The mainstream media touts the burgeoning recovery, but I don't see it. The dollar fell for the third straight day today as record low interest rates and the crushing weight of the U.S. budget deficit pushed it closer to an all-time trough against major currencies. The euro soared to a 16-month high above $1.46 before easing to $1.4550, while the dollar fell 0.8 percent to 81.82 yen. The Australian dollar rose above $1.07, its highest in nearly three decades, as Australia's 4.75 percent interest rate and its role as a supplier of raw materials to booming Asian markets attracted investors.
The dollar's slide accelerated days after Standard & Poor's slapped a negative outlook on the United States' top AAA credit rating. The agency said a downgrade was possible if authorities can't slash the massive U.S. budget deficit within two years. (REUTERS)
Some investors fear a fragile U.S. economic recovery could sputter if the White House and Congress agree to cut the deficit with significant spending cuts or tax hikes. That would likely force the Federal Reserve to hold interest rates at record lows even as other central banks raise them. It's not a recovery if it's based on a false premise.
"There is no clear sign that the U.S. is going to raise interest rates, and that is causing the dollar to depreciate by the day," said Jonathan Xiong, who helps manage about $30 billion at Mellon Capital Management in San Francisco.
The US Government must take stands on reducing entitlements and must make decisions on the sustainability of a military that is larger than all the other nations on earth (combined). Free medical care (MedicAid) and other programs will take a hit and we need to let it happen. We've been eating at a trough that we can't sustain. There will be no recovery until we come to grips with that.