This time its the world's central bankers and not just the Fed, who are now alarmed by the weakness in the dollar, in the face of Secretary Paulson's "strong dollar" policy! ECB President Trichet said, "In the current circumstances, I'm preoccupied by excessive currency moves." But not pre-occupied to do anything about it! The next G-7 meeting is in Washington April 12-13.
When Giselle said she wanted to be paid in dollars, the financial prognosticators laughed. $1.44 dollar for a euro? Now a few months later we are up to $1.56. And oil is $110. Now no one is laughing. It's hard to laugh when you are panicking.
Bloomberg has a good article today on what Bernanke might do with housing and currencies tumbling. The conclusion...
So, brace yourself for a Fed funds rate close to zero, interest-rate-free loans in exchange for a much wider range of debt collateral, and further dollar weakness. And, if Helicopter Ben sticks to the script, the Fed might even guarantee the value of two-year Treasury notes. Strange days indeed.
It took Bloomberg a month to come around, but I'll take it. Here was Bernanke's 2002 speech and my take on it.