CALDEIRÃO DE BOLSA

" The dollar has been made deliberately lower by our Federal Reserve through the use of lower interest rates. Lower interest rates, along with budget deficit spending , results in more money in the system, and hence a lowering in the value of the currency because there is "more of it"."

Huh??? Who told you that?

The Federal Reserve is a quasi-public banking system. That is, it is wholly owned by the private U. S. Banks, while having some board members and its chairperson appointed by the U. S. Government. The only interest rates that the Federal Reserve can set, is the discount rate, or more appropriately, the re-discount rate, the rate which member banks loan funds to other banks. That is a very short term interest rate. Lowering the (short term) interest rate does not necessarily increase the money supply, it is the banking system as a whole (not the Federal Reserve), operating completely independently, that increases the money supply through each individual bank's loan activity.

Budget deficit spending is done by the treasury department (by selling new, U. S. Government bonds - the Federal Reserve can't create bonds, only the Treasury can) and is completely independent of the Federal Reserve's activities.

For the past 25 or so years, it has been the objective of the Federal Reserve to increase the money supply or liquidity at a relatively fixed rate each year (per Milton Friedman's long-term empirical studies and his influence during the Ronnie Reagan's terms). However, the old measures of Money, M1, M2, M3, etc. are no longer valid due to the advent of money market accounts, so the major control that the Federal Reserve has for money supply is the re-discount interest rate, and their open market activities (buying and selling treasury bonds - but not creating them). The need to increase the money supply/liquidity is that the economy cannot grow with a fixed number of dollars as productivity grows. (Gold idiots ignore this requirement when they talk about going back to the gold standard. There isn't enough new gold being minded to keep up with the demand when it is used as money. There never was, and the gold standard created significant depressions every 10 to
It is the Treasury Department (the U. S. Government) - not the Federal Reserve, who tries to manipulate foreign exchange rates by buying and selling currencies, but recognize that they are in direct competition with foreign government treasuries, foreign banks, and private enterprise and cannot realistically "control" exchange rates in the long-run, though they may be able to do so in the short-term. The many billions of dollars worth of foreign currencies that are exchanged each day in just the normal activity of international business means that governments often have little influence on exchange rates. Note the actions of the Japanese government on the exchange rates just this week. They can influence them for a few days, but they too run out of the funds required to keep it going for very long.

" Gold (which actually never changes in value, but reflects the value of the currency it is quoted in) increases in dollar terms when the dollar falls in value."

That is downright bullshit. Besides being outlandishly wrong, your statement conflicts within itself.

If you are selling a newsletter based on the incorrect information that you supplied in your email, then the only way you will make money is by selling your letter and your subscribers will lose their shirts if they follow your advice.

I thought that the Gold Nuts died with the John Birch Society.

Jay

The U.S. dollar is falling versus other major world currencies. The dollar has fallen nearly 25 percent in the past 18 months against a composite of other major currencies such as the euro, the Japanese yen and the Canadian dollar. What does this mean for our economy and our investments?

The dollar has been made deliberately lower by our Federal Reserve through the use of lower interest rates. Lower interest rates, along with budget deficit spending , results in more money in the system, and hence a lowering in the value of the currency because there is "more of it".

A weaker dollar helps the economy by boosting U.S. exports, because American-made goods become cheaper in terms of foreign currencies. A lower dollar will also mean higher prices domestically for many imported products. Higher-priced imports will help American producers, , though some U.S. firms may raise their prices and match the market to take more profit. The end result: more U.S. jobs but higher prices at the checkout counter, and an increase in the inflation rate. Gold (which actually never changes in value, but reflects the value of the currency it is quoted in) increases in dollar terms when the dollar falls in value.

One currency that the dollar hasn't fallen is against the the Chinese yuan. China, which is a major exporter to the United States, keeps its exchange rate fixed at 8.3 yuan to the dollar. For this reason, the competitive balance between U.S. workers and Chinese workers will not change, in spite of what happens between the dollar and other currencies. In fact, the falling dollar has helped Chinese exports to Europe and other countries.

Another factor in the dollar fall is that foreigners are investing less money in the United States. Foreign firms aren't building factories here or buying into American companies at the same pace as they did during the 1990s. Foreign investment in U.S. stocks has dropped dramatically, and purchases of corporate bonds are off as well. On the other side of the coin, investments made by Americans in international stocks, actually go up, even if the foreign market just remains in a standstill. That is because when priced in dollars, the value of foreign stocks go up even without share appreciation.

The movement of currencies happens in broad based secular movements lasting several years. Imbalances tend to work out over time. It is likely that Europe will soon be aggressively lowering its interest rates and devaluing its currency to protect its markets very soon. So although the dollar has fallen, it does not represent the end of the dollar as a major currency, or the end of the American "Manifest Destiny".

Learn more about the falling dollar in my article at:

http:www.InvestmentWarrior.com

(click on newletter, and then on "monthly article")

Bill Lussenheide