主题：03/19/2009 Market View -- 宁子

LIBOR continues its improvement.

The trickle is turning more to a flow now as dollar LIBOR rates decline at a faster pace. All were down Thursday but the big moves were in the 'long end'. The 1-month LIBOR rate fell to 0.52% from 0.55% Wednesday. The 3-month fell to 1.23% from 1.29%. The moves are getting serious as they show the same kind of action as they did when they thawed following the original TALF initiative's announcement. Along with the commercial debt market improving there is some welcome news in the credit arena.

Devaluing your way to prosperity.

Back during the Bush administration we got to rail on some mundane issues such as that administration's consistent lack of support for the dollar. It subscribed to the old Baker school of thought Bush 1 used, thinking we could weaken the dollar, make our exports look more attractive to foreign buyers, and then voila, riches for our exporters.

That worked well didn't it. Scholars that actually have good economic track records, say Milton Friedman, show clearly how you cannot debase your currency into prosperity. That theory of cheaper exports sells some more goods but it is similar to raising taxes to raise tax revenues: it works at first because the money is there to tax. After that behavior changes, money is taken out of the economy and put into shelters, the economy slows, taxable income falls, and thus tax revenues. Higher rates, lower revenues. This is not theory. The world economies are replete with examples of failed attempts to gain an edge on prosperity using currency weakening policies.

The effects of what the federal government is doing is finally taking a serious toll on the dollar. A good rally from July 2008 as countries ran to the dollar for safety reasons was tested in December when some of the policies of the new Administration to come were getting aired. It was more than tested; it was nearly gutted. Then the dollar recovered on more fears in the world. It retreated in March in what looked like a normal pullback. The past two sessions, however, gutted the dollar. Massive, massive rises from the low 1.2 euros to 1.3664 euros Thursday.

At the same time oil shot over $50/bbl, closing at 51.25, up $3.14. This despite the big build in crude and gasoline inventories and OPEC refusing to cut production further. Gold exploded higher, rising to 959.10, up $70 Thursday. A lower dollar and you have more expensive commodities. Copper, steel, and just about anything hard jumped higher Thursday. The weaker dollar takes more dollars to buy the goods and the trillions of dollars at the printing press suggests inflation down the road despite the Fed's continued denial of the inflation potential. Gold didn't jump $70 just on a weaker dollar.

It is not pretty and if the Fed and federal government are successful in getting us out of this credit induced 'decession' (our new word since people get mad when we say depression) we face potentially massive inflation. I don't want to go through that again and I don't want my kids to either. The worrisome part is that we may have dug a hole too deep to avoid it. Right now all we can do is work through it because it certainly does not appear that the Obama economic team is worried about that far into the future despite talk of making structural economic change. Of course we now know what that means and it is not the lofty 'make us great again' rhetoric uttered to the cameras.