Dollar still dropping

According to Bloommberg:

Oct. 29 (Bloomberg) -- The dollar fell to a record low against the euro on speculation the Federal Reserve will cut interest rates this week as a U.S. housing slump reverberates through the economy.

The U.S. currency also slid to its lowest in 23 years versus Australia's dollar as prospects the Fed will lower its 4.75 percent overnight lending rate between banks by at least a quarter-percentage point on Oct. 31 prompted investors to seek higher-yielding assets. Two-year Treasury yields are near the lowest since September 2005.

``I remain bearish on the dollar,'' said Greg Gibbs, a currency strategist at ABN Amro Holding NV in Sydney. ``The U.S. has the lowest yields of all other major countries except Japan and Switzerland. This is sending people into a whole range of higher-yielding currencies.''

The dollar fell as low as $1.4426 per euro, the weakest since the introduction of the 13-nation common currency in 1999, before trading at $1.4420 as of 6:29 a.m. in Tokyo from $1.4393 in late New York on Oct. 26. It may drop as low as $1.4530 this week, Gibbs said.

Australia's dollar, also benefiting from speculation that nation's central bank will raise interest rates from an 11-year high on Nov. 7, traded as high as 92.14 U.S. cents, the strongest since May 1984, before buying 92.11 cents from 91.84 late last week. It has jumped 17 percent this year.

The U.S. currency was little changed against Japan's currency at 114.08 yen.

The lower dollar will make U.S. exports more competitive, but will also put pressure on U.S. inflation. The Federal Reserve act to protect the bond market, which means raising interest rates whenever inflation threatens.

But increased interest rates depress the economy. That job has already been done by the collapse of the housing bubble. Meanwhile, China and the third world nations are providing the goods and services at a lower cost than the U.S., even after the drop in the value of the dollar.

In the short run the lower dollar value is not going to help the U.S. economy much, but it will lead to inflation. So I expect a Recession.

For the long run, American business needs to look closely at the largest waste of money in America - CEO pay. They aren't worth what they are collecting. If the SEC would require that every financial statement include a breakout of the amount of pay the CEO and manager was receiving above some standard like 25 times the pay of the lowest paid workers and show that as a percentage of revenue and of profit excluding management pay, then stockholders could compare return on investment to the excess expense of management.

CEO pay would drop sharply, as would the excess costs of American goods and services.

Then maybe American exporters could better compete with foreign companies without lowering the cost of American labor to the level of third world nations. The Republican mantra of "Free Trade - Small government" sure isn't working.