The Dollar Falls, the Stimulus Stays the Course

AMA10-18-13The government showdown –er, shutdown – has ended and the debt ceiling has risen, but the economic fallout has experts worried about the future. The 16-day hiatus didn’t affect just government programs and services – it rippled all through the economy. As the dollar sinks to lows not seen in nearly a year, the Federal Reserve is scrapping plans to taper down its large scale stimulus plan anytime soon – a move that, some say, signals gloomy times ahead.

According to a new CNBC report on the aftermath of the shutdown, the dollar index (officially the New York Board of Trade) placed the US currency near that eight-month low relative to various other major world monies, including the Chinese yuan, now hitting record highs.

The downturn of the dollar means uncertainty for the economy as a whole. The shutdown affected many government backed services but those in turn affected the economy around them. Furloughed Federal workers weren”t shopping at their local stores; businesses executing government contracts sat idle too. And that leaves the Federal Reserve reevaluating the status of the massive stimulus plan it put into place in September 2012.

We’ve discussed the ups and downs of the stimulus plan in this space before, as the Fed waffled about whether the economy was strong enough to allow a tapering down of the program to buy up trillions of dollars worth of mortgage backed securities. Although the original intent of the plan was to shore up the housing recovery, factors such as improvements in the employment picture and the stability of the dollar also played a role in decisions to keep up the plan at current levels or scale it back.

Now, as the dollar remains depressed and new mortgage lending rules are having a cooling effect on the housing recovery, the Fed stands ready to keep the program rolling at top speed for far longer than originally anticipated – even, by some estimates, into 2015. That’s far beyond the projected end of the plan, in late 2013 or early 2014.

Financial experts are expecting the dollar to sink even further before it recovers, and the direst predictions hint at a full recession as result of the shutdown. That means the stimulus may be necessary now to keep interest rates low and the consumer economy going.

What does this all mean for the emerging housing market – and for investors following Jason Hartman’s recommendations for building wealth in income property? New regulations that arose from the massive mortgage lending fraud investigations have imposed tighter standards on mortgage qualifications, but the artificially low interest rates created by the stimulus plan are likely to stick around.

Industry experts warn that those rates probably won’t be quite as low as the historic levels they reached a few months ago. But they should still create favorable conditions for qualified mortgage applicants to buy investment properties at current market prices – and to stay a step ahead of the fallout from the government’s hiatus.  (Top image:Flickr/SqueakyMarmot)

Ramasinghe, Dhara. “Taper Talk Could Worsen the Dollar Rout.” CNBC Finance. 10 Oct 2013

The American Monetary Association is the source for financial news you can use. Read more from our archives:

The Debt Ceiling Debate:  and the Next Recession

The Septaper That Wasn”t: The Stimulus Plan Rolls On

The American Monetary Association Team

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