THE US Dollar Thread (merged)

[holmes]

LOL. Thanks alan. Most folks dont understand what resources are needed just to fund the gubmint. Local, state, and federal. OMG. That in itself is going to be a major blowout situation.

I think many have a problem understanding scale. Im not really worried until oil reaches $180 and the dollar is worth about 2 cents. yikes.

[Grimnir]

Are we absolutely certain that a weak dollar is a bad thing? It looks to me like the powers-that-be are devaluing it deliberately (while pretending to be dismayed).

[Jack]

Are we absolutely certain that a weak dollar is a bad thing? It looks to me like the powers-that-be are devaluing it deliberately (while pretending to be dismayed).

It depends on perspective. Massive devaluation is a good way to accomplish defacto default on U.S. foreign debt, while discouraging imports and (perhaps) encouraging imports.

That doesn't mean that Joe sixpack won't suffer.

[ECM]

A weaker dollar makes U.S. industries more competitive on the world market. It will also cause significant inflation. This weakness in purchasing power should also cause a reduction in imports.

[Free]

As a matter of fact, despite all doomsayers the current US-currency-politics is a success. After all, the dollar is weak, so what? As long as the depreciation doesnt get out of control, it's only gonna help the US-economy and hurt the US-debtors. And they wont allow it to get out of control, with all the pressure they can organize...

[pea-jay]

A weaker dollar makes U.S. industries more competitive on the world market. It will also cause significant inflation. This weakness in purchasing power should also cause a reduction in imports.

That may have been the case in the past, but with globalization, outsourcing and what not, tell me again what this country still makes domestically? Its been estimated that only 15% to 20% of the economy is comprised of manufacturing. If we are going to "export" our way out of this it stands to reason we should probably have something to export...

Imports haven't suffered for the same reason--what domestic alternative do we have for alot of products? None. When was the last time you purchased an American-made TV or even an American-made item of clothing?? It's difficult to impossible to find that Made-in-the USA item.

If the administration believes a low-valued dollar will help the economy, they must be deluding themselves.

[mgibbons19]

What, you mean those 'support our troops' magnets aren't made here?

Next you're gonna tell me the stick on flags aren't either.

[BabyPeanut]

THE PAINTED DESERT
(Natalie Merchant / Christian Burial Music © 1987)

the painted desert
can wait till summer
we've played this game of just imagine long enough
wait till summer?

when I'm sure the rains have ended
the blooms have gone
everyone killed by the morning frost

is a cactus blooming there
in every roadside stand
where the big deal is cowboy gear
sewn in Japan?

[Russian_Cowboy]

The Vanguard precious metals fund is up a bit more than 30% in 6 months. The implications for the dollar are bad.

In the old USSR, toward the end, one could spend a lifetime's accumulated savings on a single link of sausage. But that could never happen to the U.S.....or could it?

It did happen in 1992-1993, but the USSR was already dissolved by then. However, there is still a striking similarity. In the last years of the USSR, not only vodka lines, but also jewelery lines were long. Those in the know were buying jewelry to protect their savings.

I think the US trade deficit is OK. The US companies make money by exploiting people in other countries. The US-based companies' CEOs who are the most agressive with the outsourcing, also get the biggest salaries and bonuses. You can view it as exporting management services overseas. These services are not accounted for when the trade balance is calculated. If they were included, the US trade deficit might shrink to zero. Considering the enormity of the US top management's wages and bonuses. These wages and bonuses are essentially a fraction of the value added by non-US workers.

[Aqua]

http://money.cnn.com/2004/03/06/pf/buff ... r/?cnn=yes

When people like Warren Buffet are worried about the dollar and current huge trade deficit then its time to wake up and smell the coffee.

[maverickdoc]

India and China banks cut dollar exposure
By Steve Johnson
Published: March 8 2005 02:00 | Last updated: March 8 2005 02:00

The extent to which Indian and Chinese banks are cutting their exposure to the ailing US dollar was revealed yesterday in data from the Bank for International Settlements.
ADVERTISEMENT

The Asian central and commercial banks covered in the BIS data held only 67 per cent of their deposits in dollars as of September 2004, down from 81 per cent in the third quarter of 2001, said the Basel-based bank. The data indicate the shift out of the dollar was most evident in India, where dollar holdings fell from 68 per cent to 43 per cent during the three-year period. Chinese banks have reduced their dollar share from 83 per cent to 68 per cent - mostly before the third quarter of 2002.....

http://news.ft.com/cms/s/7937c80a-8f76- ... 511c8.html

Could that be way the dollar plunged today

[maverickdoc]

dollar at 1.336 per euro. expect the price of oil to go up. as the dollar falls oil will go up so the oil exporters can maintain their purchasing power

[Pops]

For those of you with knowledge of the economy, what are the likely events surrounding a serious dollar sell-off and what is the likelihood of it taking place at all?

To my untrained eye the recent "diversification"

[Jack]

Consider, if you will, the implications of a dollar decline of 24% annually. The value in three years would be half what it is today. Three more years, and it would halve again - to 1/4 of the present value.

Notice that this would not involve bank holidays or a sudden crises. Rather, it would steadily erode the value of debt, both foreign and domestic, reduce the purchasing power of pensions (i.e., social security), and force people into higher tax brackets. At the same time, people not on fixed incomes would make more money, interest rates would be kept low, and the price of houses would continue to boom. Sorta the way things are right now.

That's my scenario...which implies there won't be any sudden event where you can nod and say "Aha! The balloon is going up!".

[smiley]

What you describe is hyperinflation.

The thing which you have to keep in mind is that with hyperinflation does not mean that everything becomes more expensive, but it means that the value of the currency decreases.

Everything else rises relative to the currency. The exchange rate is a helpful tool, but it doesn't say much about the internal developments. Besides there is a time lag. In the case of hyperinflation the exchange rate will only go down after hyperinflation is well under way.

The fact that the value of the currency decreases not only means that the prices increase, but also the salaries. This is what keeps the process going. You can intuitively understand that the price of a loaf of bread can never increase to $ 100.000 unless wages increase to millions.

The latter is the most useful measure to see whether hyperinflation is on its way. So far only the prices have been increasing in the USA, wages have increased more modestly.

If you have signs that the wages start increasing faster, then you have to start paying attention.

[Pops]

I agree Jack – just like it things are now and have been for several years.

And now – and over the last 3 years approximately, I have been attempting to convert my meager, suburban/small-business-owner/SUV assets the best way I know how. Dissolved my partnership and “disbandedâ€

[Elijah]

Pop, while I think the Administration would like the dollar to go down some and might even tolerate a little inflation to see that happen, I don't see an Argentine-style collapse on the near horizon. Here's why:

1) I think we'll work out some accommodation with the Chinese for them to decouple their yuan from the dollar. This should have the effect of slowing our rapidly growing and already large trade deficit with China and simultaneously spur economic growth here at home as our products become more competitive vis-a-vis Chinese goods. This will likely spur inflation more than any single thing because so many of our consumer products come from there, but that need not be a long-term phenomenon and could be a tremendous boost to the profits of many domestic businesses.

2) Remember that our budget deficits are largely self-inflicted. The biggest part of them was caused by the Bush tax cuts, which, if worse comes to worst, can be reversed. The pols would have to be dragged to it kicking and screaming, but I think they'd do it rather than face a collapse of the dollar. (Remember "No new taxes!"?) This would slow/stop our borrowing rate and give our creditors some hope of recovering their money, which would boost the dollar's value.

There are some theories floating around that the Administration would like the dollar to devalue as part of a "borrow high, repay low" strategy, much the way homeowners benefit over time from the effects of inflation as their fixed-rate mortgage payments become smaller in relation to their wages.

What makes me uneasy is that there are a lot of ideologues in the current Administration, so I'm not always comfortable they will pursue the most rational policies.

[smiley]

Elijah,

I think you forget one important danger, and that is the foreign debt ownership. We have talked a lot about China's and Japan's holdings of the foreign debt on this forum. And I do agree with the general conclusion that these countries would not deliberately sink the dollar.

However the real debt picture is a bit more complicated. I've made this list of the top ten creditors to the US. You can see from this list that the largest part of the US debt is not in the hands of governments, but in the hands of private institutions (such as overseas banks, pension funds etc).

I would estimate that only one fift of the 5 trillion overseas debt is in the hands of goverments, the other part in private hands.

I think this privately owned debt is a significant risk. Institutions like this don't have a political agenda or obligations. They are just obliged to make profit. And when they need to sell these securities to make a profit, they will do so, regardless of the global implications. A rapid dollar decline could trigger them into selling their securities.

In the worst case scenario they could dump a few trillion dollars on the market in a short period. I can't even begin to imagine what that would do to the US economy and the dollar. An Argentina style crisis could certainly be a possibility.

1) Japan 771 (billions of dollars)
2) United Kingdom 390
3) Luxembourg 297
4) Canada 260
5) China 255
6) Belgium 242
7) Cayman Islands 242
Switzerland 180
9) Netherlands 163
10) Germany 154
http://www.treas.gov/tic/shl2003r.pdf

[maverickdoc]

smiley, a lot has changed since this report a lot of dollar dumping has already begun by institutional investors. Last week there was a US bond auction though there was foreign buyers. Almost all of them were foreign reserve banks. Even the central banks have lowered there relative dollar reserves

( http://www.peakoil.com/fortopic1545.html+dollar+euro )

[threadbear]

How can China and the US maintain a mutually beneficial and economically entangled relationship, on one hand, while they battle for oil and other energy reserves in a strategic chess game, on the other? Not doable. China will either intentionally sink US or just default to that position because it is their only alternative.

The US is completely reliant on the kindness of strangers, at this point. It's unfrickingbelievable that Bush is stills strutting around the globe like an alpha baboon in a ten gallon hat, beating his chest and making other menacing gestures. It would be funny if it weren't so scary-weird.