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DOLLAR DEMISE

April 15, 2008

Mark on the markets Mark Patterson

The Dollars Demise

The once powerful and strong U.S. dollar has become a weak and unwanted currency among what are known as the major currencies. Many people blame the weak dollar on the Bush administration. While I will agree that the administration has not helped the weak dollar situation, I believe that there are far more powerful, global forces at work.
Much of the blame can be focused at the Fed and Ben Bernanke. Every time the equity markets drop in a correction, the Fed steps in and lowers the Fed funds rate, and the discount rate. This in turn weakens the dollar even more. Why would investors from around the world want to invest money in our Treasury when the return is so low?
The Europeans have not aggressively lowered rates, and there markets are down approximately the same as ours.
After the Long term capital failure in 1997, the Fed under Greenspan did the same thing as Bernanke. That lowered rates to ridiculous low levels to inject liquidity into the economy. This cheap money lead, in part, to the stock market bubble which blew up in 2000.
So to summarize my first reason; the fed should not try to “save” the economy with liquidity, it only hurts the dollar.
Another reason for the weak dollar is that we do not produce and export very much in this country, anymore. We import far too much and export far too little. Who can we hang the blame on for this? The U.S. consumer wants to pay as little as possible, so we import cheap goods in from China. Why not just buy American made goods? Labor in China is cheap, quality standards are low. U.S. labor is very expensive, and quality is not as good as some of our European and Asian producers. Labor in the U.S. has forced many manufacturing plants to move over- seas. While some can be blamed on “greedy corporations”, we can’t overlook labor unions lack of willingness to reduce cost, via benefits and salary.
To summarize my second reason; we in this country have lowered our standard for quality and excellence and have become soft and lazy.
Let’s quit blaming everyone else for our problems, strive to be the best at what we do or what we make, and if we all raise our expectations and attitudes then the dollar will once again become strong.

Mark Patterson is a registered investment advisor with MHP Asset Management LLC, and can be reached at 447-1978, or Mark@MHP-Asset.com