Dollar Danger

Discussion in 'Economics' started by ShoeshineBoy, Dec 5, 2003.

  1. Do you really have any doubt that Americans are not smart on the whole Dollar issues. Do you really know any one in other countries of this planet can take advantage from America ever?

    Think again. Whenever dollar moves, it is favorite to lucky yankees. Make money as a yankee or with a yankee. Be a patriot, like me! yehaw...

    100% up room to go, after all I only care about stocks going higher.

    :p
     
    #21     Dec 8, 2003
  2. jem

    jem

    vhehn sp? is correct. As I have mentioned before. The U.S. inflated out of the the savings its people made in the 50s and 60s. We messed the Japs up on their taken over the real estate in this country and China is learning a lesson.

    You cant mess with Mr. Market.

    First day of college econ. Marginal this equals marginal that and there is no free lunch. (When you artifically peg your currency you are going to have to pay the piper some where else.)


    China has tried to mess with international trade and finance. It might work on a small scale but when you start supplying Walmart with everything either your currency is going to adjust and your prices will rise (when vis a vis the u.s. consumer) or your gonnna get smoked on your holdings.

    The fall in the dollar is just Mr. Markets way of punishing the asian currency riggers.

    Tea had some good insights as well and I hope it does lead to some great trading.
     
    #22     Dec 9, 2003
  3. How typical is that Bear report? We should kiss the Saudi's butts, because they are upset about the dollar? How about we take the Iraqi oil and pump it until the Saudis are begging us to cut it off? How about we destroy OPEC for once and for all? How about we give the Saudi's their instructions and if they don't follow them to the letter, bad things start happening? How about we cut off terrorist funding at its ultimate source, Riyahd? The rest of the Arab world could care less about the Saudi's. They are viewed as arrogant pricks who hoard their wealth and lord it over their intellectual superiors in the rest of the Arab world.

    As for the dollar, it remains my belief the administration is using a policy of benign neglect to punish the Europeans for trade issues. When you think about it, it is devilsihly clever, as there's not a damn thing they can do about it. Still, it's a risky game and the longer this whole China-finances-the-deficit game gets played, the riskier it gets and the bigger the fallout when it breaks down, as it inevitably must.
     
    #23     Dec 9, 2003
  4. Ron Paul weighed in again on the issue:

    Those who follow financial markets may be familiar with the term “strong-dollar policy,” which is used by Bush administration officials and Federal Reserve Chairman Alan Greenspan himself. One might assume that such a policy entailed a course of action designed to strengthen the value of the U.S. dollar. However, if we judge Fed policy by Mr. Greenspan’s actions rather than his words, it appears we have a weak-dollar policy, a policy that erodes the value of your personal savings. The “strong-dollar policy” is nothing more than an empty political slogan.

    The inescapable truth is that the value of the U.S. dollar has fallen over 30% in the past year, which to most people would not seem indicative of strength. There are several reasons for this decline, but the single biggest factor has been Mr. Greenspan’s relentless increase of the money supply. There are roughly sixteen trillion dollars in worldwide use today, five trillion more than when Greenspan became Fed chair. The law of supply is immutable: When dollars are abundant they are also cheap.

    For much of our history a gold standard imposed discipline on U.S. dollar policy, since every dollar printed theoretically was redeemable in gold. Since the last links between the dollar and gold were severed in 1971, the dollar essentially has operated as an article of faith. Christopher Mayer, writing for the Ludwig von Mises Institute, states: “Faith that paper money itself was of any lasting value would have struck our forebears as patently absurd.”

    The problem is that faith can be shaken, and the precipitous drop in the dollar shows how investors around the globe are very concerned about American deficits and debt. When government policies in a fiat system are the sole measure of a currency’s worth, the currency markets act as a reliable barometer of how those policies are viewed around the world. Politicians often manage to fool voters and the media, but they rarely fool the financial markets over time. When investors lack faith in the U.S. dollar, they really lack faith in the economic policies of the U.S. government. The Medicare prescription drug bill passed two weeks ago provides an example of this phenomenon – the day after the bill passed, the dollar dropped once again. Investors understand that the new entitlement will cost trillions over coming decades, trillions that will come from Treasury printing presses and further devalue existing dollars.

    Ultra-cautious investor Warren Buffett is trading heavily in foreign currencies for the first time, demonstrating his lack of faith in the dollar. His predicament is simple: He holds billions of dollars, and cannot afford to sit by and watch the value of those dollars drop another 30%. By taking a position against the U.S. dollar, his actions speak volumes.

    Unlike Warren Buffett, most Americans are stuck with their U.S. dollars. Average people, particularly those who depend on savings or fixed incomes to fund their retirement years, cannot abide the continued devaluation of our currency. A true strong-dollar policy would require constriction of the money supply and higher interest rates, both of which would cause some short-term pain for the American economy. In the long run, however, such a correction is the only alternative to the continued erosion of our dollars.
     
    #24     Dec 9, 2003
  5. AAAintheBeltway,

    I don't think it's a good idea to drain away all the Iraqi oil (it suppose to be liberating the Iraqi people, not the Iraqi oil, right?). As for cruching out the OPEC, it's not a good idea, too. Besides, HOW will the US do that? Nuke the whole Mid-East (reminds me of that WMD issue). You may not like the OPEC complaints. But it's the fact that revenues from oil have been downsized by the 'depreciation' of USD. And it's the fact that as the oil exporting nations, they have the right to then switch the means of payments from USD to Euro, for example.

    As for punishing the Europeans, why would they do that?
    If the Bush Administration insisted on imposing the steel tarriffs, a global trade war could erupt, dragging every nations in the end.
    The matter with China textile and TV sets quotas is still on. If the Administration also insists to keep the quota on these products, China, may retaliate. Which also able to drag the whole world into global trade war.

    The purchases of US treasuries from overseas investors have already falling out. Should USD remain to slide, they will slowly withdraw their investments from US, then who's gonna plug in the holes?

    The latest FOMC meeting resulted in a statement where the Fed still maintain the commitment to hold the rates for a considerable period. This, has the potential to add more pressure on USD. With such commitment still on, the prospect of rate hike has actually, diminished in near term. Sure, they can make a surprise by making a sudden hike. But that will dent the credibility of the Fed.

    About the strong dollar mantra, I can never imagine what if John Snow made out a sentence - "From now on, we uphold a weak dollar policy, off goes the strong dollar craps."
    If that happens... well I don't want to imagine what will happen if that happens.

    What the global trade needs is not a retaliation after another. That's not constructive. What the global trade needs is comprimise and cooperation between countries.

    Good luck, good trade!
     
    #25     Dec 9, 2003
  6. jem

    jem

    Strong dollar, weak dollar fair dollar. Who knows what is correct and what should happen. Perhaps the austrians. But I have followed the dollar since I studied economics and the dollar was peaking. I think I was in France when the dollar was about 7 0r 8 Francs and a pound was like 1.20 something. I remember a lift ticket in Chamonix being about 9 or 10 dollars.

    I have watched everybody and his brother make predictions about what will happen and how the economy will collapse. Especially that Rogers guy. My belief is that very few people really know what all the ramifications of the dollar on the economy are. The only guy who really seems to be smart of enough and talks about it is Bill Gross. He seems to really know. Everyone else that I have ever read on the dollar or finance is just blowing smoke.
     
    #26     Dec 9, 2003
  7. jem

    jem

    by the way the above was not meant to insult the people on this thread. I was only stating that there are so many variables and there have been so many prediction and classical approaches have never worked. After the unexpected happens the academeics always come out to say well we did not know foreigners would buy bonds or hoard dollars or that asia would collapse or the LTCM would try to swindle everyone with a model they knew would collapse sooner or later or whatever. There is always some unsuall and unpredicted force that effects normal models.
     
    #27     Dec 10, 2003
  8. Tea

    Tea

    Schwarzenegger knows!
     
    #28     Dec 10, 2003
  9. I seem to recall reading in a textbook that the pound fell to $1.06 (compared to about $1.74 at present) in about 1985. That was back when the UK still had exchange controls, so those were quite exceptionally low levels.

    By the way Jem, what did you think of Chamonix? I'm going there in a few weeks! :D
     
    #29     Dec 14, 2003
  10. Yes, I believe you are right. My father was over in England on business in 1985 and he mentioned what a deal it was at those levels, especially after I was in London in 1992 when the dollar/bp was at $2.04. This was a few months before Soros' raid on the bp. By the time I left London in Dec, 1992 the value was at $1.65 or thereabouts.

     
    #30     Dec 14, 2003