Psychology, I think. The perceived value of the USD in global currency markets, and of course the perceived value of other currencies, since the USD's value is relative to those. This is inescapable, in a "the emperor has no clothes" kind of way, because our currency in hard form has no real value for survival purposes, and in electronic form, no value at all. Very good reasons can be given for believing in the dollar, or not, but in the final judgement it is an act of faith (in those reasons) to buy or sell it.
sorry it took me so long to respond. i had to go find some graphs and got a phone call, etc. you are, of course, familiar with the term "money supply". if not, from wiki: of course, there are various ways of measuring the money supply - but I prefer M2 when discussing money's effect on inflation. The same wiki article calls M2: considering that the federal reserve is the key controller of the money supply, the action of M2 is consistent with efforts of the Fed on the intent of either raising or lowering it. here is a current chart of M2 for you. in USD Billions http://www.forecasts.org/images/leading-indicator/M2.gif now, lets look at the most simple form of understanding a value of a dollar by saying that "as the number of dollars increase in circulation, the value of each of those dollars drops". of course, we'd have to ask the question "drops in comparison to what?" if all central banks around the world were printing mercilessly, then it would be a race to see which currency could hit the "bottom" first. but since, with the exception of japan, all central banks are in tightening mode and the fed is in "ultra loose" mode, the amount of dollars flooding the system are far, far greater than their euro, aussie, loonie, swiss, sterling, etc. counterparts. to sum up, the fed controls the amount of dollars in the system, and the amount of dollars directly leads to the value of those dollars. this process is exacerbated when the fed is the only player in town printing and everyone else is tightening. like now. the fed, is the primary influence on the value of the dollar. http://en.wikipedia.org/wiki/Money_supply http://www.forecasts.org/m2.htm
i did not discuss the psychology above, but again, this is a result of central bank actions. by keeping rates low and flooding the system with money, other central banks that tighten offer attractive interest incentives to hold their currency over that of lower currencies (like the dollar). the interest rate differential drives the speculative nature of currency markets, further exacerbating the drop of the dollar. but the root cause is still that of the Federal Reserve.
Of course I can't disagree that money supply, interacting with demand, determines the USD's value. And I can only carry my argument so far, I am no expert on this, by a long shot. But why aren't all domestic prices rising dramatically as a result of this so-called flood of USD? (I'll concede there is some lag between the leader, energy, and everything else that inevitably follows.) And on that last note, I do not think the supply of USD, ie. inflation in America, has much influence on the buying decisions (demand) of businesses in the developing economies.
Unfuckingreal. Do you not understand margin compression? i.e. businesses are absorbing the rising cost of inputs but due to the lack of purchasing power of the end buyer, they cannot pass along alot of these costs?
I used the word "lag" to capture that reality. But once again we're back to the (too) common refrain, "yeah, but it's gonna happen!"
I admit that this problem or even this debate is mired in alot of uncertainty. Most importantly, it's an entirely new set of circumstances with which to speculate on the outcome. There are no clear cut historical episodes with which to form a confident opinion. If I had to go out on a limb, I'd argue that this will literally destroy vast numbers of small businesses that do not have the clout of lobbyist connections to curry political favor. i.e. healthcare exemptions and previously TARP, TALF, etc... It should also be noted that a small privately owned business is analagous to a NON-asset holder in so far as a concerted effort to devalue the currency and revalue assets higher (i.e. stock prices) does very little to benefit a private corp that does not have a publicly traded stock. Instead, it continues to absorb the rising input costs, with very little margin or reserves to play the waiting game. Like everything else in this country, the trend has always been to mire small business in so many regulatory headaches and restrictions so as to make it near impossible for many small businesses to make it thru all of this financial turmoil.
Its a shame. Among the elderly are true patriots. Life long patriots. And now their country is betraying them.
Completely agree. They put their lives on the line to defend the country and in the end they are being sacrificied once again to bailout the shadow banking system and the corrupt a-holes who leveraged the country to the hilt. Meanwhile, we have our own contingent of traitorous shit right on this forum who are in favor of debasing our currency and monetizing the debt because, of course, "we had no other choice". Fuckwits.
denner is 100% correct. it's not about the common refrain about it's gonna happen. i explained all of this in this post - here: http://www.elitetrader.com/vb/showthread.php?s=&postid=3164659#post3164659 i dont feel like typing it all again. please consider that post a response to your comment. there is a real logistical aspect to raising prices. companies can't just wake up one morning, wave a magic wand and affect prices. there are contracts, competitive aspects, and one's own gross margin to consider.