German Chancellor Angela Merkel Blasts Use of "Cheap Money" for Economic Management

Although German chancellor Angela Merkel and the German government has implemented a fiscal stimulus plan, it was an extremely modest €12bn over the next two years. While that was probably a mistake, at least Merkel understands that creating money from thin air won't do a thing to take care of the problem they're in.

Merkel and the German government have been coming under increased pressure to contribute to a huge stimulus in relationship to the European Union; now standing at €200 billion. That would be about 1.2 percent of GDP of the 27 member states.

Talking about the contribution of the drop in value of the U.S. dollar to the current global economic crisis, Merkel stated to the German parliament:

“Excessively cheap money in the US was a driver of today’s crisis. I am deeply concerned about whether we are now reinforcing this trend through measures being adopted in the US and elsewhere and whether we could find ourselves in five years facing the exact same crisis.”

Some analysts assert the action wouldn't do much to change the economic crisis anytime soon. They're of course right, as is Merkel.

History has proven that the utter stupidity of the New Deal did more to create the Great Depression in the U.S. than anything else. Printing money, devaluing currency, and generating inflation is never an answer to an economic crisis.

The best thing to do is let it play out and allow the market correct itself. That cleans out the bad businesses and leadership, and makes the free market much stronger.

Throwing money at poorly run companies does nothing but reinforce poor management and keeps the real problems from being solved. Government interference in what would have been a short period of economic struggle created the infamous Great Depression in the U.S. We don't need to do the same and create a worldwide one.

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Ron Paul in Houston Calling to "End The Fed" - Part Two

Ron Paul in Houston Calling to "End The Fed" - Part One

Ron Paul on How to Solve Monetary Problem

Says fiat-dollar system is over: it has failed

Some of the issues talked about:

Need to get to bottom of problem, not offer bandaids

Central bankers can do what they want - no checks-and-balances since 1971

New international reserve currency being discussed

Central bankers selling gold to make it look like U.S. dollar is stronger than it really is.

Yearly deficit should be a major concern

Commodity standard would balance system - restrain problem

Central banking is problem

Need new monetary system

Sound Money is the Answer

Jim Rogers TV: Talks Future of U.S. Dollar

The U.S. Dollar is Dying Says Ron Paul

Ron Paul on the failure of policies that are contributing to the death of the U.S. dollar

U.S. Dollar Reserve Standard about to Collapse Says Ron Paul

Ron Paul: Governments need to stay out of the way and let the markets correct themselves.

Dollar Should be in for a Rough Ride Going Forward

Now the the Chinese have decided to focus on their own infrastructure with the approximate $585 billion stimulus plan, they'll start cutting back on buying U.S. treasuries.

Acquisition of U.S. treasuries worked in China's favor, as it provided money to U.S. consumers who would then buy Chinese products manufactured in the country.

This has worked as the Federal Reserve has been able to keep interest rates low because of the over $1 trillion China has invested in U.S. government securities, which helped prop up the dollar; even though it has struggled until recently.

Consumers were then able to use cheap money to acquire a huge amount of consumer goods; at least until the mortgage bubble broke, and the weakness of those buying habits exposed themselves.

So we're going to see much less Chinese money going to U.S. securities; continued forced liquidation of funds to get access to more cash; printing more money to pay off misguided stimulus plan; and credit continue to be hard to get.

This will end up being "perfect storm" against the greenback, and will eventually put enormous downward pressure on it.

U.S. Dollar and Yen Remain Strong ... Investments of Choice for Those Seeking Safety

Safety was the driving force for investors today, as the announcement by U.S. Treasurey Secretary Henry Paulson that the Troubled Asset Relief Program (TARP) would add to its focus of infusing capital into banks, to also helping nonbank financial sector.

Jittery investors interpreted that as problems are emerging in the attempt to fix the financial crisis.

Immediately after Paulson's comments migrated across the news wires, traders ran to safety in the U.S. dollar and yen.

Even so, the dollar fell significantly against the yen, dropping to 94.61 yen from 97.60.

The British pound took a beating today, falling to its lowest levels since June 2002, dropping below $1.50. Against the euro it suffered its worst performance ever.

Much of that was generated from the comment by the Bank of England that the British economy was for all practicle purposes, probably already in a recession. British economists say there's no doubt there will be more substantial cuts in interest rates in the near future; most likely beginning in December.

The Bank of England confirmed this saying if interest rates stay at the current level of 3.0 percent, there's risk the country could enter into a deflationary period of time beginning in the latter part of 2009.

The European Central Bank has been pouring tons of dollars, Swiss francs and euros into banks in the eurozone in hopes it'll encourage them to lend to one another again. The ECB announced Wednesday it would offer $60.574 billion for a week at a fixed rate of 1.43 percent.

Jobs Lost More than Expected, U.S. Dollar Falls

After the announcement the number of jobs lost in the U.S. economy for October were more than forecast, the U.S. dollar gave up much of its Thursday gains on Friday.

Jobs lost in October were about 240,000, a 30,000 increase from the projected 210,000by economists, according to the Labor Department.

Unemployment rates now stand at 6.5 percent, the highest in 14 years.

The euro ended the session at $1.2747, up from $1.2677, while the British pound gained from $1.5530 to $1.5666 against the dollar.

Speculation is if things continue downhill in the economy, it will end up with the Federal Reserve dropping rates to record levels below 1 percent, which could make investment in low-yielding dollar-based assets les desirable.

US Dollar Gains against Euro and Pound after Rate Cuts

In response to the weakening European economy, central banks started slashing benchmark lending rates in attempts to jumpstart credit markets again.

While the move of cutting rates by the European Central Bank was in line with expectations of 50 basis points, bringing it to 3.25 percent, the cuts by the Bank of England shocked a lot of investors and analysts, as they cut rates by 150 basis points to 3 percent.

The U.S. dollar responded by strengthening against the two currencies, as at close to 5:00 EST it had gained by .0147 against the euro, and .0126 against the pound.

Deleveraging Continues to Push U.S. Dollar Upward

As major funds continue to deleverage in order to access cash, the U.S. dollar continues to be a major beneficiary, as the greenback continues to strengthen against major currencies.

Deleveraging means when funds and investors have to sell, they are buying back the U.S. dollar the had previously sold. That drives up the value of the dollar.

With no way of knowing how long companies, investors and funds will have to do this, the length of the time the U.S. dollar will remain strong will also remain unknown.

The U.S. dollar rose against the euro, British pound and yen during the trading session.

Within the dollar index (DXY), it increased to 86.35, a gain of 1.3 percent from the 85.834 close on Friday. The dollar index measures the U.S. dollar against six currencies.