Wednesday, March 12, 2008

Ron Paul: Federal Reserve's $200 Billion Injection

Even Cavuto realizes Ron Paul is a "true fiscal conservative".


Dollar Falls to Record Low on Concern Fed Package Won't Succeed

March 12 (Bloomberg) -- The dollar fell to a record below $1.55 per euro as firms from Citigroup Inc. to Goldman Sachs Group Inc. said the Federal Reserve's plan to inject $200 billion into the banking system may fail to break the freeze in money-market lending.

The U.S. currency erased yesterday's 1.6 percent rally versus the yen, which came after the Fed said it would lend Treasuries to financial institutions and take mortgage debt as collateral. Traders bet the Fed will cut rates by as much as three quarters of a percentage point next week to avert a recession, while the European Central Bank keeps borrowing costs unchanged at 4 percent.

``It's difficult for the dollar to gain traction,'' said Paresh Upadhyaya, who helps manage $50 billion in currency assets as a senior vice president at Putnam Investments in Boston. ``The Fed is probably running out of options; the market is fixated on interest-rate differentials, which are clearly negative for the dollar.''

The dollar fell to $1.5560 per euro, the weakest since the euro's 1999 debut, and traded at $1.5546 at 3:32 p.m. in New York, from $1.5338 yesterday. It tumbled the most since January 2006. It sank to 101.79 yen from 103.42, within a half-yen of an eight-year low. The yen advanced to 158.16 per euro from 158.61.

The dollar set a record low for the 10th trading day in 12. It has lost 3.5 percent since Feb. 26, when Fed Vice Chairman Donald Kohn said credit-market turmoil and slower growth pose a ``greater threat'' than inflation. The comments drove the euro above $1.50 for the first time.

`Good Buy'

The U.S. currency tumbled today even as central bankers attempted to lend it support. ECB President Jean-Claude Trichet said he's concerned about excessive currency moves, after the euro's 17 percent surge in the past year threatened exports. The ``dollar is a good buy'' at the moment, Saudi Arabian central bank Governor Hamad Saud al-Sayari said today. They spoke at a press conference in Mainz, Germany.

``There is no sign the dollar is finding a bottom here,'' said Brian Dolan, research director at, a unit of currency trading firm Gain Capital in Bedminster, New Jersey. ``It's going to take some official involvement, such as a G-7 coordinated move to stem the decline.''

G-7 officials from the U.S., Japan, Germany, the U.K., France, Italy and Canada, meet next month. The group coordinated purchases of euros in 2000 when the currency was at a record low versus the dollar.

Bloomberg users in the U.S. grew more pessimistic about the dollar for a fourth straight month, according to a Bloomberg survey.

`No Room'

The ECB's main rate is 1 percentage point above the Fed's 3 percent target for overnight loans between banks. ECB council member Axel Weber yesterday said that he sees ``no room'' to lower rates.

Traders bet the Fed will cut its rate as much as 0.75 percentage point on March 18 to avert a recession. The likelihood of a reduction to 2.25 percent was 78 percent, according to futures on the Chicago Board of Trade. The balance of bets is on a cut to 2.5 percent.

The euro extended its climb against the dollar earlier after a European Union report showed industrial production in the region increased for the first time in three months in January.

The yen climbed against more than a dozen major currencies, including a 2 percent gain versus South Korea's won, as a government report showed Japan's economy grew an annualized 3.5 percent last quarter, faster than the 2.3 percent median forecast of economists surveyed by Bloomberg News.

U.K. Budget

The dollar dropped to $2.0264 per U.K. pound from $2.0064, and to 1.0155 Swiss francs from 1.0335. Two-year U.K. bonds fell the most in a decade after Chancellor of the Exchequer Alistair Darling said the U.K. government will raise taxes and borrow an additional 20 billion pounds ($40 billion) in the next four fiscal years as higher credit costs slow economic growth.

The euro interbank offered rate for three-month euro loans rose a seventh day, by 1 basis point to 4.61 percent, the highest since Jan. 7, the European Banking Federation said.

Policy makers in the U.S., U.K., Canada, Switzerland and the euro region agreed yesterday on a second round of emergency- loans to curb rising money-market rates, on top of the Fed loans.

`Not a Panacea'

The collapse of the U.S. subprime mortgage market has caused losses and writedowns of $190 billion at the world's biggest financial institutions, according to data compiled by Bloomberg. Concerted action announced Dec. 12 temporarily eased the shortage of cash in money markets.

The Fed's measures are ``not a panacea, more like an aspirin for the dollar,'' analysts led by Daniel Tenengauzer, New York-based head of global currency strategy at Merrill Lynch & Co., wrote in a research note today. ``There is a reasonable risk that this Fed move reflects the depth of their concern with U.S. asset markets, not a Fed formula to resolve U.S. asset- market difficulties.''

The dollar may decline to $1.57 per euro by the end of this month, according to a Merrill Lynch forecast released March 6.

Goldman Sachs analysts said in a report that ``we are not convinced that yesterday's move will solve all the multiple challenges facing credit markets and the financial system.'' Citigroup said ``credit concerns are likely to persist and averting a drawn out recession is becoming increasingly challenging.''

The Dollar Index traded on ICE Futures in New York, which compares the currency to those of six trading partners, declined to a record low of 72.25.

The Fed move ``is a strong attempt to stabilize a crisis,'' Henry Kaufman, president of Henry Kaufman & Co. in New York and the former chief economist at Salomon Brothers Inc., said in a Bloomberg Radio interview yesterday. ``Dollar weakness is critical only if it becomes disorderly, and so far in the price movements we haven't seen real gapping taking place.''

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