecked speeds.  There is no money to support the economy as disposable income becomes used up for $4+ gas and $7 tomatoes.  To top it off, Baby Boomers start to retire this year-- this social shift, along with the lack of job growth and wage growth will make this round of 'inflation' 100X worse than the 2008 round. 

In Back to the Future, Micheal J Fox was able to fix (or create) problems by going back in time. 

There is no time machine for the Feds... there is no way to undo the easing at this point without terrible consequences...

This all ends with either uncontrollable inflation that leads to a recession or interest rate hikes to avoid inflation that leads to a... recession?  That's right.  Both roads lead to the same outcome-- even if you take the Delorian. 

Killing the Dollar Softly...  With QE...


  1. Well, it could be argued that American consumers have enjoyed unrealistic low prices for the last two decades, and now things are returning to 'normal'.

    The dollar has been too strong for too long, and in a globalized world, the US could no longer have its labor earning $20/hour while the rest of the world earned $2/hour. The weakening of the dollar has actually made US jobs just a bit more secure going forward.

  2. I think the dollar will have its day again sometime soon. Give it a couple of weeks or month to get the ship turned around.