Bennie Finally In Panic: Must Hammer US Dollar Now
Bernanke’s speech today (July 10, 2013) essential tells us one and only one thing – the Fed must react to the strengthening US dollar. No matter what he says or whatever is printed in the minutes does not matter. What matters is that US dollar strengthening kills the mark up in various economic measures hence affecting the mandate of Fed.
As I said before, the crashing of Japanese yen by BOJ and Japanese government will induce a reverse effect on the worldwide financial markets. Bennie has to react by talking down US dollar now or 3rd quarter corporate earnings will be a total disaster.
The problem now is that the hands of Fed are really tied. They do not have the authorities to increase monthly POMO to a higher level. In reality Fed needs to boost POMO by at least 50% (i.e. 120+ billion dollars per month in POMO) to counter the effect caused by BOJ’s trashing of yen. Unless US government is going to raise the debt ceiling significantly now, Fed does not have the room to nudge its books to allow for the necessary increase.
This is the defining the moment of world economy.
If Fed just talks and no action this month, the consequence will likely be very damaging.