9-21-07 World News
The Fed bailout was geared for those
who took on too much risk via subprime loans and other credit maneuvers. Even though the
Federal Reserve cut interest rates by 1/2 point on 9-20-07 and the stock market surged up,
investors are dumping the U.S. dollar.
The dollar reached parity with the Canadian currency for the first time since 1975
and fell to a record low against the euro.
Oil prices have moved above $83
a barrel.
Gold is near a 28 year high and silver, platinum are racing to new multiyear
highs.
Saudi Arabia has just decided NOT to follow the U.S. lead, a first step toward unpegging
the Saudi currency from the dollar and unleashing a massive new wave of dollar selling
from the Middle East. If they were to abandon the dollar peg, the Saudis would no longer
need so many greenbacks. They would have every incentive to reduce their dollar holdings
to avoid losses and would likely trade those dollars for other currencies such as euros
and pounds.
Foreign investors hold over $7
trillion in U.S. dollars, mostly in U.S. Treasuries
In the two days after the Fed's rate cut, the price of the long-term Treasury bond plunged
more than two and a half points, including the worst single-day plunge since September of
2003. This means bond yields, which move in the opposite direction, have surged. If this
trend continues, 30-year fixed-rate mortgage rates, which follow long-term Treasury
yields, will also surge exactly the opposite of what the Fed had planned. All this could
lead to higher mortgage rates both on the higher risk subprime mortgages and on the lower
risk "prime" mortgages. |
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