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Author: Subject: Weak dollar
Underwater Plumber


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[*] Post 311431 posted on 8-12-2007 at 21:51 Reply With Quote
Weak dollar

Worrying article. here
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The Q


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sad.gif Post 311435 posted on 8-12-2007 at 23:22 Reply With Quote

Should I be worried...?
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Knowledge of Ages


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[*] Post 311437 posted on 8-12-2007 at 23:38 Reply With Quote

Some of what the article says is true, some is false, and ALL of it dates back to May 2006.

It mentions as worrisome the fact that the U.S. Federal Reserve had been raising the interest rates. Now, the Federal Reserve has been lowering the interest rates.

At the same time, tax cuts and the war in Iraq have led to a US budget deficit of several hundred billion dollars despite the booming economy.

The tax cuts have had the opposite effect. The Bush tax cuts, although a smaller percentage for the wealthy than for those who earn less, nonetheless freed up money which employers used to expand their businesses and hire more people. More economic activity meant more tax revenues coming in. When income taxes are so high as to discourage economic activity, tax revenues go down. If the high taxes are reduced, encouraging business expansion, more taxes come in. This happened under the Kennedy tax cuts, the Reagen tax cuts, and the Bush tax cuts.

Unfortunately, the increases in spending (for security, for Iraq and Afghanistan, for disaster relief, and for other projects and foreign aide) have kept the budget deficit high in spite of the increased income. The recent dramatic fall of the U.S. dollar is tied mainly to the many defaults in the mortgage market, due to risky sub-prime loans, especially adjustable rate mortgages. Some in the government are inclined to force the banks to accept lower interest rates than the contracts call for, which means that the banks and their stockholders will be hurt financially, and new housing starts are being hurt because banks that are already holding bad loans cannot loan out that money to pay for new homes. This means all the construction workers and industries are hurt, which puts pressure toward weakening the economy. The value of existing homes has declined, because fewer people now qualify for mortgage loans.
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