This post is a guest contribution by Dian Chu*, market analyst, trader and author of the Economic Forecasts and Opinions blog.

The dollar’s value against major currencies has fallen in recent months as the US fiscal outlook worsened and amid expectations that interest rates will remain close to zero for some time to fight the economic downturn.

This week, the euro broke above the psychologically important level of $1.50 driving gold prices to record levels, prompting many global central banks intervening on currency markets to slow the dollar’s fall (Fig 1).

How did we get here?

Since the financial crisis last fall, currency markets have taken their cues mostly from stock markets. When stocks plunged in March of this year, investors rushed to the safety of US government bonds, pushing the

In the midst of the 1990s bull market, one lone regulator warned about derivatives’ dangers - and overnight became the enemy of some of the most powerful people in Washington …

In The Warning, veteran Frontline producer Michael Kirk unearths the hidden history of the nation’s worst financial crisis since the Great Depression. At the center of it all he finds Brooksley Born, who speaks for the first time on television about her failed campaign to regulate the secretive, multitrillion-dollar derivatives market whose crash helped trigger the financial collapse in the fall of 2008.

“I didn’t know Brooksley Born,” says former SEC Chairman Arthur Levitt, a member of President Clinton’s powerful Working Group on Financial Markets. “I was told that she was irascible, difficult, stubborn, unreasonable.” Levitt explains how the other principals of the Working Group - former Fed Chairman Alan Greenspan and former Treasury Secretary Robert Rubin -

David Einhorn, highly respected hedge fund manager of Greenlight Capital and author of “Fooling some of the people all of the time” yesterday delivered the keynote address at the Value Investing Congress. His full speech can be accessed here, but Rolfe Winkler of Reuters has very handily published the highlights, as posted below.

On Bernanke and Geithner: Presently, Ben Bernanke and Tim Geithner have become the quintessential short-term decision makers. They explicitly “do whatever it takes” to “solve one problem at a time” and deal with the unintended consequences later. It is too soon for history to evaluate their work, because there hasn’t been time for the unintended consequences of the “do whatever it takes” decision-making to materialize.

On too big to fail and the true lesson of Lehman: The proper way to deal with too-big-to-fail, or too inter-connected to fail, is to make sure

This post provides links to a number of thought-provoking articles I have read over the past few days that you may also find of interest.

• Mike Shedlock (Mish’s Global Economic Trend Analysis): Is the stock market a leading indicator?, October 12, 2009. The stock market is at best a coincident indicator, known only well after the fact. Furthermore, even as a coincident indicator, the stock market gives many false signals, making it totally useless for all practical purposes. The theory that the stock market is a reliable leading indicator is a myth easily shattered by simple observation of the facts.

• Caroline Baum (Bloomberg): Treasury bond rally fails asset-bubble test, October 13, 2009. Bubble sightings are proliferating by the day, and with interest rates near zero, it’s not hard to understand why. Easy money leads to excess credit creation, which eventually produces

Richard Koo, chief economist of Nomura Research Institute, rose to prominence early last year with the publication of his fascinating book, Balance Sheet Recession. He has just been interviewed by the brilliant Kate Welling at Welling@Weeden. Although I have not yet set eyes on the interview, I am sure it is top class. However, Richard Russell (Dow Theory Letters) last week provided a taste of the discussion in his newsletter, some of which has been worked into this post.

Koo defines a balance sheet recession as one that emerges “after the bursting of a nationwide asset price bubble that leaves a large number of private-sector balance sheets with more liabilities than assets. In this type of recession, the economy will not enter self-sustaining growth until private-sector balance sheets are repaired”.

According to Koo, American consumers are suffering from a balance sheet

Clowns to the left of us… Jokers to the right… The Simpleton’s Analysis: Consumers cut back. The economy sank. Now, government must take action. It must help people out and take up the slack.

The downturn took $12 trillion off Americans’ net worth. The feds have pledged about $12 trillion to fix the problem.

But wait, where does government get any money?

Hey, they borrow it, just like consumers did. And besides, it’s ultimately the same money – taxpayers’ money. So what’s the big diff?

The big diff is the subject of today’s Daily Reckoning.

The first big diff is that the feds don’t spend your money the way you would. Private citizens spend money they don’t have on things they want but don’t need. The feds spend money that doesn’t belong to them on things that the rightful owners don’t even want.

Wait a minute. US markets were closed yesterday for

By Cees Bruggemans, Chief Economist FNB

Let us for a change take somebody at his word.

Larry Summers, for instance. Economic advisor to US President Obama, Larry has been sending signals that could well shape also us in rather fundamental ways in coming years.

It could mean the Rand might be forced stronger and that our interest rates are too high.

Misreading such tealeaves would be very costly for us, with a too strong currency hitting exporters (our long-term Achilles heel) and too high interest rates keeping our domestic economy unnecessarily back.

Larry has been saying for some time it can’t be business as usual for the world. Whatever domestic origins of the US financial crisis, the global economic imbalances are not healthy, feeding the wrong behaviours.

Seeing and treating Americans

Richard Posner has a critique of public intellectuals who work in the public sphere (with special reference to Christina Romer), either in government service, or in journalistic fora. Mark Thoma and Brad Delong have already made clear the (many) points at which Mr. Posner has gone astray. Parenthetically, I'll add that I wonder about the analytical abilities of anybody who lumps Phillip Glass (!) and Elliott Carter together into the highbrow music category (see page 18 in his tome Public Intellectuals: A Study of Decline (1991)). More substantively, I have a few of additional observations, some of which are amplifications of Brad Delong's points.

First, I agree with Mark Thoma that Mr. Posner apparently has little understanding of macroeconomics, either of old-style Keynesian type, or the new(er) real business cycle type, or certainly New Keynesian approaches. His charge that her current pronouncements are at sharp variance with

Stock markets recorded another strong week as further signs of economic stabilization emerged. The S&P 500 Index worked its way back to above the 1,000 level on Friday, and more upside lies ahead said Abby Joseph Cohen, Goldman Sachs’ market strategist, as she expected the Index to reach the 1,100 mark by year end.

This week’s batch of video clips not only covers the outlook for stock markets, but also discussions about the economy’s transition from recession to recovery and other topical issues. Appearing on camera are Jeffry Sachs, Robert Shiller, Larry Summers, Lakshman Achuthan, Joseph Stiglitz, David Rosenberg and David Hickey.

The selection starts off with two academics - Jeffrey Sachs and Robert Shiller - and concludes with a discussion about the “man-cession” - older white male workers being among the hardest hit by job losses.

Fora.tv: Jeffrey Sachs - global effects of crisis “Jeffrey Sachs, Director

You might find these interesting:

Barry Ritholtz and Robert Reich believe investors should not be pleased with recent positive corporate earnings surprises. Hal Varian reports that Google Trends predicts further reductions ahead in new claims for unemployment insurance. Felix Salmon [1], [2] describes how Larry Summers lost a billion dollars for Harvard. ExxonMobil is investing big bucks in some radical new tools for controlling carbon emissions. Lucian Bebchuk worries that the proposed Goldman Sachs compensations represent a return to a dangerously flawed incentive structure. Dave Altig has a very interesting graph showing just how pessimistic consensus estimates are about this economic recovery. And here's one of the reasons I always try to find something that doesn't come from AP as a source any time I want to link to something in the news.