Oil prices are up sharply up the dollar sharply down as investors respond to the inflationary implications of the trillion dollar Paulson bailout plan.
``As we get to the other side of this, the dollar will get crushed,'' said John Taylor, chairman of New York-based International Foreign Exchange Concepts Inc., the world's biggest currency hedge-fund firm, which manages about $15 billion.
The falling dollar and rising oil prices triggered by the Paulson plan would reduce discretionary consumer spending, increasing financial distress over time. The distressed consumer, the root cause of the financial meltdown, gets thrown an anchor, not a lifesaver, by Paulson.
Updated: Oil up record $25 in one day to over $130/barrel.
SAN FRANCISCO (MarketWatch) -- Crude futures leaped as much as $25 per barrel, or 24.3%, shortly before the New York close Monday, to tap a high of $130 per barrel. They're poised to score their biggest daily gain since 1984 -- when crude began trading on the New York Mercantile Exchange. October crude was last up $19, or 18.2%, at $123.55 per barrel on Globex
Alan Blinder, Princeton economics professor and former Federal Reserve board member warned of George Bush and Henry Paulson "Creating a crisis to cause a stampede" to get the Paulson plan passed on the Diane Rehm show this morning. He strongly recommended caution, opposing the draconian, unconstitutional plans for seizure of unchecked power by the Treasury Secretary in the proposed legislation.
Bush and Paulson are pushing Congress hard to approve the bill as written (by financial industry lobbyists).
As Congressional Democrats began to set terms for a plan to rescue the nation’s financial institutions, President Bush urged them on Monday to move quickly and to resist the temptation to add provisions that, he said,
"would undermine the effectiveness of the plan."
The plan would benefit the financial industry over the short term while leaving the consumer with an inflationary hangover.
The combination of spending $700 billion on soured mortgage-related assets and providing $400 billion to guarantee money-market mutual funds will boost U.S. borrowing as much as $1 trillion, according to Barclays Capital interest-rate strategist Michael Pond in New York. While the rescue may restore investor confidence to battered financial markets, traders will again focus on the twin budget and current-account deficits and negative real U.S. interest rates.
If approved the bill would create even greater crisis in coming years, than the one we are in now according to foreign exchange experts.
``The downdraft on the dollar from the hit to the balance sheet of the U.S. government will dwarf the short-term gains from solving the banking crisis,'' said David Woo, London-based global head of foreign-exchange strategy at Barclays, the third- biggest currency trader, according to a 2008 survey by Euromoney Institutional Investor Plc.
The prospect of the bill being passed has already driven oil futures prices up 7% in one day.
Crude for October delivery touched a high of $112.38 per barrel in electronic trading on Globex. That's the highest intraday price since Aug. 29. It was last up $7.54, or 7.2%, to $112.09.
The contract expires at the end of trading on the New York Mercantile Exchange Monday, which has likely increased volatility in the session. The November crude contract was last up $6.45 at $109.20 on Nymex and up $6.21 at $108.96 on Globex.
Sean Brodrick, a natural resources analyst at MoneyandMarkets.com. said,
"The hundreds of billions of dollars being pumped into the system is inherently inflationary. That, plus a belief that the federal bailout will boost the economy in the fourth quarter, is putting a floor under oil prices."
The markets have spoken.
The Paulson plan will only worsen the recession by increasing the debt load on the consumer and taxpayer. It will drive down the dollar, drive up long-term interest rates that the Fed can't set, drive up the price of oil, and worsen the financial crisis for the consumer.
The financial crisis cannot be cured by bailing out banks with taxpayer money. It can only be cured by improving the balance sheet of the American consumer.
Please, write or e-mail your senators and congressman opposing Paulson's bad plan. Demand a bill that provides debt relief for the American consumer, not the loan sharks that caused this crisis.