THE DOLLAR'S REBOUND…
When asked what they thought the dollar's recent rebound meant for the economy, this week's poll respondents were split almost exactly down the middle. A slight majority (53%) believe there is much more pain ahead before things get better. The remaining 47% are hopeful that this is the start of a recovery. David Houston, president of Colliers Houston & Co., is one of the hopeful ones. Here is what he had to say:
"The U.S. Dollar Index hit a low in Mach as the Federal Reserve slashed interest rates to mitigate the credit crisis. What the U.S. did right was to employ both fiscal and monetary incentives very early in the economic slowdown. This seems to have made the current economic downturn a very shallow one.
"At a conference I attended at the end of June in Europe, members of the European Union were furious that the European Central Bank had not acted as decisively as the U.S. had in dealing with the economic issues at hand. However, in all fairness, the Central Bank does not have the power of the Federal Reserve and can't react the way the Federal Reserve did to save some of the major financial institutions which were threatened by a liquidity crisis.
"As a result, as the European economy enters a downturn, the U.S. seems to be in much better shape. The dollar has recovered against virtually all currencies, and the U.S. seems to have escaped from a major recession. Lower demand for oil and the lack of refinery damage from Hurricane Gustav have helped a lot. The U.S. had a record trade surplus in the 2nd quarter and GDP grew by more than 3%. A higher dollar hurts the trading balance of accounts, but it makes oil much less expensive. If the dollar was on par with the euro, oil would be about half its current market value. So, while the road ahead may be a bit rocky, the U.S. economy should outperform Europe, Japan and most of Asia during the next four quarters. It looks like we have dodged the bullet."
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