The falling dollar - the chickens are coming home to roost

it's not pretty and neither is it getting much media coverage in the u.s...

• In the last few months, speculators selling off dollars are not just buying other currencies like the euro or yen, but they are also buying commodities like gold and oil, forcing up their prices further.

• The higher price of imported goods could lead to a hike in domestic inflation, and it could take several years before consumers switch back to buying more US goods.

• High inflation, combined with the stronger-than-expected growth of the US economy, could force the US central bank, the Federal Reserve, to keep raising interest rates.

• But the fears of inflation are also likely to affect the interest rates on long-term bonds, which determine mortgage rates.

• The rising mortgage rates, while they may eventually dampen the housing boom, will also give a further boost to inflationary pressures.

• The sharp falls in non-US stock markets, especially in Asia, are a response to this fear, with electronics and car companies like Toyota and Sony especially vulnerable.

but wait, it gets better...

• As the value of the dollar falls, [Asian exporters'] reserves of the currency also reduce in value, as do the yields on the US Treasury bonds held by many of their central banks.

• The Asian governments and investors may be tempted to sell many of their dollar holdings in order to protect themselves - but this would have the effect of weakening the dollar further. And it would force the Fed to raise interest rates even more to protect the dollar.

meanwhile, in yet another move calculated to make the super-rich ever-so-obscenely richer, bush approves $70B in tax cuts...

President George W Bush has signed into law a $70bn ... tax cut which he says will boost the US economy.

so far, however, it seems to be having the opposite effect...

By [Wednesday's] close, New York's Dow Jones Industrial Average index was 1.9%, or 214 points lower at 11,206.

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