. SouthAmerica: Reply to Davidlynch2000 You asked me why the US dollar will decline in 2006. One of my favorite economists - Stephen Roach - wrote a column today on The Financial Times of London that gives you some of the reasons why the US dollar will decline. In my opinion Stephen Roach is an outstanding economist and most likely the best choice to replace Alan Greenspan at this time. ( I hope Ben Bernanske will keep in touch with Stephen Roach and Paul Krugman and keep them among his circle of close advisors.) Here is Stephen Roach's comments and analysis. âThe rising risk of a hard landingâ By Stephen Roach The Financial Times of London Published: November 1, 2005 It never fails. Every presentation or speech I have made on the economics of global rebalancing over the past three and a half years almost always ends with the same question: "When will these adjustments ever occur?" The history of the past few years is littered with false alarms over the coming US current account adjustment. Call it the "boy-cries-wolf syndrome". The longer the world endures mounting imbalances without suffering any serious consequences, the more the financial market consensus believes this disequilibrium is sustainable. Yet there are new and increasingly urgent grounds for concern. Global imbalances continue to compound at an alarming rate. But there is a dangerous asymmetry in the mix of these imbalances. America's record current account shortfall will account for about 70 per cent of the total deficit positions in the global economy in 2005. By contrast, the incidence of surpluses is far more diffused: it takes some 10 economies to account for 70 per cent of the total global current account surplus in 2005. The world, in effect, is balanced on the head of the US external-imbalance pin. Washington is quick to point the finger elsewhere in blaming a growth-starved world for these imbalances. But in the end there can be no mistaking the disproportionate share of the blame that falls on a US economy that is short of savings. And the situation is likely to go from bad to worse. In large part, that is because America's national savings outlook is about to enter a new phase of deterioration. In a post-Hurricane Katrina, energy-shocked climate deterioration is likely in all three big components of domestic US saving - for households, for the government sector and for businesses. American consumers were already running a negative personal saving rate before the energy shock intensified; to the extent that households now attempt to defend their lifestyles in the face of energy-related shortfalls of disposable income, the personal saving rate should move deeper into negative territory. At the same time, Katrina-related recovery and reconstruction costs could add at least one percentage point to the federal budget deficit in 2006. And the business-sector savings cushion seems likely to diminish as the combination of rising energy prices and mounting unit labour costs puts a dent in corporate profit margins. This could take a savings-short US economy to an important flashpoint. America's net national saving rate - which has averaged a record low of 1.5 per cent of gross domestic product since early 2002 - could well pierce the "zero" threshold at some point over the next year. That would imply that the world's economic leader is not even saving enough to cover the replacement of its worn-out capital stock. There is also reason to worry about global imbalances from the other side of the equation. The impacts of America's increased draw on the global savings pool are likely to be compounded by recoveries in several key surplus economies. That is true in Japan and could well be the case in Germany. To the extent that recoveries in Germany and Japan rely increasingly on support from domestic demand, surplus saving will be absorbed. That would then leave them providing less capital to fund America's ever-deepening savings shortfall. Moreover, China - the third largest surplus saver in the world - is very focused on stimulating domestic private consumption. To the extent China succeeds in its own rebalancing, that will put downward pressure on its saving - undermining yet another key source of funding for America's gaping current account deficit. This is where the asymmetries in the mix of global saving could come into play. If the world's dominant deficit economy - the US - goes even deeper into deficit at the same time that the world's leading surplus economies start to absorb their domestic saving, the noose will tighten on America's external financing pressures. This raises the distinct possibility that these pressures will have to be vented in world ÃâÃfinancial markets in the form of a classic current account adjustment - complete with a weaker dollar and higher US interest rates. As long as the rest of the world was in an excess saving position, a big repricing of dollar-denominated assets could be avoided. But now, with surplus economies beginning the long march of absorbing their excess saving, it could well become all the tougher for the US to avoid this treacherous endgame. Sure, this is all theory, leaving unanswered the key question of what it will take to spark the adjustments implied by this theory. There are several possible event risks, or shocks, that I believe would be capable of triggering the rebalancing. They include an energy shock, an outbreak of US protectionism, the bursting of the US housing bubble, a US inflation problem and the uncertainty that always arises during the transition to a new Federal Reserve Board chairman. All of these potential risks have two things in common - they are not a stretch and they could shake the confidence factor that underpins overseas investor appetite for ÃâÃdollar-denominated assets. In the end, the history of economic crises is clear on one important thing: the longer any economy holds off in facing its imbalances, the greater the possibility of a hard landing. In my view, an unbalanced world has waited far too long to face up to the heavy lifting of global rebalancing. I would reluctantly conclude that there is now about a 40 per cent probability of a hard landing at some point in the next 12 months. The writer is chief economist at Morgan Stanley .
everytime a read this guy (south america) i have a "deja vu" from the 80's (the end of US etc etc bla bla bla) (those days the deutchM was the future currency!!, when the dollar was 35% down) this guy Carlos amaral was the guy who predict in 2000 in every socialist web site the end of US economy.. well, after 9/11, 3 wars, katrina, 5 hurricane in one month in 2004, and Oil bull market, the economy still growing at near 4% anual rate while EU rate this Q4 is 0.4%.. with rebuild of New orleans, the US economy will expand (job include) in the 1 Q4 of 2006. OK, The FED still raise the Interest rate, But still at lower level compared to the 90' and 80'.. China start to follow the "japanese savings efect", No country can growth with "social savings efect", if a economy wants to growth, people have to spend... when you open a business and want to expand, what you do??? get in Debt.. bonds,loans etc etc etc etc... everything will be Ok if you can still pay your debt, and if you can do that, its mean that you'r business is expanding at good rate. the problem with your analisis is that you forget some fundamentals.. 4 example 1-After more than twenty years of deregulation the U.S. economy is flexible and resilien.Consider the supply-shortage impact of damaged oil rigs in the Gulf of Mexico, the loss of power to fuel them, and the resulting spikes in motorist gasoline prices. In the 1970s government-applied price controls and supply rationing created a dysfunctional economy that looked like a pinball machine on permanent tilt. Today, with few exceptions, price controls have been rejected. Auto and truck drivers would rather pay $4 a gallon for gas they can get, than have government mandate $2 a gallon for gas thatâs not available. In most cases market forces in the post-Reagan period still triumph over central planning. Deregulatory actions on fuel emissions and releases from the Strategic Petroleum Reserve have already helped oil and gas prices come way down after the initial Katrina spike. Congress is removing obstacles to energy production, including off-shore operations. Some policymakers are even talking about abolishing the federal gas tax â a good idea. Supply-side tax incentives are another anti-70s theme. Even before OPEC declared war in the 1970s, high marginal tax rates stifled entrepreneurship and growth. Today those rates are much lower, with President George W. Bush contributing by reducing the tax rate on investment variables like dividends and capital gains to only 15 percent. Whereas the 1970s had a stagflation/recession bias, todayâs new economy has a growth bias that supports market-oriented resiliency and flexibility. In fact, the economy going into the Katrina shock is very healthy. 1 month ago we had another strong jobs report, with unemployment declining to 4.9 percent. Employment in the U.S. stands at a record 134 million business payrolls and 142 million people working!!! EU is in much much worst shape than Us and getting olders, china still a comunist country with 1,1 billion peple living under 100 box a year, and 300 millions people living with 2k a year. with a lot infrastructure problems and without copyright law. people in japan dont want spend, southamerica is going back to the 20 century with socialism ( is great for US), EU have a real 15% unemployment, full of debt-no growth (their machines franche-germans) and with a population with 64% "retirados" in 2020) and you said that EURO is the future???? let me tell you something, if US cut their spending (North korea 55 billions, EU 150 billions,agricultural spending 22 billions, Hammas 700 millions etc etc) US can cut their deficit in 2 o 3 years. US can afford be a expender cause we have the cow full of milk and the rest of the world need to suck our tits to survive growth healthy. OHHH, outsourcing!!, if you still think that a cheap labor cost is the fundamental of US economy then your talking shit. never forget that a economy with a surplus dont mean a expanding and succesfull economy (just look what happen in germany in 2002 and their surplus).. what will happen??? nothing unusual, at one point those thief in washington will have to cut their spending and after 2 o 3 years everything will be un "normal".. By the way, its seems that deficit Do matter Only when a republican is un the white house.... from 1930 till 1945 the US deficit was at 100% our GDP and FDR is in history as "one of the greaters US president"... PD: Brazil will never be a first world country, cause there's no LAW... period! and never forget this.. US has the richest poor people in the world!.. if you go to allapatha or liberty city in miami, you'll se those poor people with at least 2 cars and in some case with old boat, while in europe the middel class can afford this kind of spending. cause those criminal tax and extrem burocratics laws. in others words, a family under poverty in US have in some case a better living standart thant middle class in EU) (in US your are poor if you make under 21K a year while the middle class per capita income in the rest of the world is 9K a year) OHH, in US there's 37 million people linving under poverty!!!, wel in EU 160 million people living under 14 box a day, china 1.300 billions... if you look the fundamental in %, the US poverty have shrink from 19% in 1979 to 11% today..
This is patently false. The things I asked, and the things you can't answer are: What model did you use to come up with a $1.50 - $1.60 range? and, Where is your stop loss on your idea? Everyone knows the fundemental reasons why the market might decline. Every currency trader knows the reasons why the market might weaken over the next year. The probabilities of an event occuring that would lead to a decline in the dollar is priced into the market already. You have written nothing that currency traders don't already know. So how about you answer the questions that I did ask you. I'm starting to think you are an irresponsible joke. I'm also starting to think you deserve the title of economist after your name about as much as I deserve the title of "Exploding Octopus" or "God of Donuts".
This is patently false. The things I asked, and the things you can't answer are: What model did you use to come up with a $1.50 - $1.60 range? and, Where is your stop loss on your idea? Everyone knows the fundemental reasons why the market might decline. Every currency trader knows the reasons why the market might weaken over the next year. The probabilities of an event occuring that would lead to a decline in the dollar is priced into the market already. You have written nothing that currency traders don't already know. So how about you answer the questions that I did ask you. I'm starting to think you are an irresponsible joke. I'm also starting to think you deserve the title of economist after your name about as much as I deserve the title of "Exploding Octopus" or "God of Donuts". DavidLynch maybe this guy (southamerica) got his "title" from a Corn flakes Box.
domi93..... Very interesting points.... Currency valuation....No matter what the statistics are in terms of the typical numbers of economic health such as employment ratios...savings rates...gold standard...income ratios...you know..all this stuff... I have always wondered exactly who it is that sets the bid ask each day and how this actually occurs...for any country´s currency... Who is it exactly that is responsible for setting these values...and exactly how does it happen...? Particularly in the smaller countries...whereby a ¨not so large¨remittances are paid and indeed have impacts to the country´s currency... I like to play the ¨dire straights¨situations...and these are easy to identify...when they happen.... Which leads to the pont...ok..so what if the US has lousy statistics....how does this translate into economic malaise with respect to other currencies?? And exactly who sets these numbers ? Of course the blanket answer would be the biggest banks in the currency game...but exactly how does this take place ? For instance...some smaller countries can literally wipe out all debt...show reasonably good statistics...but yet their currency will not change much with respect to larger currency names...just because the currency base is so much larger.... To me...the big currency game is an extremely long term play relative to other instruments...and exceedingly difficult...whereas the smaller currencies are easier to play...because the problems are more visible...etc...
Yeah, baby... The BRIC can complain all they want, but the US runs the game, and isn't likely to roll over and play dead. If we can't keep ourselves doing well, we'll just stop the game - and nobody will like that very much. These southamerica threads are a waste of time. I would prefer that he post pictures of hot brazilian women - that at least would be entertaining instead of the thinly veiled propaganda posted here, which largely serves to only give me a headache. Great prediction on Bernake, by the way. If the rest of your calls are as adept, you must be clearly on the way to your first billion. (sarcasm, in case its not clear)
. Domi93: everytime a read this guy (south america) i have a "deja vu" from the 80's (the end of US etc etc bla bla bla) (those days the deutchM was the future currency!!, when the dollar was 35% down) this guy Carlos amaral was the guy who predict in 2000 in every socialist web site the end of US economy.. **** SouthAmerica: I never wrote anything about Germanyâs old currency. I started advocating that Brazil adopt the Euro in 1999. I never heard of Carlos Amaral and I never had the chance to read anything that he wrote. I never posted anything on socialist websites, and I donât go to socialist websites to read what they are saying about economics. **** domi93: the problem with your analysis is that you forget some fundamentals.. 4 example 1-After more than twenty years of deregulation the U.S. economy is flexible and resilien. **** SouthAmerica: I wrote the following in an article published on September 2002. Quoting from that article: ââ¦Until recently, I used to believe in a completely free market economy. Today I know there is a place for government regulations and government protection of its industrial base against foreign competition. Deregulation has been a disaster in the U.S. to the airline, the energy, and the telecommunications industries. For example; many airlines are on the brink of bankruptcy in the United States. Business Week magazine of August 5, 2002 reported that since the Telecommunications Act was passed in 1996 to deregulate the telephone industry, investors have lost over US$ 2 trillion as the stock prices tumbled 95 percent or more from their highs. The crisis could relegate the U.S. to second-class status in the communications industry in the future.â I could go on and on regarding government deregulation â Californians loved deregulation on their energy industry â the California economy after deregulation looked more like the Argentinean economy after their economic collapse. If you enjoy economic meltdowns then you must love economic deregulations. **** domi93: Congress is removing obstacles to energy production, including off-shore operations. Some policymakers are even talking about abolishing the federal gas tax â a good idea. **** SouthAmerica: That is a terrific idea if you are Brain dead. Instead of the money going as a gas tax â the money goes directly to the oil producing countries. Are you a citizen (domi93) of one of the oil producing countries? ( outside of the US) **** domi93: Whereas the 1970s had a stagflation/recession bias, todayâs new economy has a growth bias that supports market-oriented resiliency and flexibility. **** SouthAmerica: When Richard Nixon resigned the cumulative debt of the US government had just reached $ 1 trillion dollars for the first time in US history. And the total outstanding debt from all the states, counties and etc was a minimal amount. The stagflation/recession bias that you mentioned was the result of military spending during the Vietnam War. ( a lot of bad things happened to the US economy which were related to the Vietnam War.) Today the American economy is doing great â the cumulative debt of the US government is close to $ 9 trillion dollars. The states, counties and local governments have another $ 2 trillion dollars of outstanding debt as of mid-year 2004 according to data from Federal Reserve. In the 1970âs the US did not have almost 40 million baby boomers in the pipeline ready for retirement as the US have today. **** 2004 Atlantic Major Storm Summary Alex Charley Danielle Frances Ivan Jeanne The four-hurricane procession started the drumbeat of hurricanes - impatient Charley, plodding Frances, savage Ivan and copycat Jeanne. 2005 Atlantic Major Storm Summary Katrina Rita Wilma In 2006, 2007, 2008, 2009, 2010 and so on⦠We will have 3 or 4 major hurricanes per year in the US Atlantic coast costing billions and billions of US dollars â maybe if we estimate the combined cost of these hurricanes we might be talking about Trillions of dollars instead of billions. This is a good investment for borrowed money â as soon as they fix the area another hurricane comes and they have to start all over again, and again, and again. That is a perfect fools paradise. My question is who will be funding all these losses in the future year after year? Eventually the Chinese will catch on that they will not be paid back a large portion of this money that they have been lending to the US year after year. **** Domi93: never forget that a economy with a surplus donât mean a expanding and successful economy (just look what happen in Germany in 2002 and their surplus).. **** SouthAmerica: I understand your point. A successful economy is an economy that keeps itself afloat by borrowing from the rest of the world 89 percent of the total savings of the planet â and the value of its currency keeps depreciating against the Euro and the value of gold. It is the same as the fellow who goes to a bank and keeps borrowing millions of dollars and he lives like a millionaire on credit - until the banker asks him how are you going to pay for all this debt that you have been accumulating â the only reason that you live the good life it is because I am keeping you afloat. .
. Davidlynch2000: Everyone knows the fundamental reasons why the market might decline. Every currency trader knows the reasons why the market might weaken over the next year. The probabilities of an event occurring that would lead to a decline in the dollar is priced into the market already. You have written nothing that currency traders don't already know. **** SouthAmerica: You must believe in the market efficiency theory - the capital markets reflect all relevant information. If you believe that then all I can say to you is that you are a fool. .
Simple questions: What model are you using? Where is the stop loss on your idea? Are you just making up your estimates out of thin air? You may want to temper your predictions if you can't even invent a wacky model with bizarre variables that might justify your prediction. I'm starting to sound a little like a broken record here, but I would like a response to the three questions listed above.