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The Weakening U.S. Dollar

September 24, 2009 – 10:54 am

It appears that health care is the major item that Congress and the President are addressing at this point, leaving the economy to move forward on its own as the stimulus package money is spent. That spending will be spread over many years; therefore the impact on the economy will be spread over those years.

Because of this drawn out spending it is going to be difficult to separate the natural economic cycle highs and lows from the government induced benefits. Short term government benefits are important when trying to exit a recession, but it is always difficult to know when to pull the plug on excess spending. I think it is going to be impossible for Congress and the President to withdraw the spending once it is no longer needed.

That leaves us with health care and the spending it will produce. Though the proponents talk about saving money no one believes it. Most believe any government health care plan will result in more spending and that is on top of already excess spending.

The stock market will react to spending they see as excessive. Initially, traders and investors will assume rightly or wrongly that inflation will be a problem. It appears some inflation fear is present in the price of gold but there is no evidence of any inflation in the economy. You can also see the market reaction to spending in the dollar as it has fallen for some time. Right now the focus is on economic recovery so worries about inflation and the U.S. dollar are on the back burner. That won’t last if the economy continues to improve.

Good Trading
Steve Peasley

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