Will there be another sucker rally for the US dollar?
It seems inflation fears have been reaching new heights week after week. And commodity prices, particularly oil and gold have recently hit 52 week highs leaving many bear investors to wonder just how the suckers rally on Wall Street will ever come to an end.
Now it appears that the answer will come in the form of the dollar having a sucker rally of its own.
Dollar appreciation would quickly erase the Dow 10,000 milestone as the inflationary air is let out of the Dow Industrial average.
A bear market rally for the dollar before interest rates are raised could be the first step in a worst case scenario for the United States economy.
If the dollar were to appreciate with no help from the Federal Reserve and really bind up the credit markets, while simultaneously the stock market on Wall Street is in freefall, the pain would be felt immediately on Main Street as unemployment would skyrocket. Employers would have a difficult time meeting their current payrolls with a suddenly strong dollar.
When the bear market rally in the dollar was over and the dollar again began to test 52 week lows, the Fed would likely be put in a position where it would be difficult for them to not raise interest rates in an attempt to save the dollar.
The current situation as well as the potential situation that could unfold in the near future has shown why it is so important to have an independent and thorough audit of the Federal Reserve System.
There is another key reason why the 3rd quarter was the best that Wall Street had seen in years outside of the inflation reason I already discussed. And that reason is that while institutions like Goldman-Sachs had access to free money through the Federal Reserve 0% interest rate, the 2-3 year yield for US treasury bonds hovered between 1-1.5%. So what incentive did banks like Goldman-Sachs have to lend out to customers who were living in a shaky economic landscape when they could simply kick back and rake in the low, absolutely no risk yield.
This is proof that the bailout was not to free up the credit markets; it was to line the bankers pockets with free cash made from taxpayer cash.
In an interesting late breaking development, late last night we saw the first rate hike from a European central bank when the Norwegian central bank raised its rate to .25 to 1.50. We will see if soon other European central banks and then eventually the Federal Reserve will follow shortly.