The Dollar, Oil, and Gold

Fed Injects $41 Billion Into US Financial System to Help Ease Credit Problems

Wall Street Plunges on Fears That Interest Rate Cuts Will End Even As Economy Is Weakening


While I have a degree in economics (an eon ago ... back when the country was on the gold standard (no really ... but seems like it!), I do not work as an economist and and my economics skills are not sharp!

But, if I understand this correctly it works like this:

1. The Fed lowers the the federal funds rate ...
   
2. Banks lower the prime rate ...
   
3. Loans in $$ are cheaper ...
   
4. But the Dollar declines against world currencies (the Euro, the Canadian $, etc)
   
5. Foreign investors (the silent hand!) prefer to invest in non-US operations
   
6. Oil prices increase against the Dollar (but probably not against the Euro!)
   
7. Gold prices increase agains the Dollar (but probably not against the Euro!)
   
8. Imports are more expensive (at least theoretically).
   
9. US exports are less expensive (theoretically)
   
10. And all should balance out in good time
    

If you have an economic mind feel free to comment (as I don't understand this perfectly!)

Gold Price per Ounce

Bloomberg oil index

Yahoo exhange rates

Comment: In reality how much more could the Fed possible cut! To the extent that the cannot cut more ... the more powerless the Fed becomes in stimulating the economy!