Sunday, September 23, 2007

Weakening greenback looms large

As expected by most economic analysts, when the FOMC met on Sept. 18, it unanimously resolved to cut the interest rate by half a percentage point to revive the market confidence and to fend off threat to a probable recession.

The economy of the United States is really terminally sick. A rate cut is, at best, only putting the patient on oxygen. It is by no means to provide a cure for the patient.

It is, therefore, very much premature to celebrate over the strong market rebound following the rate decrease. The Federal Reserve's monetary policy decision on Sept. 18 has adverse repercussions which have severe implications for the United States.

One of them is a further devaluation of the dollar. As the greenback narrows the rate differential advantage, it loses its appeal to investors. It naturally follows that the dollar is going to trend down more and it is damaging for U.S.A.

I still keep a few dollar notes in my drawer. It is disheartening to see their value shrinking day by day!

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