the end of an era

For several decades now Americans got used to solve their problems by throwing money at people - literally, throwing. Since 1972 when President Nixon cut the link between the US dollar and gold, the US Federal Reserve System (FED) - thus, the US Government - became the sole institution in the World which could buy goods and services worldwide just by printing small pieces of paper which they called dollars.

Lincoln's dictum applies here: you can fool some of the people all of the time; you can even fool all of the people some of the time; but you cannot fool all of the people all of the time.

Yesterday the Fed used once again the "throwing out money" solution to boost the banking system and financial markets. It succeeded but, it seems, just for one day.There is an old adage on Wall Street which says: don't fight the Fed. Accordingly, markets rallied on the announcement and the dollar recovered some ground against the euro.

It didn't last though. Today, some of the stock gains of yesterday were erased and the dollar hit a new record low agains the euro (1.55) at the same time that crude oil reached an all time high of US$110 per barrel. Gold is now less than 2% short of the US$ 1000 per ounce mark.

Well, I believe the adage about the Fed is over. If the Fed wants to prop up stock markets and the dollar, I would rather believe that stock markets are heading down and so does the dollar. It's the end of an era.