Alan Greenspan Replacement - The Best Choice

Discussion in 'Economics' started by SouthAmerica, Aug 26, 2005.

  1. .

    Davidlynch2000: "Now that the stampede is about to speed up around the world, the US dollar should decline to at least the range of $ 1.50 – $ 1.60 to Euro 1.00 in the near future."


    October 27, 2005

    SouthAmerica: Yes, I said that.

    As soon the Fed stops raising interest rates in the US – the stampede will start.

    Before you know it you will see the above US dollar exchange rate versus the Euro.

    It is coming – soon!!!!

    #51     Oct 27, 2005
  2. If the Fed stops and the dollar doesn't depreaciate significantly over the course of the following year (whenever that is), what part of your idea would you say was wrong? What could happen that would cause this to happen? Where are you stopped out of this trade? And what model did you use to come up with 1.50 - 1.60? Is this some current account balance, theoretical equilibrium measure with the estimated delays for previous contracts and sticky prices inherent in exchange transactions? A portfolio theory model incorporating relative real interest rates? Some combination of the two? Have any of the variables changed over the course of the last year since you wrote your estimate of 1.50 - 1.60?

    You aren't just pulling this number out of the sky are you? That would be pretty irresponsible.
    #52     Oct 27, 2005
  3. A contribution from Bill Gross:

    Gross: Bernanke will lower rates

    ""We are due for what appears to be a 2% or less GDP growth rate in 2006, a rate sure to stop the Fed and to induce eventual ease at some point later in the year," Gross wrote in his monthly "Investment Outlook" column on the Pimco Web site.

    "It will likely be Bernanke's first policy shift and an indicator of his willingness to address the Fed's dual mandate of inflation targeting and economic growth," Gross added."


    Anyone know the forecasts for next year, I don't recall seeing sub 2% GDP as a widely held belief among the stargazers.
    #53     Oct 27, 2005
  4. WAWTU31


    Not to go angainst Bill Gross or anything but how will the market receive the new Fed Chairman essentially reversing what Greenspan has put together in his 1st meeting as the Chair no less.

    this is very intriguing and would be interested what everyone else thinks because to me it would throw traders and rates for a loop. especially if GDP comes in higher than 2%.
    #54     Oct 27, 2005
  5. Felix Rohatyn was on CNBC yesterday and if you listen to him discussing all the problems and potential problems today, it seems like a financial armageddon can pop up anytime. I wouldn't totally dismiss rate cuts because the catalyst for one is probably out there lurking in the shadows.
    #55     Oct 27, 2005
  6. WAWTU31


    Very true.

    But at the same time can the new fed chairman afford to have the Fed appear to be in a yoyo mode so early in his term?

    there are arguments for lowering rates and raising rates and I think that Bernake has to show consistency with Greenspans plan before shoving his modus operandi down our throats.

    to change directions at your first meeting seems drastic almost like he is saying that Alan has been wrong.
    #56     Oct 27, 2005
  7. kowboy


    Bernanke is an enigma

    First he does not appear to be highly concerned about the effect of government deficit/trade imbalance but argues this is caused by external factors (external to the US, ie we are not at fault, it's a global savings glut)

    Seconldly prices bubbles and volatility should be of no concern except for how they effect the core CPI inflation target of 2%

    Thirdly he argues that inflation rates are now quite low (2002)and he would be more concerned about deflation

    It's really hard to tell, but my fear is that he will be soft on inflation.
    #57     Oct 27, 2005
  8. Short bonds baby... that's the bernake play.
    #58     Oct 27, 2005
  9. Excellent Commentary as usual...

    SouthAmerica wrote:

    Davidlynch2000: "Now that the stampede is about to speed up around the world, the US dollar should decline to at least the range of $ 1.50 – $ 1.60 to Euro 1.00 in the near future."


    October 27, 2005

    SouthAmerica: Yes, I said that.

    As soon the Fed stops raising interest rates in the US – the stampede will start.

    Before you know it you will see the above US dollar exchange rate versus the Euro.

    It is coming – soon!!!!



    Thus your belief is that the EURO becomes the store of value¨¨ currency in the world....with more and more countries Turkey wanting to come on board ?

    Thus this would be the catalyst to equilibrate world labor costs..thus bringing in a more level playing itself...

    Thus each country`s sovereignty each currency vanishes....

    If the dollar really implodes...US citizens will want the EURO as well...

    Thus one step closer to a uniform world wide currency...which would level the economic playing field in many many ways....thus aiding in the Globalization of the world´s assets...

    Or should we say ..that Globalization can occur more harmoniously with a unified currency...
    #59     Oct 28, 2005
  10. .

    October 28, 2005

    SouthAmerica: Reply to Libertad.

    My article published in July of 1999 answer your question regarding the Euro and the US dollar.

    The switch from US dollar to Euro, gold and some Asian currency will continue, right on schedule, and I have no doubt about that.

    I listed the breakdown of currencies that the countries around the world held as reserve as of July 1999. And I also made a prediction of the new currency breakdown as of 2009.

    Part l - July 1999

    How can currency stability be achieved for the Brazilian economy?

    If Brazil is thinking of the future, they should think in terms of the Euro. If Brazil wants to base its future policy on the past, then it should think in terms of the U.S. Dollar or Pound Sterling.

    By Ricardo C. Amaral

    On January 1, 1999 the rules of the game for international currency speculation have changed in a drastic manner with the birth of the euro.

    The number of currencies which international currency speculators can invest and play their speculative games has been reduced by 10. In the past, we had the currencies of eleven European countries; today these currencies are being replaced by one¾ the euro.

    In the near future the remaining members of the European Economic Community including such countries as England and Sweden will adopt the Euro as their currency and become members of the new European Monetary Union (EMU). Today the amount of money that international speculators have under their management is becoming mind-boggling.

    The amount of daily currency transactions in global markets is over $ 1.5 trillion dollars. The magnitude of daily currency transactions is a major contributing factor for many countries losing their capability to defend their weak currencies from foreign attack of these international money speculators.

    These countries don't have the economic reserves necessary to defend their currencies from foreign speculative attacks. It is getting easier for these international speculators to destroy the entire economy of countries such as Russia, Indonesia, Malaysia, Thailand, South Korea, and Brazil.

    All they have to do is destroy their currency and the economies undergo a complete collapse. It is a form of modern economic warfare. Brazil should become a member of the European Union and immediately adopt the euro as its new currency. Based on sound macroeconomic analysis, this is the best alternative available to Brazil to achieve its goals of economic growth and currency stability.

    The elimination of exchange rate risk between Brazil and the euro countries should stimulate capital flows, improve trading, and access to capital markets. Sound monetary policy will translate into lower interest rates, and long-term economic survival and prosperity.

    The Euro—a historic turning point.

    We are at a turning point in history. The U.S. dollar is in the same position today in which the Pound Sterling was at the end of the First World War. The U.S. dollar replaced the Pound Sterling as the dominant currency in the following twenty-five years. The best choice among the major currencies of the future is the euro. In a few years there will be three major currencies: (a) U.S. Dollar, (b) Euro, (c) Yen ( or some other new Asian currency) and the currency of most countries will not be able to survive with their independent currency policies, including England with the Pound Sterling.

    The new European Central Bank under the leadership of the Germans will be recognized as a new leader in international money matters, and the euro will qualify in short order as a strong international currency. Markets will recognize the strength and stability of the European Union's economy, and in the future the euro will be one of the major reserve currencies in the world.

    It will not take twenty-five years this time around for this process to develop. This will occur at a very fast pace. It would be a smart move for Brazil to apply for membership in the European Union and to adopt the euro immediately as the new currency in Brazil. Today, countries around the world have official reserves as follows:

    Percentage share by currency:

    U.S. Dollar = 60 percent of market

    Euro Group = 20 percent of market

    Yen = 6 percent of market

    Other = 14 percent of market

    Most people should not be surprised if in ten years the breakdown of official reserves of the countries around the world will be as follows:

    U.S. Dollar = 35 percent of market

    Euro Group = 35 percent of market

    New Asian Group = 25 percent of market

    Other = 5 percent of market

    The decline of the U.S. Dollar.

    The U.S. dollar and the U.S. economy will encounter many problems in the near future related to the bursting of the Wall Street bubble, the costs of taking care of an increasing number of elderly citizens, and its over $ 7 trillion of cumulative government debt.

    If Brazil is thinking of the future, they should think in terms of the euro. If Brazil wants to base its future policy on the past, then it should think in terms of the U.S. dollar or Pound Sterling. Brazil is being pressed by the international currency speculators to bite the bullet at this point. To best position the Brazilian economy for the future, the Brazilian government should adopt the euro immediately as its new currency and should plan to bring Brazil as close as possible to the European Monetary Union.

    Why should Brazil make this transition immediately?

    The timing is perfect for this transition. This move would give Brazil a chance to go through this period of economic adjustment at the same time as the European countries. This process would bring the Brazilian and European economies closer, and would promote further economic integration. If the Brazilian government decides to bring Brazil to the U.S. dollar group, then Brazil always will play second fiddler to the United States.

    On the other hand, membership in the European Monetary Union will mean that Brazil will be treated as an important member of that group. The adoption of the euro by Brazil would provide the currency stability necessary for long-term growth, investment, lower interest rates and access to European money markets.

    After speaking with some Brazilian newsmen and some Brazilian bankers in the United States, I was surprised at their response to my questions. They told me that they have not given any thought to the possibility of Brazil belonging to the European Monetary Union and adopting the "Euro" as its new currency. Everybody seemed surprised by my suggestion.

    U.S. Dollar = Yesterday, Euro = Tomorrow.

    The Brazilian politicians will try to keep the old game on, but with official reserves around U.S.$ 40 billion it will not be long before this small reserve is run down to the ground. When this scenario develops, Brazil will be economically demoralized and in a very weak position to adopt the euro or the U.S. dollar.

    If the Brazilian government reserves are run to the ground (a very real possibility) and Brazil becomes bankrupt or in a similar situation as Russia or Indonesia, then Brazil will be in a very weak position to request membership at that time.

    By adopting the euro immediately as its new currency, and working out the details for full membership to the European Monetary Union, later Brazil will be in a better economic position to meet the requirements for full membership.

    Brazil is going through a difficult economic time, because of the new global economy. It is time to wake up and adopt the euro as its new currency. Keep in mind that this change will have major beneficial long-term consequences and would place the Brazilian economy on the correct path towards prosperity in the new millennium.

    Part l of this series- originally published by "The Brasilians," issue number 295, pg. 4E, July 1999.

    Copyright © 1999 by Ricardo C. Amaral. All rights reserved.

    By: Ricardo C. Amaral

    Author and Economist

    #60     Oct 28, 2005