Dollar relationship to financial assets

You may have puzzled over the relationship of the US$ to the stock, commodity and bond markets. The relationship has been very difficult for me to rationalize. If I were to briefly describe my understanding in simple terms, here is what I would say. The dollar value is a reflection of the sentiment of other governments, with different currencies, toward the US economy in relation to their currency. In other words, if in the eyes of a foreign investor, there is more risk for investing in their local currency and markets than for the same investing in US markets, they will buy dollar based assets even with a less valuable currency, increasing their cost. Now, as other currencies around the world deal with the financial crisis the way they need to, observers evaluate the result of their action and determine the risk it creates on investments and the stability of their currency. The result is sometimes a move to safe investments, sometimes the addition of risk investments. Since the US$ is still viewed a safe currency, the move to safety stimulates an upward change in the dollar while the move to risk does the opposite, stimulates a downward change. Some would describe the upward move as strengthening and the downward move as weakening. These adjectives carry connotations that are misleading. The weakening of the dollar is not necessarily a sign of a

Fight the Fed (Treasury)?

The AP is reporting this morning on Geitner's decision to extend the duration of the TARP and widen its scope to include smaller banks with commercial real estate exposure and programs to slow the rate of home foreclosures. The article includes some analysis of how well TARP has measured up to intentions of Congress when it was authorized. Elizabeth Warren, the chair of the Congressional Oversight Committee is reported in the article to offer these remarks...

In a report Wednesday, a TARP watchdog panel said the fund helped ease last fall's financial panic, but was less successful in meeting other goals Congress set — including reducing foreclosures and unfreezing credit for consumers and businesses.

"Congress set goals for the TARP that went well beyond short-term financial stability, and by that measure problems remain," said panel chair and Harvard Law school professor Elizabeth Warren.