They know the front end will be volatile with the dollar getting hammered and oil and commodities going higher but they see the magnitude of the slowdown coming our way and are gambling that will mute inflation. Ben indicated the Great Depression could have been avoided if more liquidity had been available in the system. I am not saying this is right or wrong and there are plenty of holes here. I am just trying to make sense of the move our FED made that on the surface seems idiotic.

Regarding the FED’s move … In my opinion, it’s actually quite simple and obvious. When the economy starts sucking, the FED lowers rates. This is what they do. The dollar declines if our cycle is ahead of the rest of the world.

When the rest of the world’s economies start sucking, their central banks will cut rates, too.

When the US recovers the dollar will recover. It’s happened before.

Regarding the dollar … It sank in the late 80’s to early 90’s as well. Starting from a dollar index of 124 in 1986 and declining to 80 in September 1992, as the US started recovering from recession.

The dollar went through a couple smaller cycles and peaked again around 120 in early 2002, dropping to 81 at the end of 2004 and is about 79 today.

So the dollar declined to about 65% of it’s 1986 value by 1992, only to return to within ~5% it’s previous peak by 2002. Currently in a drop to about 66% of its recent peak.

I know things are different this time, but they were different last time, too.

Extrapolating the current trend of the dollar and coming to the conclusion that it’s a one-way trip is the same mentality that led some to conclude that real estate prices go up forever.