Link: The Four Rules to Currency Intervention

Oct 2, 2007: 12:36 PM CST

David Merkel at the Aleph Blog takes an interesting approach to what might happen if the US Government or Federal Reserve decides to embark on a “Currency Intervention” to “save” the US Dollar, which is making new lows almost daily it seems.

Merkel lists four conditions – or rules – for what might happen for the government to embark on a successful currency intervention (read the rules at his site).

He notes that interventions will not ‘cure’ the underlying economic conditions that have resulted in the weakened dollar, but that – at some point – governmental officials might be compelled (or at least encouraged) to step in and support the ‘greenback’ as best they can.

Merkel concludes with the following potential investment advice for you:

“The investment implication is this, though. Until an intervention happens, the path of the US Dollar is down. After it happens, the path of the US Dollar is down, until a new equilibrium is found. Economies are bigger than governments, and in the long run, governments can’t affect exchange rates.

Just stay on your toes, and be ready to buy non-Dollar assets after the coming currency intervention.”

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