US Dollar in free fall

[editec]

The sinking dollar will do wonders for our trade balance.

AT FIRST, only because imports will go down, of course.

But if the decline in the dollar become the norm?

Well then that will also make our manufactures cheaper on the world markets.

A slow decline in the dollar's worth over time can be a good thing.

A rapid drop in value will be disaster.

 

[editec]

...look no further than Capitol Hill and 1600 Pennsylvania Ave to point the finger. Oh you can add the Federal Reserve as well.
Anything which ties it's value to the US Dollar will see huge price increases for the foreseeable future due to out of control government spending...

Hey, I like pointing fingers as much as the next guy but how about we also try and hang on to reality.

In this wonderful information age we live in anyone can look at past exchange rates (from say, the Fed here) and compare them to the CPI (from the BLS here) or the federal budget history (from the GPO here).

First, government spending and the dollar aren't affecting each other--

--and second, a falling dollar has not increased inflation:

Sure, people can say that the facts don't sense and that the newspapers say otherwise, but reality is what is and it doesn't have to make sense and get reported.

I have one problem with the above XPat...mostly I agree with your POV, but...

The way our government measures INFLATION is by HALF TRUTH.

Inflation is ALREADY WAY UP for consumers.

Telling us that energy prices and food are NOT to be factored into inflation (using those dubious decisions they make about how to measure inflation, like SUBSTITUTION, for example) is pure nonsense.

And the reason Inflation stats was done these nonsensical way was to save the government money on COLAs.

Now I am NOT saying that inflation is happening BECAUSE of government spending.

But I am saying that the rate of inflation stat they're giving us is total bullshit.

That number has been BS since the Clinton Admin when they (once again) changed the way they compute it.

 

[expat_panama]

...The way our government measures INFLATION is by HALF TRUTH. Inflation is ALREADY WAY UP for consumers. Telling us that energy prices and food are NOT to be factored into inflation (using those dubious decisions they make about how to measure inflation...

That plot of mine you showed has the CPI-U which is all items. There's another one without the food & energy but I didn't use that.

...like SUBSTITUTION, for example) is pure nonsense...

You're free to provide a different a index with your preferred cost records whenever you want, and until then we'll say that this is the best one on this thread.

...And the reason Inflation stats was done these nonsensical way was to save the government money on COLAs...

Everyone says that and everyone's wrong, the BLS even put on their website that:

...none of the prominent legislated uses of the CPI excludes food and energy. Social security and federal retirement benefits are updated each year for inflation by the All Items CPI ...

 

[william the wie]

The sinking dollar will do wonders for our trade balance.

AT FIRST, only because imports will go down, of course.

But if the decline in the dollar become the norm?

Well then that will also make our manufactures cheaper on the world markets.

A slow decline in the dollar's worth over time can be a good thing.

A rapid drop in value will be disaster.

This has already been seen in autos with the Japanese earthquake/tsunami with the spike in auto parts. Look at the threads and news stories about GM and Chrysler to see how rapid this change can happen. A collapse of the dollar has several stop breaks:

Military Survival. China's economy will collapse within 30 days if the expense of US anti-piracy patrols exceed US direct and indirect revenues from them for any length of time. The costs of replicating the US navy would be in the range of one year's US GDP. (Ships have a useful life of 30-50 years and DOD budgets are net of sales of used vessels to friendly powers likewise used planes. However the real expense is in trained personnel and training infrastructure, which is very hard and expensive to replicate.)

Physical survival. The US farmbelt is the dietary Saudi Arabia of the world. The Arab spring is the direct result of the US ethanol program at least according to almost all people in the affected areas.

Economic survival. The US consumes 25% of World product because the rest of the world with very few exceptions needs US consumption to fund economic growth.

So while a collapse to $10 = 1 Euro is possible it will happen only over the dead bodies of the ECB governing board.

 

[expat_panama]

The sinking dollar will do wonders for our trade balance...

It's amazing how many people say that, including so many people who should really know better.

Fact: exchange rates don't affect the balance of trade.

Rather than get into a chat about why there's no affect (though I'm perfectly willing to explain it all with sources), the only thing that's really important is that exchange rates don't affect the trade balance and all we need to do is look at the trade balance and the exchange rates and see for ourselves:

They got nothing to do with each other.

 

[thereisnospoon]

Seems like what's really happening is that most Americans measure price trends with tools like the PCE deflator, the CPI-U, etc., and then regulate the dollar's value at a couple percent above last year's prices.

Tell me why you're saying this is suicidal.

Simple....As the Dollar free falls vs major currencies,

OK, if we're talking politics and what everyone says then we're agreed that the buzz is that dollars are worthless. In real life we keep our dollars locked up safe becuase we know they're worth well, money. When we personally go to exchange our dollars for foreign money we know it's stable:

Real life/politics. I've never been comfortalble with double think.


--you mean, the People's Republic is selling $10k T-bills for fifty cents each first come first serve while they last? In real life I'd buy all I could as would a world of bond traders. I'd make a fortune and China would loose trillions.

Additionally, a call could be made to suspend the Dollar as the basis currency for oil and other futures. Does this not trigger a red flag for you?

China loosing trillions would hurt the Yaun not the dollar.

How much longer and how much more are you willing to see the US go into debt and how much larger can you stand to see deficit spending go on?

The national debt's important, and treasury notes are traded in dollars, not foreign money.

You had lots of other good stuff there but like I said we're talking in different worlds, political banter vs. real life.

This IS real life. I am not sure I care for your dismissive position on this issue.
The fact of the matter is the current economic conditions are as a result of political pressures which dictate policy.
How anyone can just blithely dismiss the federal reserve's policy of pouring printed money into the stock market just to give the appearance of prosperity is a mystery.
The DJIA is over priced right now. People are simply "playing" the markets to realize quick profits. There is actually little "investment" In other words, buy and hold is out of the picture for large traders. When QE II money is exhausted it is entirely probable there will be a major "correction".
"treasury notes are traded in dollars, not foreign money."
Not sure I get the connection of that statement to the issue at hand. That fact that other nations buy US Paper with THEIR currencies.

 

[william the wie]

The sinking dollar will do wonders for our trade balance...

It's amazing how many people say that, including so many people who should really know better.

Fact: exchange rates don't affect the balance of trade.

Rather than get into a chat about why there's no affect (though I'm perfectly willing to explain it all with sources), the only thing that's really important is that exchange rates don't affect the trade balance and all we need to do is look at the trade balance and the exchange rates and see for ourselves:

They got nothing to do with each other.

Create that thread if you would please, sir. I'm far more interested in the why rather than the what because that result does not conform to any economic model that I am aware of. Given the way Keynesianism is being given the heave ho in most of Europe we are rapidly running out of economic models that have not been disproven.

 

[expat_panama]

...How anyone can just blithely dismiss the federal reserve's policy of pouring printed money into the stock market just to give the appearance of prosperity is a mystery. .

First, the printing presses are not under the control of the Federal Reserve. They're run by the Treasury Dept. which is a separate agency. Sure, political pundits say 'the Fed prints money' but they don't do it in real life. Even if they did, the printed currency is just a couple percent of the total money supply.

Second, the minutes of the board of directors of the Federal Reserve have no recorded decision to buy up common stock for the purpose of artificially raising indexes. Even if we went the conspiracy route and said the order was given in secret, then to make total market capitalization go from $12T to $24T would have taken $12T worth of stock purchases. That would also mean the Fed's now filling out half the proxy forms for the entire US corporate market, or voting the shares to directly.

What you're saying is bounced around a lot so I have to admit you're in very good company, but please cut me some slack here and see why this has got to look like something out of a comic book.

 

[Toro]

...How anyone can just blithely dismiss the federal reserve's policy of pouring printed money into the stock market just to give the appearance of prosperity is a mystery. .

First, the printing presses are not under the control of the Federal Reserve. They're run by the Treasury Dept. which is a separate agency. Sure, political pundits say 'the Fed prints money' but they don't do it in real life. Even if they did, the printed currency is just a couple percent of the total money supply.

Second, the minutes of the board of directors of the Federal Reserve have no recorded decision to buy up common stock for the purpose of artificially raising indexes. Even if we went the conspiracy route and said the order was given in secret, then to make total market capitalization go from $12T to $24T would have taken $12T worth of stock purchases. That would also mean the Fed's now filling out half the proxy forms for the entire US corporate market, or voting the shares to directly.

What you're saying is bounced around a lot so I have to admit you're in very good company, but please cut me some slack here and see why this has got to look like something out of a comic book.

Bernanke believes that QE2 has affected stock prices, and that's a good thing. He said so in a Washington Post article and I think at his Humphrey-Hawkins testimony, or whatever its called now. Whether or not the FOMC comes right out and says it doesn't mean it doesn't enter their calculus. I'd be shocked if they admitted they were targeting stock prices. If the Fed actually said they were targeting stock prices, stocks would go to the moon.

 

[expat_panama]

...Bernanke believes that QE2 has affected stock prices, and that's a good thing. He said so in a Washington Post article and I think at his Humphrey-Hawkins testimony, or whatever its called now...

The 'dead-tree' press has a really bad habit of turning Bernanke's words upside down so for me the press is only good for letting me know what the press is saying, not what the fed says. For that the fed can speak for itself and the fed's website has a page of all their testimony.

The quote you mentioned didn't jump out by googling "Bernanke"stock "Washington Post" "Humphrey-Hawkins" . In Bernanke's most recent (Apr. 20) posting there's no mention of stocks, but you're still right because he was heavy on 'financial markets' and stock markets are as financial as markets can be. My point is that the Fed doesn't pour money into stocks while letting Joe Sixpack starving.

Everyone gripes about the Fed, but their job is stable prices with full employment and they're doing a far better job than their predecessor JP Morgan.

 

[editec]

The policy of cheap money to those who don't need anymore isn't working.

What is that policy, really?

More SUPPLY SIDE solutions that not only won't work, but that actuallly exascerbates the problem of the imbalance between supply and demand.

It's like pushing on a string.

 

[Zander]

Time to go long the USD.......I expect a major rally.

Long T-bonds were at 4.75% earlier this year when I bought them- they are now at 4.36%. With a duration of 15 thats around 6% so far this year not counting the dividends. Add in the dividends and the are poised for double digit gains.....again (made over 15% on them last year). But but, the interest rates are going higher right??? The dollar is going lower right??? Buy Gold??

See which way the herd is running, then go the other way.

 

[expat_panama]

...More SUPPLY SIDE solutions that not only won't work, but that actuallly exascerbates the problem of the imbalance between supply and demand....

Well a very happy morning to you on this beautiful new day! Your post didn't have a quote so I wasn't sure, but if you were talking about--

...Everyone gripes about the Fed, but their job is stable prices with full employment and they're doing a far better job than their predecessor...

--then it might be fun for us to get out price and unemployment numbers going back to the 1800's. Let me know...

 

[expat_panama]

Time to go long the USD.......I expect a major rally....

Huh. Of course the long term trend in dollars is down, although the long term trend in stocks is up and I'm selling. Lots of people I know can make a living in foreign exchange rates but I was never able to get a handle on it. Same with real estate too I guess but hey, more power to you!

 

[william the wie]

Time to go long the USD.......I expect a major rally.

Long T-bonds were at 4.75% earlier this year when I bought them- they are now at 4.36%. With a duration of 15 thats around 6% so far this year not counting the dividends. Add in the dividends and the are poised for double digit gains.....again (made over 15% on them last year). But but, the interest rates are going higher right??? The dollar is going lower right??? Buy Gold??

See which way the herd is running, then go the other way.

Seems early to me but currencies are not a market I deal with.

 

[Trajan]

Time to go long the USD.......I expect a major rally.

Long T-bonds were at 4.75% earlier this year when I bought them- they are now at 4.36%. With a duration of 15 thats around 6% so far this year not counting the dividends. Add in the dividends and the are poised for double digit gains.....again (made over 15% on them last year). But but, the interest rates are going higher right??? The dollar is going lower right??? Buy Gold??

See which way the herd is running, then go the other way.

not this time amigo...we will test a new low ( below June 08's as well)....

you can keep your Mercedes in my garage till you can afford it again...

 

[Toro]

You're going to have to start seeing spreads widen out between US and foreign bonds before there is a significant move in the dollar. There has been a fairly strong correlation between two-year spreads of US and foreign bonds, i.e. as US 2-year interest rates have fallen more than Japanese 2-year rates, the yen has gotten stronger.

I do think that if I had to lock in for five years, I would choose the dollar over any of the other big currencies, though probably not against gold.

 

[Zander]

The long bond fell all the way to 4.29 today.....I am feeling a bit smug. Maybe time to cash out!