Fed’s rate cuts may kill US dollar soon

Subject: Fed’s rate cuts may kill US dollar soon Sun Feb 03, 2008 8:39 pm

By cutting interest rates the US Fed expects to stimulate consumption, crucially lower mortgage payments, and in the process trigger a recovery in the US economy. Be that as it may, top economists -- including Noble Laureate Joseph Stiglitz -- point out to the futility of this exercise saying that this cut in interest rates will have little impact on the overall scenario.

According to them, it is a case of too little and too late -- akin to applying pain balm when chemotherapy was the need of the hour.

Even as the interest rate cuts are carried out experts believe that US Fed chairman Ben Bernanke may be open to the charge of creating 'moral hazard.' After all, in sum and substance, the act of the Fed is rewarding all those who were party to reckless borrowings and lending.

As US lowers its interest rates dramatically, economists are worried that it could find that global capital is moving away to other countries which offer higher rates of interest simply on account of arbitrage opportunities. This could mean appreciation of currencies across continents and depreciation of the US dollar. As the dollar depreciates against other currencies, goods from other countries would become costlier in the US, leading to inflationary pressures within the US economy.

http://english.pravda.ru/business/finance/01-02-2008/103800-kill_us_dollar-0
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Fed’s rate cuts may kill US dollar soon

Fed’s rate cuts may kill US dollar soon

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