To Add Insult To Injury

Everyone knows that the major stock market indexes are selling off today. Do you know what else is selling off today? Thats right, the U.S. Dollar Index is declining again and is getting closer to its November 2009 low at $74.17. The U.S. Dollar Index has declined lower by 16.0 percent since June 7, 2010. That decline in the dollar has been the catalyst for the stock market rally since late August 2010 when the Federal Reserve announced its second round of U.S. Treasury purchases called quantitative easing or better known as QE-2.

What is going to happen if the U.S. Dollar Index and the stock market decline together? Does this mean that QE-2 was a failure and deflation is back? What is really so wrong with deflation? After all things that people need and use will get cheaper. Housing may actually find a true bottom. However, foreign countries would no longer lend the United States money and that is a problem for the politicians.

When the U.S. Dollar Index declines and the markets inflate higher that is a scratch or break even. When the U.S. Dollar Index rallies and the stock market rallies like it did in the 1990's that is real wealth. However, what are we to expect if the stock market and the U.S. Dollar both decline together? This would be considered real destruction and a tearing down of the system. Perhaps that is what this country needs these days.

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To Add Insult To Injury

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