The Waning Dollar

The value of the dollar continues to be a concern. However, on Monday, Bernanke reassured the Economic Club of New York that the decline in the value of the dollar is natural; thus, no further fed action is necessary. He pointed to high long-term unemployment as a major factor that will keep GDP growth and inflation low for at least a year. Other countries certainly seem to be acting on Bernake's statements, even though they continue to publicly denounce the use of the dollar as the global reserve currency. For example, possession of treasuries increased $7 billion by BRIC countries and $20.4 billion by Japan during the month of September.

The Federal reserve is actually beginning to reduce its emergency lending facilities implemented in late 2007 through early 2009. The maturity of discount window loans to banks will soon be cut from an extended period of 90 days to 28 days, because liquidity has returned to acceptable levels. The Libor-OIS spread, gauge of the bank's willingness to loan, is at 13 basis points, down from a record of 364 bps in October 2008.

While inflation seems to be at bay and liquidity has increased, many investors are still concerned with weak economic data, such as the University of Michigan Consumer Sentiment Survey of 66.0 for the current period compared with a value of 70.6 for the previous period and an unexpected fall in housing starts earlier today. Moreover, many investors have turned to gold, which reached near-record levels of $1150 per ounce earlier today, rather than the securities market, indicating a lack of confidence in the U.S. economy.

Group 5

Links:
http://online.wsj.com/article/SB10001424052748704782304574542040005455698.html
http://online.wsj.com/article/SB10001424052748704431804574541161588915066.html
http://online.wsj.com/article/SB10001424052748704431804574539160726487446.html
http://www.bloomberg.com/apps/news?pid=20601087&sid=akC02cF4YHC4&pos=2
http://www.nytimes.com/2009/11/17/business/economy/17fed.html?_r=1&ref=business