THE US Dollar Thread (merged)

[Pops]

Peak Dollar: This site is obviously biased, and I know nothing of economics, but the chart doesn’t lie. If the trend continues link “The purpose of the reasoning presented in this article is to explain to readers why I believe we will see a steeply falling dollar during the balance of this year, and an upward trend in inflation in the US, possibly heading for extreme levels. This set of circumstances is most favourable for gold.”

I’m really concerned about the fourth quarter, the combination of a steeply falling dollar, high US debt and rising interest rate, and a shortfall or unexpected crimp in oil supply. It seems to me things may get interesting soon.

[Leanan]

The assumption that the Fed is politically biased towards getting the Republicans re-elected is a logical one, based on the fact that the Republican Party is primarily the party that represents the interests of big business, that is to say, even more than the Democrats, if that were possible.

LOL! So true.

A growing number of financial analysts are becoming very concerned about our debt. Because interest rates are at record lows, it hasn't hurt us too much. But as interest rates rise, those deficits are going to start to hurt. Whoever ends up in the White House is going to have a rough time of it, I suspect.

[Ferretlover]

This item isn't getting much notice in this thread:link The UN is now warning about a dollar collapse, flight of foreign capital from the US, concern about sustainability, the fact that expansionary US monetary policy (i.e. printing more money) is unlikely to be sustained because of the inflationary pressure of energy prices, etc...

Quote: UN body warns of US$ crisis Currency likely to be devalued because of deficit
GENEVA — The US dollar is likely to be devalued to deal with the booming trade deficit in the United States, raising the prospect of global financial instability, the UN Conference on Trade and Development said yesterday.

Rest of Article Here: link
Other articles: Rising Oil Prices May Overshadow Economy: UN Agency link
US Dollar May Devalue Further link

US dollar may devalue further link

Rising Oil Prices May Overshadow Economy: UN Agency link

Economy: Unctad Warns of Threats to Global Recovery link
Notable quote:

"Attempts by many countries to keep their currencies undervalued could end up in a race to the bottom -- or in competitive devaluations -- that could be as disastrous for the world economy as the experience of the 1930s," UNCTAD warned.

[Cynus]

So what is the wise thing to do with ones personal finances if the dollar is to be devalued?

[tdrive]

So what is the wise thing to do with ones personal finances if the dollar is to be devalued?

Hedge by buying a long-term portfolio of foreigh currencies, oil and gold.

[Guest]

If I truly knew enough about this or believed this was going to happen, I'd be a rich man.
Lots of options, if one believes this. I'll start with the obvious:
1) Bet against the dollar. Some other currencies like the euro will rise against it for a time being.
2) Expect a bond rally
3) Precious metals spike
4) Short US stocks (stock crash looming with this...)
5) Real estate bubble bursts (that home equity margin will be gone)
6) Rising interest rates (as the US seeks to maintain foreign investment levels but cannot expand money supply due to inflatonary energy price pressure)

Lots of others. The whole point of this post is that if the UN is correct, the days of '73-'74 and '79-'82 (big inflation (fueled by rising energy costs), with stagnant and declining job growth and incomes, [Stagnation defined, really -we saw precious metals spike to retain eroding purchasing power and because it would be a better investment than stocks], huge interest rates, etc. I was a little shocked that they referenced the US Great Depression... Basically what they seem to have said is '29 through the '30's may be back in spades and will be very, very bad.

While it's just a warning, it's an important one. From my point of view, what the UN just predicted is equivalent to a US economic implosion...but most knew the deficits would come home to roost someday...some say it's just a matter of when. Businesses failing, home repos, higher unemployment, higher taxes, defaults rising, etc, etc. etc. Eventually, global recession, hitting developing countries very hard, IMF loan defaults, etc. etc. This is NOT investment advice, just a range of possibilities, so beware...clearly, I am not an expert. There are no guarantees in anything. It's always best to draw your own conclusions from detailed and varied information sources...

It might be helpful to learn what the Sage of Omaha has done and is doing....anyone have a clue on this? Expect to watch purchasing power erode... Some good news, though: with a lot of inflation, any non-interest-rate-tied debt won't be worth as much tomorrow as it is today. Trouble is, it may be a lot harder to even pay that....!
A rise in protectionism, as stated in the article, to me means higher tariffs of imported US goods, which may spark a trade war with other countries doing similarly...
Would others care to critique my analysis or add their own?

[mgibbons19]

It might be helpful to learn what the Sage of Omaha has done and is doing....anyone have a clue on this?

He's been buying foreign currencies.

[MonteQuest]

It might be helpful to learn what the Sage of Omaha has done and is doing....anyone have a clue on this?

Warren Buffet, you mean? Yes, I do.
Why I'm not buying the U.S. dollar. America's growing trade deficit is selling the nation out from under us. Here's a way to fix the problem -- and we need to do it now. By Warren E. Buffett, FORTUNE link

A rise in protectionism, as stated in the article, to me means higher tariffs of imported US goods, which may spark a trade war with other countries doing similarly...

See above link. I think from my frequent posts on this subject, everyone knows my position. I agree with what you wrote entirely. I believe we are going to see the largest transfer of wealth the world has ever seen. I'm not an economist, but it doesn't take a rocket scientist to figure this out.

[Guest]

MQ, Thanks for the Buffet posting. Great article. Even more ominous now since the deficits have only ballooned since then... We seem to agree on many things. I'll add a little dash of (un)reality on top of it, though.

If/when a collapse of the dollar, etc. occured, and Thriftville tries to "foreclose" on Squanderville "land", don't forget that Squanderville has the most awesome destructive capacity the world has ever seen. The IOU's and such are ignored, and economic and military domination is complete. For what is poor Thriftsville to do? Just try asking for your lunch money back from the school bully. I dare you.

[MonteQuest]

MQ, Thanks for the Buffet posting. Great article. Even more ominous now since the deficits have only ballooned since then... We seem to agree on many things. I'll add a little dash of (un)reality on top of it, though.
If/when a collapse of the dollar, etc. occured, and Thriftville tries to "foreclose" on Squanderville "land", don't forget that Squanderville has the most awesome destructive capacity the world has ever seen. The IOU's and such are ignored, and economic and military domination is complete. For what is poor Thriftsville to do? Just try asking for your lunch money back from the school bully. I dare you.

Good point, my friend. Welcome to the forum. Today, America appears to many pundits to be at a juncture somewhat comparable to the one that Rome confronted in 50 BCE. The analogy is exceedingly imprecise, however. The U.S. is vastly more fearsome than Rome in every respect, possessing weapons no ancient emperor could have ever dreamed of. Moreover, President Bush is far from being a brave and tactically brilliant general as the great Caesar, who was also an eloquent orator.

What a chapter in history this is going to be, eh? I have posted several writings on economics and currency here. You might find them interesting, as well. Look for them in the Round table.

[guest]

Excellent article.

During the California Governor recall, Arnold Schwarzenegger announced that Warren Buffett was going to be a financial advisor to his team. My first thought was "wow!". I mean, how can you top that.

The first thing Warren Buffett said was that Prop 13 would have to be changed for California to get our of the financial mess that it is in. Prop 13 passed a long time ago, and the effect was that real estate taxes go up very slowly even if property values sky rocket. It does help people (especially elderly people) be able to keep their homes, but that does mean less tax revenues for the state.

As soon as Warren Buffett said that, he disappeared from view and I never saw him speak again in that capacity.

What's my point? Just like with peak oil, we've fallen into a permanent "it's morning in America" mindset. Anyone who casts doubt on whether or not the status quo can go on forever is branded a "doom and gloomer" and is ignored or ridiculed ...

[Ayoob]

I still wonder whether I really understand about the trade deficit and what that means to me personally. What happens if the US redeems our treasuries by printing money? They can, right? That would mean massive inflation for a little while, and that people that don't own real estate would be screwed. Those that own would be OK to a certain extent.

Is that right, or am I nuts?

What happens to people in Germany and Poland if the US starts printing money like crazy? Do they just lose a little money in their US investments, or does this affect them personally in some other way?

[MonteQuest]

I still wonder whether I really understand about the trade deficit and what that means to me personally. What happens if the US redeems our treasuries by printing money? They can, right? That would mean massive inflation for a little while, and that people that don't own real estate would be screwed. Those that own would be OK to a certain extent. Is that right, or am I nuts? What happens to people in Germany and Poland if the US starts printing money like crazy? Do they just lose a little money in their US investments, or does this affect them personally in some other way?

If the FEd increases the money supply to offset the decline of the dollar, it will also trigger higher interest rates making money harder to get. The people who had fixed mortgages will be ok for a while, but the 65% who have variable rate mortgages will see their payments rise. Housing prices could plummet. If the FED prints lots of money, the value of US denominated assets will go down with the dollar they are pegged to. Cost of US goods will go down relative to stronger currencies. This could start a huge inflationary spiral with no end in sight. Hope that helps.

[Chicagoan]

Could this prediction be linked to the possibility of [url]Russia trading oil in Euros[/url]?

[Chicagoan]

link Didn't work. Forgot how to do that.

[MonteQuest]

Could this prediction be linked to the possibility of [url]Russia trading oil in Euros[/url]?

Absolutely. Due to our huge trade and national debt, the dollar is falling anyway. If people move out of dollar denominated assets, it will push the dollar down further causing the FED to increase the money supply because the dollar will buy less. The return on US securities thus becomes less, and more move out, more printing, more inflation, higher interest rates= inflation spiral. Many central bankers see the writing on the wall, so to cut their losses they move to the euro. But to really save their butt, making the euro the currency of account would make all oil consuming nations target the EU for euros to buy oil, then EU securities that will fund EU growth and expansion. If the US wants to get in on the deal, they have to start producing something the world wants besides Disneyland. Become exporters, not importers. Fat chance, these days..so we will probability invade somebody instead, grab their wealth so we don't have to earn it. I dunno, sounds like a plan. I have no idea what they are up to, but it is no good. Massive transfer of wealth at the very least to the rich.

[skiwi]

Who knows what really goes on behind the scenes
I'm sure it's all above board and nothing for the sheeple to worry about

ARNOLD & BUFFETT's LOADED ELEPHANT GUN? Buffett's Back, with the Terminator! Reported By: Reuters Tues, 24 Sep 2002
WADDESDON MANOR, England (Reuters) - The world's second-richest man dropped into the English countryside with the Terminator at his side on Monday, a day after warning the UK's corporate big game his elephant gun was loaded.
Billionaire Warren Buffett and mean machine Arnold Schwarzenegger touched down by helicopter on the immaculate lawns of Waddesdon manor, a Renaissance-style chateau in the undulating hills of Buckinghamshire. Buffett, 72, is guest of honor at a closed two-day meeting of some of the world's most powerful businessmen and financiers -- the ultimate networking opportunity.

The get-together in the ancestral home of the Rothschild banking family will discuss economic and political issues, the organizers said. But Buffett's remark, made in a weekend newspaper interview, that he is looking for a "big deal" in Britain has stolen the agenda. "We are hunting the elephant... We have got an elephant gun and it's loaded," Buffett told the Sunday Telegraph. Among those invited to Waddesdon Manor were the likes of James Wolfensohn, president of the World Bank, Jorma Ollila, chief executive of Nokia and De Beers chairman Nicky Oppenheimer.

Schwarzenegger was on the guestlist as a celebrity customer of the conference sponsor NetJets Inc, a private jets business owned by Buffett's Berkshire Hathaway Inc.. This year's stock market carnage is made for Buffett, the billionaire Oracle of Omaha, Nebraska. A godsend for firms who need cash quickly, he has more than $7 billion in cash on hand, and can set-up iron-clad deals in a day. His philosophy is simple: "Work out how much it will pay out from now until Judgement Day, then discount it back and buy it cheaper," he told shareholders at his annual meeting in May, when asked for the secret of his success.

A procession of black cars with darkened windows swept up the drive of the 120-year-old English country house amid tight but discreet security. A group of photographers captured the moment when Buffett and Schwarzenegger, resplendent in steel-tipped cowboy boots, stepped onto Waddesdon's freshly cut lawn to be greeted by Lord Jacob Rothschild. "It's very nice of you to host this," Schwarzenegger said.

For the UK company in Buffett's sights, it may well be hasta la vista, baby.

[Guest]

MQ -What do you make of this article:

Fed and bond market on the rocks Why are yields falling even as Fed talks more rate hikes? By Gregory Robb & Rachel Koning
WASHINGTON (CBS.MW) -- In what may be the biggest celebrity breakup since J-Lo and Ben Affleck called it quits, it looks like the Federal Reserve and the bond market have decided to go their separate ways.
The growing estrangement has captivated Wall Street link

My rudimentary understanding of the key questions raised in this article about why bonds are rallying, yields are low, is that investors believe the economy is going to tank. The only thing I can get to make sense is that investors believe that these rate hikes are only temporary. The real bad news is yet to come, and they seek the greater safety of bonds, even at these very low yields. This is why this author can't figure it out.

From my point of view, the Fed is in quite a pickle. Because of higher energy and food costs and those dangers, that will only fuel inflation. So the Fed can't accelerate it by raising rates too much, but they'll also be pressured into raising rates to maintain the extremely high levels of foreign investment in Treasuries, etc. Further fueling the fire is the coming liquidity crisis where they will be undoubtedly have to increase the money supply, by, as you know, printing more moeny. But, they will also be pressured to hold or lower rates, because of the impending large stock correction, and the coming crisis of the deficits coming home to roost!

So the bond market seems to be saying: "Even 4% over 10 years is better than what's going to be coming around the corner damn soon!" Do I about have it right? Click around the links on this article and tell me what you think.

[MonteQuest]

My understanding of the bond market is limited, but one could say that dollar denominated US Securities are getting real iffy. There is something afoot. I a big decline in the dollar seems to be in the offing. The other thing is what I have been saying since I started posting; FED stimulus/retraction does not seem to work anymore, so why pay attention to what they say or do?

If the dollar tanks, interest rates will rise to curb the inflation caused by the increase in the money supply. The huge housing bubble will burst, and inflation may run away. 80% of the world's savings are tied up in US securities. If the dollar tanks, they will move out of them into gold or the euro or yen or yuan. Yikes!

Then I find articles like this:

September 16 – Dow Jones (Rob Wells): “A new report finds U.S. multinational corporations socked away profits of $149 billion in 18 tax havens in 2002, nearly double the level three years earlier. Tax Notes, an industry magazine, said in a report Monday the money is being funneled to Bermuda, Ireland, Luxembourg and Singapore instead of the U.S. Treasury. ‘That means those 18 tax havens were home to 58% of the foreign profits of those multinationals - a figure that far exceeds the share of economic activity that multinationals conduct in those low-tax countries," according to the report by Tax Notes correspondent Martin Sullivan.

What do they know that we don't? Watch the dollar and "govt efforts" to deal with the trade deficit. Sounds like these bond traders are hedging their bets.

[Guest]

Get this:

link
Dollar Falls; Fed Raises Benchmark Rate, Says Inflation `Eased'
Sept. 21 (Bloomberg) -- The dollar fell by the most in six weeks against the euro after the Federal Reserve raised its benchmark interest rate by a quarter percentage point and said inflation has eased in recent months. ... Against the euro, the dollar dropped to $1.2335 at 4:30 p.m. in New York from $1.2176 yesterday, according to EBS, an electronic foreign-exchange dealing system. It fell to 109.68 yen from 109.90 yesterday ...
Declines in the dollar accelerated after the currency fell to $1.23 per euro, said Samarjit Shankar, director of global strategy for the foreign-exchange group in Boston at Mellon Financial Corp., which manages $625 billion.
"The $1.23 per euro level is a key level and the currency tanked after it crossed that mark,'' Shankar said. ``But the dollar will not weaken to $1.24 per euro. That would be too much of a decline and there's no fundamental reason supporting the euro at those levels.'' Shankar said he expects the dollar to rebound to $1.20 per euro by the end of the year. ...

I don't believe in the Fed's optimism regarding inflationary aspects.
Starting from historically low federal funds rate (you have to ask yourself: 1%.....that's free money and then some!...with "inflation" as selectively measuerd at about 3%.) And THIS is all the economy could muster?

The dollar against the Euro goes from about $0.80 to $1.23 in three years, and no one sees a trend? Look for the dollar to fall even more by the begiinnig of next year.. Oh, and I love the analyst who thinks that there is no "fundamental reason" why the dollar will fall below $1.24....Ummm....let me see....

How about the largest current accounts deficit and trade deficit in history that just keeps getting bigger? How about the fact that about 50% of all US debt is now foreign-owned....how about the fact that there is likely a significant shift to the petro-euro? How about the fact that the yearly deficit AND the total debt (HOWEVER measured!...with the unfunded SS/Medicate liabilties, pensions, etc.) is at a record high...personal savings down to a record low....personal debt at a record high...true net job loss for the past three years, spending fueled by a soon to be deflated housing bubble - (home equity loans)...historic highs on per capita taxes...and so much more. (see Granfather Economic Report on the web for more cool information and graphs).

No one likes the messenger or reminder of bad news, though. So sorry to pee on your parade, but ignoring it won't make it go away. My oh my, won't everyone be so surprised! "We never thought it would happen!"

I don't the the collapse fot the dollar, in the near term, will be as severe as Weimar Germany, (requiring barrowfuls of cash) as more than likely I foresee a manageed collapse for a variety of reasons, but imagine what just a 40% decline in the value of the dollar would bring over two or three years (1.23 to $1.72), if it happens, that $32,000/yr job now just bought the same things as a $19,200 year job... No wonder the founding fathers made debasement of currency illegal and punishable by death! Bring back the silver standard!!!