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Tags: Woodhill | dollar | economy | Fed

Forbes' Woodhill: Dollar Stability Is the Real Key to Economic Recovery

By    |   Tuesday, 16 September 2014 11:08 AM

Forget inflation; the biggest economic issue facing the United States is the stability of the dollar, according to Forbes contributor Louis Woodhill.

Woodhill, a software entrepreneur, notes there is little evidence inflation is picking up steam, especially if one considers the fact commodities, including gold, have been falling in price across the board. Commodity prices are often considered inflation bellwethers, he adds, and "tightening monetary policy when commodity prices are falling is only a good idea if your objective is to produce a recession."

"Beyond this, conservative caterwauling about inflation will encourage the Phillips Curve worshippers at the Fed to assemble for their dark, satanic, interest-rate-raising rite, which involves human sacrifices (in the form of the jobs of ordinary Americans) to the inflation gods," Woodhill explains.

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Instead, there should be more concern about the Federal Reserve's total freedom to craft monetary policy, which he notes has led to the slowest average economic growth for the past 13 years since the Great Depression.

"The high-minded money manipulators at the Fed (as well as most of the leading lights of the economics profession) seem to have lost sight of the fundamental function of the dollar," Woodhill argues.

"A stable dollar (one that is constant in real value) is essential for rapid, sustained economic growth. A discretionary monetary policy can never yield a stable dollar. If it could, we would have one by now. After all, it has been 43 years since President Nixon abrogated the Bretton Woods gold standard system."

Woodhill believes the Fed's "incessant tinkering" has led directly to crises such as the housing bubble and the current tendency of big companies to use their record profits to buy back shares instead of investing them in their business.

And the lack of a reliable gold standard that defines the value of the dollar has forced investors to alternate between hedging against inflation and deflation, with ruinous results.

"Right now, [Fed Chair] Janet Yellen has her legions of analysts frantically crunching out-of-date, soon-to-be-revised economic statistics to help her figure out when she should raise interest rates to 'fight inflation.' However, it would be far, far better to simply prevent inflation via a defined dollar, than to fight it with tight money."

Chris Puplava, a portfolio manager at PFS Group, predicts that if the dollar continues its current rally, U.S. stocks are likely to continue outperforming world stock markets.

"Should the USD strengthen ahead and the U.S. markets outperform world indices, we are likely to see a pickup in foreign investment demand for U.S. stocks," he writes on the firm's Financial Sense website. 

"Given the current low level of foreign investment to the U.S. stock market, we could see foreign buyers become a significant source of buying interest in the months ahead."

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Finance
Forget inflation; the biggest economic issue facing the United States is the stability of the dollar, according to Forbes contributor Louis Woodhill.
Woodhill, dollar, economy, Fed
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2014-08-16
Tuesday, 16 September 2014 11:08 AM
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