Near zero interest rate causes dollar to tumble

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From Fazle Rashid
NEW YORK, Dec 18: The US dollar, king of all currencies, dipped against all major world currencies in the wake of Fed slashing the interest rates to near zero. A day after Federal Reserve adopted a near zero interest rate to stimulate a sinking economy the euro jumped as much as 4.0 per cent against dollar.
The dollar tumbled 87.14 against yen, lowest in 13 years. The All mighty dollar also became weaker against the UK pound and Swiss franc. The Fed Reserve's decision to keep interest rates near zero for sometime is a tacit acknowledgement that the recession will worsen before it improves, the New York Times (NYT) reported today. The US economy is in deep trouble, the analysts commented. The Fed has been running its dollar printing press overtime to flood credit markets with liquidity.
The US Federal Reserve is deploying a range of new and unorthodox tools. Its objectives remain the same: to limit the severity of the recession and maintain price stability. Fed will try to reduce borrowing cost. Risk spreads were high in large part because liquidity had vanished from many funding markets. Russia allowed the rouble to depreciate by the biggest amount against a euro-dollar basket
The Fed aims to support demand for loans, increase liquidity and reduce spreads through various credit operations. The harder question is to what extent the Fed's unorthodox policies will succeed in restoring growth, an analyst in a reputed paper said.
President-elect Obama has selected Ms. Mary Schapiro to be the next chairman of the Securities and Exchange Commission (SEC) as the regulatory body faces an avalanche of criticism for its role in the financial crisis. The main accusation is that the agency failed to properly oversee the big Wall Street banks and did not act promptly to uncover the allegations of financial wrongdoing by New York broker Bernard Madoff who is now at the head of the biggest fraud investigation.
The level of devastation both financial and on human level is astounding said Robert Ivanhoe attorney for 10 developers and investors who lost $5.0 million to $50 million each. Madoff was ordered to submit to electronic monitoring and given an overnight curfew in Manhattan apartment. His wife's passport has been impounded.
Banks which have been largely responsible for the present economic malaise have come under greater scrutiny. Dow Kim, an executive with the Merrill Lynch pocketed a salary of $350,000 yearly. But his total emoluments were 100 times more. It was $35 million. His colleagues not only at his level but far down the ranks also pocketed similar salaries, the NYT reported. Merill Lynch paid about $6.0 billion in bonuses in 2006. Critics say bonuses never should have been so big because they were based on notional earnings. Compensation was flawed from top to bottom. This is being described as distorted incentives.
Wall Streets executives now admit they were dazzled by the money and willfully ignored or played down risks when lending. Goldman Sachs will see their bonuses fall by up to 80 per cent this year. Morgan Stanley announced its bonus pool for this year would plunge 50 per cent to reflect a sharp fall in its annual profit Opec as briefly reported yesterday announced a production cut to the extent of 2.2 million barrel a day to bring back normality to the ever slidding price of oil. This will be in addition to 2.2 million barrel a day cut already in place. The Organisation of Petroleum Exporting Countries (Opec) hopes its move will bring the price of oil to at least $80 a barrel.