Some bearish news for the dollar

Since I wrote the 3-part piece about the dollar (parts I, II, III), some nasty things have occurred in Washington. It was just one-month ago that I made the following warning in "Part III: Can the Dollar Weaken Anyway?"

"Another very bad outcome for the dollar may happen if Congress starts dismantling the Fed’s independence"

Guess what?

Still Worried About All Those Reserves?

Many commentators still seem to be screaming that hyper-inflation is around the corner. The crux of their argument is that the Fed has pumped hundreds of billions into bank reserves. There is a chart circulating, which you may have seen, illustrating this explosion of credit. After all, reserves normally translate directly into fresh lending. I have reproduced the chart for you here:

Idiot Revisited: Fisher

A while back, last September 9th to be exact and right before the world really fell apart, I took some flack for calling the Dallas Fed President Richard Fisher the economic idiot of the week. If you don't recall why, let me help you. As the world was rapidly deflating in a giant credit crunch, Mr. Fisher's position was described in the Fed's meeting minutes as

"While the financial system remained fragile and economic growth was sluggish and could weaken further, he saw a greater risk to the economy from upward pressures on inflation." [Emphasis mine]

A few months later he changed his tune and accepted that the right thing to do during a credit crunch is not tighten credit, but rather expand credit and liquidity. Thankfully, Bernanke already knew this.

I raise this issue again because Mr. Fisher was in the news again today. Bloomberg reported on some of his remarks this week. I'll quote from Bloomberg's article (again, emphasis mine):

Economic Idiot of the Week

The Fed doesn't get it, at least not entirely. While I normally don't read the minutes to the Federal Open Market Committee meetings, I thought they might shed light on the Fed's thinking at this critical stage in the economy. Here is a paragraph from the minutes of the August 5th meeting: