Notice the following.
1.) The dollar has broken through support and is now trying to find a new low.
2.) The downtrend started in early 2006 is still intact.
3.) The 20, 50 and 200 day SMAs are all heading lower.
In short, there is not one bullish element on this chart.
The underlying fundamentals are still bearish. The US economy is slowing while other economies are growing. While the trade deficit has decreased over the last few months, it is still at very high levels.
4 comments:
I've heard that the Fed may be printing money at an unsustainably high rate in order to float the economy. Any idea if there is any truth to this? And if this is happening, what are the long term consequences?
Overprinting money makes inflation explode. See the Weimar Republic.
Printing of money is tap issue ... if the reserve account entry exists, the commercial bank that has the reserve account has the right to withdraw it as reserve notes. If there are not enough reserve notes on hand, then that Federal Reserve bank orders more to be printed. That's why when you get worn notes at a bank, they tend to be Reserve Notes from all over the Federal Reserve system, but when you get crisp notes, they tend to be from your area's Federal Reserve Bank.
What the Federal Reserve does do as policy is stabilize the interbank reserve lending rate ... the "cash" rate ... at a target level.
At the moment, they are pursuing a mildly contractionary policy because they have an unrealistically low inflation target ... their target is under 2%, when between 2% and 3% in the face of cost-push price pressures does not indicate any risk of a serious inflationary outbreak ... but on the other hand the risk of a recession form the burst of the housing bubble spilling over into the rest of the economy is keeping them from pulling the trigger on a stronger contractionary policy.
Bonddad,
I have one thing I just don't understand: with all the bad news about the economy, why does the stock market keep going up, up, up???
PS Thanks for putting up so many graphs...
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