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St. Louis Fed study says QE devalued dollar by 6.5 to 11 percent

Section: Daily Dispatches

Can we claim that as depreciation on our income tax returns?

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St Louis Fed's Neely: QE Boosted Exports, Economy via Dollar Depreciation

By Steven K. Beckner
Market News International, New York
Thursday, June 30, 2011

ST. LOUIS -- The Federal Reserve's large-scale asset purchases did not reduce the value of the dollar as much as expected but reduced it enough to help stimulate the economy by boosting exports, according to a research paper presented Thursday at a St. Louis Federal Reserve Bank conference on quantitative easing.

St. Louis Fed vice president and economist Christopher Neely said the foreign exchange rate effects of quantitative easing shows that large scale asset purchases were "not toothless."

He said the dollar depreciated 6.5% overall and 11% versus the Japanese yen.

Whatever domestic effects QE had -- and economists at the conference differed about that -- Neely contended it had significant international effects, by affecting foreign bond yields and exchange rates.

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Prophecy (TSXV: PCY) Secures Russian Far East Seaport Allocation
and Updates Ulaan Ovoo Mine Production

Company Press Release, June 14, 2011

VANCOUVER, British Columbia -- Prophecy Coal Corp. TSX-V: PCY)(OTCQX: PRPCF)(Frankfurt: 1P2) has arranged with the Port of Sovgavan in the State of Khabarovsk, Russia, so the company will have initial access to port allocation of 25,000 tonnes of coal per month starting this month, potentially expandable to 50,000 tonnes per month, representing 300,000 to 600,000 tonnes annually. Prophecy also will be assigned a coal storage area at the port.

This arrangement provides Prophecy's Ulaan Ovoo thermal coal mine with immediate access to the Asian seaborne export coal markets. Sovgavan is strategically located on the seaboard of the Russian Far East. The port is privately owned and can accommodate seagoing vessels of up to 160 meters in length, with the depth of loading site of 9.5 meters. The port has loading capacity of 6,000 tonnes per day and direct connections to Trans-Siberian railroads and uncongested Russian state highways.

Securing the port opens Prophecy to a significant number of coal buyers, and the company is placing top priority to conclude rail transport within Russia and coal offtake contracts.

Prophecy's Ulaan Ovoo mine commenced production in 2011. So far this year the mine has produced 200,000 tonnes of coal, which are being stockpiled. The average quality is 4,200 kcal/kg NAR with 5 percent ash and 0.5 percent sulphur. Those attributes compare favorably to the coal being purchased by local Russian and Mongolian power plants.

For the complete company statement, please visit:

He said the exchange rate effects were only about "half" as much as predicted by various economic models. Nevertheless, QE's "success in reducing international long-term interest rates and the value of the dollar shows that central banks are not toothless when short rates hit the zero bound," he said.

"The success of the large-scale asset purchases in reducing long-term interest rates and the value of the dollar shows that central banks are not toothless when short rates hit the zero bound," Neely said.

"Contrary to long and widely held conventional wisdom, large asset purchases can affect both domestic and international long rates," he continued. "And monetary policy effects at the zero bound include international channels."

Neely said "the reduction in foreign bond yields and the value of the USD is likely to have stimulated the U.S. economy through export channels, for example."

"From an international perspective, these findings imply that central banks should coordinate their asset purchase policies to avoid contradictory or overly stimulative effects," he added.

Earlier, St. Louis Fed President James Bullard said one of the "classic" monetary effects of QE2 was to weaken the dollar.

"Of course we're not targeting the dollar," Bullard said, "but you would expect that when you ease monetary policy in the U.S. and the rest of the world stays constant you would expect the dollar to depreciate."

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Lewis E. Lehrman on How to Solve the U.S. Debt Problem

Lewis E. Lehrman, chairman of the Lehrman Institute, sponsor of The Gold Standard Now project, advises that to reduce the $1 1/2 trillion U.S. deficit, the Republican Party must initiate an investment program.

Working Americans are not saving, which enables the banks to lead the country into a cycle of debt, leverage, boom, panic, and bust.

Lehrman says: "Eliminating the budget deficit of a trillion and a half dollars cannot be done overnight. The proposal by U.S. Rep. Paul Ryan was very dramatic -- one Republican called it radical -- but it was not happily received. The solution, of course, is to design an American program for prosperity, because you can solve these entitlement problems with a growing economy.

"We need a tremendous program of investment, and investment comes from savings. When you pay savers, middle-income professionals and working people, 0 percent at the bank, you are not going to encourage them
to save. Then we are left with a bank cycle of debt, leverage, boom, panic, and bust."

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