Juggling Dynamite

The US dollar weakened further today against a basket of global currencies on speculation that the US government will pump out more rounds of QE in the weeks ahead as the global economy continues to falter. The US dollar appears deeply oversold. Although it may fall further, a counter-trend rally is likely when so little predicted. Meanwhile stocks and commodities appear precariously over-bought.
The G-20 talks ended with a loose statement of unity from members to not devolve into currency devaluation wars. But that was just talk as each country intensifies desperate efforts to revive consumption in the midst of a secular global contraction in demand. It's every country for itself. As the US dollar weakens the crisis for the world’s export nations grows worse as demand weakens everywhere. If only QE 2, 3, or 4 were likely to revive demand for goods and services. Businesses don’t need loans they need customers. Consumers don’t need more credit they need more employment. QE throws more debt at debt with no lasting benefit. As John Hussman writes today:
“…monetary policy is far less effective in affecting real (or even nominal) economic activity than investors seem to believe. The main effect of a change in the monetary base is to change monetary velocity and short term interest rates. Once short term interest rates drop to zero, further expansions in base money simply induce a proportional collapse in velocity.
…the governors of the Fed are creating massive distortions in the financial markets with little hope of improving real economic growth or employment. There is no question that the Fed has the ability to affect the supply of base money, and can affect the level of long-term interest rates given a sufficient volume of intervention. The real issue is that neither of these factors is currently imposing a binding constraint on economic growth, so there is no benefit in relaxing them further. The Fed is pushing on a string.”
See: Bernanke Leaps into a Liquidity Trap for more.
For parallels between Fed policy today and similar policies that extenuated the Great Depression see Depression within a depression.

BLOOMBERG GAME CHANGERS profiles Jonathan Stuart Leibowitz, now Jon Stewart, from his New Jersey boyhood through the standard struggle of the stand-up comedian – part time jobs and late night gigs at New York’s comedy clubs. It will shine a spotlight on his early television shows and movies, including rare video from his early career, to show his transformation into the dominant American commentator of our time. Watch the 25 minute segment here.

Aggressive budget cuts and steps toward austerity are sweeping the UK and Europe. So far North America has failed to follow suit on a federal level. On the local level however, US States and Municipalities are all in slash mode as they are required to run balanced budgets. The foreclosure crisis is causing another wave of serious revenue hits for local governments as homes without owners/inhabitants tend to not remit property taxes.
Economist Nouriel Roubini is warning that Europe's monetary policy is now stiffling the chances of economic recovery in the region and that the US and European slowdown will curtail growth in emerging markets:
(Decoupling not)

Roubini said currency tensions have reached a boiling point. Overspending countries need to reduce domestic demand to deleverage, while over-saving countries refuse to reduce their reliance on net exports, he said.
“This zero-sum game in currencies and net exports means one country’s gain is some other country’s loss, and a competitive devaluation war has ensued,” Roubini said.
If China, emerging markets and other surplus countries keep their currencies from appreciating via intervention—preventing a rise in domestic inflation—the only way deficit countries can achieve depreciation is via a persistent deflation that will lead to a double-dip recession, Roubini said.

With governments intervening across a broad spectrum of markets, artificial prices are a grave concern for capital invested. Regression to the mean can be swift and devastating in these conditions. See this next segment “Currency wars complicate investing” for further insight: