View Full Version : Ex Fed Governor McTeer on the Dollar
From the weekend WSJ.
WARNING: As I was reading this, I felt like Finster does - I could hardly keep from gagging. Read it an weep...
Valuing the Dollar
By BOB MCTEER
March 8, 2008; Page A9
When I was president of the Dallas Fed, Alan Greenspan wouldn't let me, or other members of the Federal Open Market Committee (including himself), talk about the dollar. The dollar was so sacred, or so fragile, that only Treasury secretaries were allowed to discuss it -- but convention silenced them too.
Treasury secretaries always retreated into ritualistic claims of having a strong dollar policy to maintain a strong economy, although economic theory doesn't necessarily support that causation. Reporters, presumably for sport and amusement, occasionally lured one of them into the dollar-talk trap, so they could then write about his naïveté for going there.
Now I'd like to say something provocative about the dollar. Here goes: While our currency, the dollar, may be sacred to you and me as an institution -- it's ours out there competing with theirs on the world playing field -- we shouldn't treat any particular dollar exchange rate as sacred.
A strong dollar usually serves us well, but occasionally, and temporarily, a weaker dollar serves us better. Dollar depreciation boosts our exports relative to imports and, right now, is our best hope for avoiding or cushioning a recession.
I prefer a strong dollar for eternity, but right now I feel about the dollar what St. Augustine felt about chastity. To paraphrase his notorious prayer, "Lord, make our dollar strong, but not just yet."
Currency strength is a more arbitrary concept than most people realize. For example, the Canadian dollar recently reached parity with the U.S. dollar. Parity means they trade one for one, dollar for dollar; yet the Canadian dollar is considered strong and ours weak.
Contrary to most talking heads and Treasury secretaries, strong currencies don't guarantee strong economies, or vice versa. Other things equal, a strong domestic economy stimulates import demand and weakens the home currency, as we have to sell more dollars to buy foreign goods.
The prospect of good investment opportunities at home and future currency appreciation, on the other hand, strengthens the currency by attracting foreign capital, which requires dollar purchases by the foreign investors, even if trade remains in deficit. This has been the U.S. pattern in recent years -- a combination of large trade deficits and capital inflows.
The Japanese yen, which had been trading above 110 to the dollar, recently strengthened to below 110. That's relative strength, but when I joined the Fed in 1968, the rate was 360 yen to the dollar. Now that's real yen strength for you -- from 360 to 110 -- and real dollar weakness. But I wonder if the Japanese benefited from their strong yen and we were harmed by our weak dollar. I'm not so sure.
Current focus is on the strong euro relative to the dollar, but who really believes the strong euro is good for Europe under today's circumstances? The euro zone's unemployment rate has declined to a recent low of 7.2% while the U.S. unemployment rate is 4.8%. While inflexible labor markets are mostly to blame, I wonder what role an overly strong euro and overly tight ECB may have played. The strong euro's cheerleaders may soon feel like the dog that caught the car, if they don't already.
While the dollar may be sacred, no single dollar exchange rate should be. Exchange rates are a compromise among legitimate competing interests.
Consumers benefit from the greater purchasing power of a stronger dollar, and we're all consumers. But our interests as producers and workers are more concentrated. Exporters prefer a weak dollar (i.e., they benefit when foreigners can purchase more of our goods with their strong currency) while importers like it strong. We wisely leave it to the market to achieve the necessary compromise, but a compromise it remains.
Any exchange rate will hurt many market participants through no fault of their own, and give an unearned windfall to others. A good, efficient and productive business that has adjusted well to the prevailing exchange rate may suddenly go belly-up thanks to an adverse exchange-rate movement caused by a completely unrelated development on the other side of the planet. More ethanol production in Iowa may increase hunger in Africa.
The price of one currency in terms of another is a different animal from other market prices. The price of bread adjusts until the quantity of bread demanded equals the quantity supplied at that price. The price may turn against the consumer for various reasons, but mostly having to do with the supply and demand for bread. A market-determined exchange rate also adjusts to clear the market for foreign exchange -- but that balance is likely to be a balance of imbalances.
Nevertheless, if a cleanly floating rate remains fairly stable for a while, we label it the appropriate or equilibrium rate and make it the baseline from which future movements are judged to represent strength or weakness.
An ideal equilibrium exchange rate might involve balanced trade in goods and services with the rest of the world. But, with independently motivated capital flows in addition to financing capital flows, there is no economic mechanism to produce that result. Equilibrium can just as easily involve large persistent trade deficits matched by large capital inflows (our situation) or large trade surpluses matched by capital outflows.
A trade balance with the rest of the world would still include huge bilateral imbalances with countries (China) or strategic goods (oil) -- but the overall balance would halt the rapid accumulation of dollar assets by surplus countries and keep us from falling deeper into debtor-nation status. To reverse the process would require, not a trade balance, but a surplus. And a stronger dollar any time soon would delay or prevent these needed adjustments.
The late economist, Herb Stein, is famous for saying that, if something is inevitable, it will happen. I assume he meant sooner or later, because the large and growing current account deficit has made dollar depreciation inevitable for years now.
Yet that only recently began to happen because strong capital inflows, especially from Europe, supported the dollar and prevented the depreciation needed to increase exports and bring the trade deficit into balance. We weren't fully paying for our imports with exports of goods and services; so we made up the difference by selling bonds and other assets to strong-currency countries like China.
The accumulation of massive dollar reserves in China led to worry that they would diversify those holdings at some point, a diversification that would involve moving the dollar into other currencies, especially the euro -- with such a sell-off depressing the dollar and leading to higher U.S. interest rates. Instead, the diversification so far has been from Treasury securities into private-sector dollar assets. To continue the current account deficit is to continue the fire sale of U.S. assets to foreigners.
My preference would be for dollar depreciation to reduce the current account deficit and slow the accumulation of dollar assets abroad. That process has recently begun. Exports of goods and services in December were up $2.2 billion from November while imports were down by the same amount, more than accounting for the annual December to December improvement in the deficit of only $1.5 billion. Hopefully, that reduction in the trade deficit will continue, but chances are the recent appreciation in the dollar from its lows will slow or halt that improvement.
The level of the dollar is important for trade. But for foreign investors, the level of the dollar is not as important as its expected future movement.
They want to get into U.S. assets when the dollar is cheap and get out when the dollar is dear. The more the dollar depreciates, the sooner it will be expected to reverse, and the sooner foreign investors will resume their participation in the most dynamic, creative economy in the world.
A premature strengthening of the dollar would slow needed trade adjustment and neutralize foreign trade as a source of domestic demand as we try to avoid a severe recession. Once again, Lord make our dollar strong, but not just yet.
Mr. McTeer, former president of the Federal Reserve Bank of Dallas, is a fellow at the National Center for Policy Analysis.
krakknisse
03-10-08, 07:55 AM
Am I just stupid, or is he just yelling "GET OUT OF THE DOLLAR"? What stupid idiots would hold the dollar for any significant amount of time if this were the actual policy? (Uh, wait... that actually seems to be the policy).
This is actually on the front page of Bloomberg now:
- TIPS Prove Bernanke Has Lost Control of Inflation as Yields Turn Negative
- ECB's Trichet `Concerned' About Euro's Appreciation
This seems to me to be a game of chicken between the Fed and the ECB, no?
This seems to me to be a game of chicken between the Fed and the ECB, no?
And other central banks & countries too:
http://www.nowandfutures.com/images/economic_cycle.png
And other central banks & countries too:
http://www.nowandfutures.com/images/economic_cycle.png
EJ writes in:
Who do you suppose McTeer's intended audience is? Must be business journalists. Surely he can't be writing to anyone who knows anything about economics.
"We wisely leave it to the market to achieve the necessary compromise, but a compromise it remains.""Left to the market" if you discount the furious buying of US treasury and agency paper over the past few years to support the dollar, where purchases are in proportion to political not economic need.
http://www.itulip.com/images/treasuryholdingvsgdp.jpg
At least he says one thing I agree with:
"...the large and growing current account deficit has made dollar depreciation inevitable for years now."
His conclusion:
The level of the dollar is important for trade. But for foreign investors, the level of the dollar is not as important as its expected future movement.
They want to get into U.S. assets when the dollar is cheap and get out when the dollar is dear. The more the dollar depreciates, the sooner it will be expected to reverse, and the sooner foreign investors will resume their participation in the most dynamic, creative economy in the world.
A premature strengthening of the dollar would slow needed trade adjustment and neutralize foreign trade as a source of domestic demand as we try to avoid a severe recession. Once again, Lord make our dollar strong, but not just yet.
Bart points out the first major flaw in McTeer's cheap currency free lunch argument: trade partners eventually have to respond with depreciations of their own if the export benefits accrued to the depreciation instigator that seeks to externalize its economic problems start to create economic problems for trade partners. The second major flaw: No mention of the inflationary impact of a sustained weak currency, now so severe TIPS are officially producing a negative return (see TIPS' Yields Show Fed Has Lost Control of Inflation (http://www.bloomberg.com/apps/news?pid=20601087&sid=aIbnAuYWv3A0&refer=home)).
Instead, the diversification so far has been from Treasury securities into private-sector dollar assets. To continue the current account deficit is to continue the fire sale of U.S. assets to foreigners.
This article is preparing the public for US assets sales to foreign dollar holders.
As dollar depreciation continues the rush will be on http://www.itulip.com/forums/showthread.php?p=29195#post29195 to acquire real assets. What’s the dollar rate of decline going forward and who’s first to be granted US asset purchases?
What he is saying is let the dollar tank, bring in foreign asset purchasers, reindustrialize, import permitted cheap labor, and compete globally.
EJ writes in:
Who do you suppose McTeer's intended audience is? Must be business journalists. Surely he can't be writing to anyone who knows anything about economics...
Which was the first reason I wanted to puke. This was published in the WSJ, so the audience is not limited to economists or financial journalists. Yesterday in an exchange with Jim Nickerson I posited that we would soon see a widespread effort to condition the broad public to believe that the falling bonar is "a good thing"
http://www.itulip.com/forums/showthread.php?p=29859#post29859
And moments later here they are, recruiting former Fedheads to the cause. Slick...
Bill has it right - the sheeple are being led up the ramp...
The Outback Oracle
03-10-08, 05:45 PM
Surely McTeer is saying the whole thing as a result of previous policy is a mess. So, what now are your choices?
The current weaker dollar is not a matter of choice, it was always going to happen as a result of past excesses. Those past excesses now result in a weak dollar and a fire-sale of US assets to offshore owners....inevitable
I can't see how any of that is a wrong conclusion.
I guess the real problem is the weak dollar is achieved with low interest rates which in the longer run merely exacerbates the problem. However I note evee EJ came out in favour of the current lowering of ionterest rates. Note I persdonally do not think lowering interst rates that are already negatives achieves anything except more distortion in both the short and long term....but then I am not particularly bright and will bow to EJ's superior intellect.
In summary, what is happening is a result of past profligacy. The real question is where to from here? It's again back to the old story....How to fix it? I wouldn'y start from here!
As to Australia, we are running a huge CAD, now 7% of GDP in amongst the best terms of trade of all time. We have high interest rates which are still way negative for the average "saver" and which will still bring the economy to a halt rather sooner than the RBA thinks. We continue to sell off every piece of the food chain, every mine, every factory, and every piece of real estate we can in order to maintain our ridiculous consumption levels and impoort of consumer items....so I'm not just picking on the US! Your prospects are better than ours!
As to Australia, we are running a huge CAD, now 7% of GDP in amongst the best terms of trade of all time. We have high interest rates which are still way negative for the average "saver" and which will still bring the economy to a halt rather sooner than the RBA thinks. We continue to sell off every piece of the food chain, every mine, every factory, and every piece of real estate we can in order to maintain our ridiculous consumption levels and impoort of consumer items....so I'm not just picking on the US! Your prospects are better than ours!
OO: I've been somewhat amazed at the persistent Aussie CAD given it's mineral, petroleum and agricultural resource exporter status. Australia must be the only petroleum exporting country in the whole world that is not in surplus.
The RBA has been running a relatively high interest rate policy (as has NZ) to keep capital flowing in, and maybe it's the resulting high currency valuation that makes imports cheap and you Australians consuming more than you produce? For a nation that seems to spend all its time in swim gear, at the beach, what the hell are you spending it all on?
I do not share your view that Australia has worse prospects than the USA. Some of my Arab business associates are now sending their kids to Australia for higher education (Canada being the other, colder, alternative), whereas the USA & UK used to be the preferred destination. They only do that because they feel their kids will be safe and welcomed in your society. That says a lot - because it's becoming even rarer on our planet IMO.
The mineral and energy endowment, rule of law, and SE Asia geography position your country well. But politicians can screw up even the best of fundamental situations, given the chance.
The Outback Oracle
03-11-08, 01:03 AM
I have posed this question before without receiving enlightenment so i will try again.
The traditional Australian response to high CAD (in days when someone in Australia other than Steven Keen and I thought deficits do matter) was to raise interest rates to slow the economy. Now, given that some 60 oddpercent of the country either work for the Government or receive pensions from it, the burden of the interest rate increase falls to business. So the effect of high interest rates is to
1) squeeze, with high interest rates, those exporters you
would normally want to expand
2) increase the value of the A$, thus making exporting
more difficult and imported prices cheaper. All the import competing industries go to the wall.
The net result is an even worse CAD!
This aspect of the current Globalisation free-for-all seems to me to be really stupid. Indeed, it is a trick the Chinese have been trying desperately to avoid with the contol on their currency. Essentially one hands the future of one's currency and country into the hands of the leveraged speculators.
It just looks nuts to me! Or am I just dumb?
This whole freely floating currency idea with no restraints on capital flows looks terribly like a con job by some central group who want to control things......and i'm not even a conspiracy theorist!!!!!!
The Outback Oracle
03-11-08, 01:13 AM
It was back in the 1970's that borrowings from overseas, in the national Accounts, were called "Overseas Borrowings". It was during the dill-brained conservative Prime Minister Malcolm Fraser's time that a significant change occurred. I was driving around the farm in my old 4WD, listening to the news. The reports of the BOT and CAD on the National News were somewhat more detailed in those days (there has been a dumbing down over the years - in my opinion, quite deliberately). Anyway the report used to include how much we had needed to borrow to balance the books each month. One day as I was driving around in the middle of nowhere listening to the news when suddenly the term "overseas borrowings" was no longer used. It was suddenly called "Capital inflow"! So suddenly we had this "bad' thing being called a "good" thing to save the pollies necks.
It was at that moment i knew Australia was scewed! The situation re the CAD has continued to deteriorate ever since!
It was back in the 1970's that borrowings from overseas, in the national Accounts, were called "Overseas Borrowings". It was during the dill-brained conservative Prime Minister Malcolm Fraser's time that a significant change occurred. I was driving around the farm in my old 4WD, listening to the news. The reports of the BOT and CAD on the National News were somewhat more detailed in those days (there has been a dumbing down over the years - in my opinion, quite deliberately). Anyway the report used to include how much we had needed to borrow to balance the books each month. One day as I was driving around in the middle of nowhere listening to the news when suddenly the term "overseas borrowings" was no longer used. It was suddenly called "Capital inflow"! So suddenly we had this "bad' thing being called a "good" thing to save the pollies necks.
It was at that moment i knew Australia was scewed! The situation re the CAD has continued to deteriorate ever since!
Well I am not sure that a CAD, in and of itself, is a "bad thing". Overseas borrowings used for investment, to develop mines, ports, railways, farms and other productive assets, will presumably prove minor compared to the value of years of production and exports from the assets.
However, if 60% of the working population are employed by government, the nation has a wee challenge alright. Especially if the other 40% are at the beach...
Starving Steve
03-12-08, 06:29 PM
From the weekend WSJ.
WARNING: As I was reading this, I felt like Finster does - I could hardly keep from gagging. Read it an weep...
Valuing the Dollar
By BOB MCTEER
March 8, 2008; Page A9
When I was president of the Dallas Fed, Alan Greenspan wouldn't let me, or other members of the Federal Open Market Committee (including himself), talk about the dollar. The dollar was so sacred, or so fragile, that only Treasury secretaries were allowed to discuss it -- but convention silenced them too.
Treasury secretaries always retreated into ritualistic claims of having a strong dollar policy to maintain a strong economy, although economic theory doesn't necessarily support that causation. Reporters, presumably for sport and amusement, occasionally lured one of them into the dollar-talk trap, so they could then write about his naïveté for going there.
Now I'd like to say something provocative about the dollar. Here goes: While our currency, the dollar, may be sacred to you and me as an institution -- it's ours out there competing with theirs on the world playing field -- we shouldn't treat any particular dollar exchange rate as sacred.
A strong dollar usually serves us well, but occasionally, and temporarily, a weaker dollar serves us better. Dollar depreciation boosts our exports relative to imports and, right now, is our best hope for avoiding or cushioning a recession.
I prefer a strong dollar for eternity, but right now I feel about the dollar what St. Augustine felt about chastity. To paraphrase his notorious prayer, "Lord, make our dollar strong, but not just yet."
Currency strength is a more arbitrary concept than most people realize. For example, the Canadian dollar recently reached parity with the U.S. dollar. Parity means they trade one for one, dollar for dollar; yet the Canadian dollar is considered strong and ours weak.
Contrary to most talking heads and Treasury secretaries, strong currencies don't guarantee strong economies, or vice versa. Other things equal, a strong domestic economy stimulates import demand and weakens the home currency, as we have to sell more dollars to buy foreign goods.
The prospect of good investment opportunities at home and future currency appreciation, on the other hand, strengthens the currency by attracting foreign capital, which requires dollar purchases by the foreign investors, even if trade remains in deficit. This has been the U.S. pattern in recent years -- a combination of large trade deficits and capital inflows.
The Japanese yen, which had been trading above 110 to the dollar, recently strengthened to below 110. That's relative strength, but when I joined the Fed in 1968, the rate was 360 yen to the dollar. Now that's real yen strength for you -- from 360 to 110 -- and real dollar weakness. But I wonder if the Japanese benefited from their strong yen and we were harmed by our weak dollar. I'm not so sure.
Current focus is on the strong euro relative to the dollar, but who really believes the strong euro is good for Europe under today's circumstances? The euro zone's unemployment rate has declined to a recent low of 7.2% while the U.S. unemployment rate is 4.8%. While inflexible labor markets are mostly to blame, I wonder what role an overly strong euro and overly tight ECB may have played. The strong euro's cheerleaders may soon feel like the dog that caught the car, if they don't already.
While the dollar may be sacred, no single dollar exchange rate should be. Exchange rates are a compromise among legitimate competing interests.
Consumers benefit from the greater purchasing power of a stronger dollar, and we're all consumers. But our interests as producers and workers are more concentrated. Exporters prefer a weak dollar (i.e., they benefit when foreigners can purchase more of our goods with their strong currency) while importers like it strong. We wisely leave it to the market to achieve the necessary compromise, but a compromise it remains.
Any exchange rate will hurt many market participants through no fault of their own, and give an unearned windfall to others. A good, efficient and productive business that has adjusted well to the prevailing exchange rate may suddenly go belly-up thanks to an adverse exchange-rate movement caused by a completely unrelated development on the other side of the planet. More ethanol production in Iowa may increase hunger in Africa.
The price of one currency in terms of another is a different animal from other market prices. The price of bread adjusts until the quantity of bread demanded equals the quantity supplied at that price. The price may turn against the consumer for various reasons, but mostly having to do with the supply and demand for bread. A market-determined exchange rate also adjusts to clear the market for foreign exchange -- but that balance is likely to be a balance of imbalances.
Nevertheless, if a cleanly floating rate remains fairly stable for a while, we label it the appropriate or equilibrium rate and make it the baseline from which future movements are judged to represent strength or weakness.
An ideal equilibrium exchange rate might involve balanced trade in goods and services with the rest of the world. But, with independently motivated capital flows in addition to financing capital flows, there is no economic mechanism to produce that result. Equilibrium can just as easily involve large persistent trade deficits matched by large capital inflows (our situation) or large trade surpluses matched by capital outflows.
A trade balance with the rest of the world would still include huge bilateral imbalances with countries (China) or strategic goods (oil) -- but the overall balance would halt the rapid accumulation of dollar assets by surplus countries and keep us from falling deeper into debtor-nation status. To reverse the process would require, not a trade balance, but a surplus. And a stronger dollar any time soon would delay or prevent these needed adjustments.
The late economist, Herb Stein, is famous for saying that, if something is inevitable, it will happen. I assume he meant sooner or later, because the large and growing current account deficit has made dollar depreciation inevitable for years now.
Yet that only recently began to happen because strong capital inflows, especially from Europe, supported the dollar and prevented the depreciation needed to increase exports and bring the trade deficit into balance. We weren't fully paying for our imports with exports of goods and services; so we made up the difference by selling bonds and other assets to strong-currency countries like China.
The accumulation of massive dollar reserves in China led to worry that they would diversify those holdings at some point, a diversification that would involve moving the dollar into other currencies, especially the euro -- with such a sell-off depressing the dollar and leading to higher U.S. interest rates. Instead, the diversification so far has been from Treasury securities into private-sector dollar assets. To continue the current account deficit is to continue the fire sale of U.S. assets to foreigners.
My preference would be for dollar depreciation to reduce the current account deficit and slow the accumulation of dollar assets abroad. That process has recently begun. Exports of goods and services in December were up $2.2 billion from November while imports were down by the same amount, more than accounting for the annual December to December improvement in the deficit of only $1.5 billion. Hopefully, that reduction in the trade deficit will continue, but chances are the recent appreciation in the dollar from its lows will slow or halt that improvement.
The level of the dollar is important for trade. But for foreign investors, the level of the dollar is not as important as its expected future movement.
They want to get into U.S. assets when the dollar is cheap and get out when the dollar is dear. The more the dollar depreciates, the sooner it will be expected to reverse, and the sooner foreign investors will resume their participation in the most dynamic, creative economy in the world.
A premature strengthening of the dollar would slow needed trade adjustment and neutralize foreign trade as a source of domestic demand as we try to avoid a severe recession. Once again, Lord make our dollar strong, but not just yet.
Mr. McTeer, former president of the Federal Reserve Bank of Dallas, is a fellow at the National Center for Policy Analysis.
Isn't this McTeer worm, one of the inflationists selected by George Bush and his neo-cons to sit on the FOMC?
And then we have Arthur Laffer, the inflationist, who helped dream-up Reaganomics. Some laughs from Laffer: "Deficits don't count," or "Too many people want to hold our dollar," or "Fed monetary policy has been simply wonderful lately," or "The world has a problem with too much savings, " etc.
So with this kind of inflationist thinking coming from the Fed, the other central banks in the world, also from the neo-cons in the Republican Party and the economics departments in all of the world's universities, where is the bottom to this currency debasement?
IF A DOLLAR DEVALUED BY 30% IS GOOD FOR THE U.S, WOULDN'T A DOLLAR DEVALUED BY 50% BE EVEN BETTER? AND WOULDN'T A DOLLAR DEVALUED BY 80% BE FANTASTIC? THINK OF THE EXPORTS!
Yes, this inflationist thinking came from both parties, but no party in the U.S. more than the Republicans. Never forget that!
This inflation policy began quietly under Ronald Reagan with the "retirement" of Volker from the Fed. NEVER FORGET THAT!
This should be the #1 issue in the election now: the inflation policies of the neo-cons and what those policies have done to bring on this economic collapse in the U.S.
Some things that I have wondered about lately: Who is picking these inflationists to run the economics departments of major universities? What is the link between Wall Street influence and inflation thinking in the universities? Why has no history of the disaster that inflation policies have caused in Latin America been written and published? How could the current president of Zimbabwee be a graduate of the London School of Economics?
Am I dreaming this, or what? 100,000% inflation per year in Zimbabwee, and the president of Zimbabwee is a graduate of the London School of Economics.
And this kind of thinking is now at the FOMC of the Fed thanks to George Bush and his appointments to that board.
Anyone notice that Carney (sp?) from Goldman Sacs in New York was just appointed a few weeks ago to head the Bank of Canada, and the first thing that he did was to cut interest rates from nothing to less than nothing? These are the inflationists in action; this is what they do.
The Outback Oracle
03-12-08, 07:18 PM
GRG I just checked the Reserve Bank stats. The earliest year listed is 1959. We have run a current account surplus once since 1959 and that was in 1973! So in 40 years we have one surplus!!!! Hence everything has been sold to foreigners!
A quick summation reveals a total deficit in 38 years of $664060000000...for a small economy like ours it is unbelievable. I guess when you get enough zeros it all becomes meaningless :-( I keep wondering how many beer cans it is!
I'm not extremist or anything...I just think all those who have been responsible for this over the last 40 years should be publicly hung!!!
GRG I just checked the Reserve Bank stats. The earliest year listed is 1959. We have run a current account surplus once since 1959 and that was in 1973! So in 40 years we have one surplus!!!! Hence everything has been sold to foreigners!
A quick summation reveals a total deficit in 38 years of $664060000000...for a small economy like ours it is unbelievable. I guess when you get enough zeros it all becomes meaningless :-( I keep wondering how many beer cans it is!
I'm not extremist or anything...I just think all those who have been responsible for this over the last 40 years should be publicly hung!!!
My homeland, Canada, did something very similar over roughly the same time frame (60's, 70's, 80's) and then hit the wall with creditors. The bloody worthless politicians had taken things to such a state that the Canadian dollar, which traded above par US$ in 1976, was about to break below 60 cents US, and there was serious risk of an IMF supervised work out. Income taxes went up dramatically, a new 7% consumption tax (GST) was imposed, government cut spending, and after a number of years the fiscal situation gradually improved. Although the national debt is still fairly high, Canada is the only G7 nation that has been running a surplus, even before the commodity boom started.
But it took crisis conditions before anything happened...:(
Isn't this McTeer worm, one of the inflationists selected by George Bush and his neo-cons to sit on the FOMC?
And then we have Arthur Laffer, the inflationist, who helped dream-up Reaganomics. Some laughs from Laffer: "Deficits don't count," or "Too many people want to hold our dollar," or "Fed monetary policy has been simply wonderful lately," or "The world has a problem with too much savings, " etc.
The old case of the long vs. the short.
All those statements are fine in the short term, but implemented over decades causes disaster.
EJ writes in:
..."Left to the market" if you discount the furious buying of US treasury and agency paper over the past few years to support the dollar, where purchases are in proportion to political not economic need...
...Bart points out the first major flaw in McTeer's cheap currency free lunch argument: trade partners eventually have to respond with depreciations of their own if the export benefits accrued to the depreciation instigator that seeks to externalize its economic problems start to create economic problems for trade partners. The second major flaw: No mention of the inflationary impact of a sustained weak currency, now so severe TIPS are officially producing a negative return (see TIPS' Yields Show Fed Has Lost Control of Inflation (http://www.bloomberg.com/apps/news?pid=20601087&sid=aIbnAuYWv3A0&refer=home)).
Few things, other than ballistic missiles, follow an uninterrupted path straight up or straight down...
Dollar's Slump Puts Morgan on `Intervention Watch'
By John Fraher and Simon Kennedy
March 14 (Bloomberg) -- The dollar's record-breaking slide may trigger the first coordinated effort to shore up the currency in 13 years, according to strategists at Morgan Stanley and Goldman Sachs Group Inc.
The currency yesterday fell below $1.56 a euro and slumped to the lowest level in 12 years versus the yen. That has prompted complaints from European Central Bank President Jean- Claude Trichet (http://search.bloomberg.com/search?q=Jean-%0AClaude+Trichet&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) and Japanese Finance Minister Fukushiro Nukaga (http://search.bloomberg.com/search?q=Fukushiro+Nukaga&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1). U.S. Treasury Secretary Henry Paulson (http://search.bloomberg.com/search?q=Henry+Paulson&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) said yesterday he backs a ``strong dollar'' and refused to elaborate when questioned at a press conference in Washington.
The challenge for officials is fighting the $3.2 trillion- a-day currency market while the Federal Reserve reduces interest rates (http://www.bloomberg.com/apps/quote?ticker=FDTR%3AIND) and the U.S. economy falters. With traders increasing bets on a weaker dollar, the Group of Seven nations may be compelled to act, some strategists said.
``We're on an intervention watch,'' Stephen Jen (http://search.bloomberg.com/search?q=Stephen+Jen&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), Morgan Stanley's London-based head of foreign-exchange research, said in a telephone interview. ``While I don't think we have reached the threshold yet, the argument in favor of it is gradually becoming compelling.''
The dollar yesterday dipped below 100 yen for the first time since 1995, when the G-7 last stepped in to prop up the currency. It's lost 15 percent against the euro since September as the Fed's rate reductions dull the currency's allure. The slide has accelerated in the past two weeks...
...``The dollar's fall will worry other markets, which are so fragile right now,'' O'Neill said in a telephone interview. ``Intervention will definitely be on the minds of policy makers.''
Any action by the G-7 would be the first since its governments united in September 2000 to boost a falling euro. The dollar sank as low as 79.75 yen in 1995 to prompt a rescue then...
...``Failed intervention is worse than no intervention,'' said Turner, ING's head of currency research in London. ``Policy makers have their hands tied and will defer to the global priority of the Fed slashing interest rates.''...
...``A change in the G-7 statement is highly likely in April,'' said O'Neill. ``Whether they can last until then without doing anything is another question.''
And here's the Great Leader's thoughts on the situation...
...U.S. President George W. Bush said this week in an interview with the U.S. Public Broadcasting Service that the dollar is ``adjusting'' and its decline isn't ``good tidings.''...
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aRuaV_I59sh8
Jim Nickerson
03-15-08, 08:11 PM
Few things, other than ballistic missiles, follow an uninterrupted path straight up or straight down...
Dollar's Slump Puts Morgan on `Intervention Watch'By John Fraher and Simon KennedyMarch 14 (Bloomberg) -- The dollar's record-breaking slide may trigger the first coordinated effort to shore up the currency in 13 years, according to strategists at Morgan Stanley and Goldman Sachs Group Inc. The currency yesterday fell below $1.56 a euro and slumped to the lowest level in 12 years versus the yen. That has prompted complaints from European Central Bank President Jean- Claude Trichet (http://search.bloomberg.com/search?q=Jean-%0AClaude+Trichet&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) and Japanese Finance Minister Fukushiro Nukaga (http://search.bloomberg.com/search?q=Fukushiro+Nukaga&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1). U.S. Treasury Secretary Henry Paulson (http://search.bloomberg.com/search?q=Henry+Paulson&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) said yesterday he backs a ``strong dollar'' and refused to elaborate when questioned at a press conference in Washington. The challenge for officials is fighting the $3.2 trillion- a-day currency market while the Federal Reserve reduces interest rates (http://www.bloomberg.com/apps/quote?ticker=FDTR%3AIND) and the U.S. economy falters. With traders increasing bets on a weaker dollar, the Group of Seven nations may be compelled to act, some strategists said. ``We're on an intervention watch,'' Stephen Jen (http://search.bloomberg.com/search?q=Stephen+Jen&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), Morgan Stanley's London-based head of foreign-exchange research, said in a telephone interview. ``While I don't think we have reached the threshold yet, the argument in favor of it is gradually becoming compelling.'' The dollar yesterday dipped below 100 yen for the first time since 1995, when the G-7 last stepped in to prop up the currency. It's lost 15 percent against the euro since September as the Fed's rate reductions dull the currency's allure. The slide has accelerated in the past two weeks......``The dollar's fall will worry other markets, which are so fragile right now,'' O'Neill said in a telephone interview. ``Intervention will definitely be on the minds of policy makers.'' Any action by the G-7 would be the first since its governments united in September 2000 to boost a falling euro. The dollar sank as low as 79.75 yen in 1995 to prompt a rescue then......``Failed intervention is worse than no intervention,'' said Turner, ING's head of currency research in London. ``Policy makers have their hands tied and will defer to the global priority of the Fed slashing interest rates.''......``A change in the G-7 statement is highly likely in April,'' said O'Neill. ``Whether they can last until then without doing anything is another question.'' And here's the Great Leader's thoughts on the situation...
...U.S. President George W. Bush said this week in an interview with the U.S. Public Broadcasting Service that the dollar is ``adjusting'' and its decline isn't ``good tidings.''...
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aRuaV_I59sh8
What could happen with regard to the slide in the bonar?
Here's a guy's opinion who posts articles on decisionpoint.com
http://www.decisionpoint.com/TAC/PAULENOFF.html
3/14/08
Forward Thinking for the Markets
Friday March 14, 2008
By Mike Paulenoff MPTrader.com (http://www.mptrader.com/)
I am not the only market-watcher who has noticed that although the news seems to get progressively worse for the banks and brokers, and stress to the financial system and the Fed (lender of last resort) gets progressively more intense, the stock indices for the most part have held above their January lows. The Jan. 22 low in the Dow at 11,635, for instance, was tested Monday at 11,732, and perhaps we should consider Friday's low at 11,833 as yet another test -- amidst treacherous news and innuendo about the efficacy of Bear Stearns. And what about the transportation average (DJTA), which did not come within 8% of its Jan. 22 low on any pullback (yet) despite $110/bbl oil and a barrage of expectations that a deep recession is in progress?
Do we give the market kudos for such relative strength? Are the equity indices looking "out there" and seeing something much more positive than the current news and "forward thinkers" see?
I have one theory, having spent eight years proprietary trading foreign exchange for a major NYC bank: that the powers that be realize the dollar has to stabilize or be stabilized and that the carte blanche one-way "freebie" dollar short has got to come to an end -- to ensure that the global financial markets do not implode. If the G-7 or the G-10 coordinated a powerful intervention to sell euro and yen, to buy dollars, then my sense is that a massive one-way trade would rip towards the exits, the dollar could soar 5%-8%, gold and commodities would take a bath, oil would plunge, the flight-to-quality in bonds would be reversed, and money likely would flow into equities in a hurry.
Of course, intervention is no panacea, and the longer the trend, the more bouts of intervention usually are necessary to turn the currency in question (the dollar). In the past 30 years, periods of intervention by the central banks dissuaded the speculators, and ended up putting in major turns.
The stakes are higher now than at any time in my career. If the Fed is intervening in the credit markets to stabilize the money markets, my sense is that foreign exchange intervention has to be on the table as one of its next moves -- to show the interventional investment and banking community that the authorities will spare no effort to restore faith in the markets, and in themselves.
With all of the above in mind, let me reassure you that forex intervention remains only a guess on my part, and I don't base any of my analysis or strategy on the "hope" of intervention. My work is my work... and that is what I use in practice. My theories stay theories, until proven otherwise.
What could happen with regard to the slide in the bonar?
Here's a guy's opinion who posts articles on decisionpoint.com
http://www.decisionpoint.com/TAC/PAULENOFF.html
3/14/08
Forward Thinking for the Markets
Friday March 14, 2008
By Mike Paulenoff MPTrader.com (http://www.mptrader.com/)
your post makes me nervous, jim. but then i think back to this:
..``Failed intervention is worse than no intervention,'' said Turner, ING's head of currency research in London. ``Policy makers have their hands tied and will defer to the global priority of the Fed slashing interest rates.''...
and i also think about how soros made a killing taking the opposite side from the bank of england.
i don't see how the ecb intervenes successfully unless it simultaneously lowers rates. everything trichet has said lately argues against a rate move there. so any intervention would be undermined by his interest rate policy.
the boj could buy dollars, no doubt. but unless u.s. markets stabilize, the unwinding of the yen carry trade will work to undermine their efforts.
so i think intervention could throw a scare into the dollar shorts [myself included] but [i tell myself] i don't see anything fundamental changing. that is, until we reach the stage of competitive devaluations.
edit: i recalled that bernanke's "helicopter speech" contained some passages about the value of the dollar, so i reviewed it. the passages, not surprisingly, are about preventing deflation, and so the remedy [the fed buying foreign government bonds] was aimed at devaluing the dollar, not supporting it. similarly, he mentions roosevelt's revaluation of gold, i.e. devaluation of the dollar, approvingly. are we sure the fed and the treasury are really unhappy with the plummeting dollar?
The Outback Oracle
03-15-08, 11:47 PM
Sorry that total CAD figure is $6640600000000....I left off one zero...hell what's a zero here and there!!! I believe it is like $332.000 for every man woman and child in Aus. BUT i WILL CHECK MY MATHS
your post makes me nervous, jim. but then i think back to this:
..``Failed intervention is worse than no intervention,'' said Turner, ING's head of currency research in London. ``Policy makers have their hands tied and will defer to the global priority of the Fed slashing interest rates.''...
and i also think about how soros made a killing taking the opposite side from the bank of england.
i don't see how the ecb intervenes successfully unless it simultaneously lowers rates. everything trichet has said lately argues against a rate move there. so any intervention would be undermined by his interest rate policy.
the boj could buy dollars, no doubt. but unless u.s. markets stabilize, the unwinding of the yen carry trade will work to undermine their efforts.
so i think intervention could throw a scare into the dollar shorts [myself included] but [i tell myself] i don't see anything fundamental changing. that is, until we reach the stage of competitive devaluations.
edit: i recalled that bernanke's "helicopter speech" contained some passages about the value of the dollar, so i reviewed it. the passages, not surprisingly, are about preventing deflation, and so the remedy [the fed buying foreign government bonds] was aimed at devaluing the dollar, not supporting it. similarly, he mentions roosevelt's revaluation of gold, i.e. devaluation of the dollar, approvingly. are we sure the fed and the treasury are really unhappy with the plummeting dollar?
jk: I don't think we can be sure of the Fed's relative "happiness" about many things these days.
The "plummeting" part would seem to be the risk. I doubt any of the Central Banks, not even Venezuela and Iran, would welcome a dollar crisis in the form of a collapsing currency.
Few things, other than ballistic missiles, follow an uninterrupted path straight up or straight down...
The risk of intervention is rising, and the potential investment consequences, short term at least, may be significant.
babbittd
03-16-08, 01:17 AM
This article is preparing the public for US assets sales to foreign dollar holders.
Bill, did you have a chance to check out the hearing on SWF held by the Fin. Services Subcommittee on March 5th?
Matthew Slaughter, Associate Dean and Professor of International Economics, Tuck School of Business, Dartmouth College (.pdf): (http://www.house.gov/apps/list/hearing/financialsvcs_dem/slaughter030508.pdf)
...Third, we could incur economic damage to the overall U.S. economy by raising the risk of a disorderly adjustment to the chronic U.S. current-account deficits of recent decades. In 2006, the U.S. current account deficit reached a record high of $811.5 billion. The main economic cause of this deficit is low U.S. national savings relative to U.S. national capital investment. To finance the excess of imports over exports of goods and services that underlies these current-account deficits, each year the United States must, on net, sell an equivalent amount of assets to the rest of the world. So, in 2006 the United States needed to sell $811.5 billion worth of U.S. assets to foreign investors.
In current discussions of international economic policy, there is much concern about the future path of the U.S. current-account deficit. The likelihood of a gradual, orderly evolution of the U.S. current account deficit—and of the value of the U.S. dollar—will be higher the wider is the range of U.S. assets the rest of the world can reasonably purchase and the wider is the range of foreign investors—including Sovereign Wealth Funds.
Simon Claude Israel, Executive Director of Temask Holdings out of Singapore also spoke at the hearing (http://www.house.gov/apps/list/hearing/financialsvcs_dem/israel030508.pdf) (.pdf) and had some very interesting things to say about the structure of the Singaporean government:
To ensure fiscal discipline, the Singapore Constitution limits how the government of the day can use accumulated national reserves. It also empowers the President -- elected directly by Singaporeans every six years - to oversee the management of national reserves. (The President of Singapore plays a very different role in Singapore’s system than the President of the United States plays in the US system. The President of Singapore is a non-Executive and sits apart from the Government and cannot be a member of any political party or engage in any commercial enterprise.)
The Constitution limits the Government to using surpluses accumulated during its current term of office. Each election heralds a new term of government, and any surpluses at the change of government are locked up as past reserves. To draw on past reserves accumulated by preceding administrations, approval must be sought from the President. This aims to prevent a profligate government from wasting away past reserves.
Imagine that, constitutionally mandated fiscal responsibility...
What if the big attempt at adding a balanced budget amendment to the Constitution had passed in '82? Wither the FIRE economy, the tech bubble, the housing bubble and the invasion of Iraq (even after 9/11, assuming that also still happens)?
What could happen with regard to the slide in the bonar?
Here's perhaps an early warning sign...
Bank of Israel Bought Dollars to `Anchor' Shekel, Fischer Says
By David Rosenberg and Alisa Odenheimer
March 16 (Bloomberg) -- The Bank of Israel bought dollars last week after the shekel strengthened against most world currencies, indicating the local foreign currency market wasn't ``anchored well,'' Governor Stanley Fischer (http://search.bloomberg.com/search?q=Stanley+Fischer&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) said.
The decision to buy dollars and weaken the shekel has so far been ``successful,'' Fischer told a news conference today at the bank's Jerusalem headquarters. The central bank will only act in the market under ``rare circumstances,'' he said.
``We don't intend to intervene to fix the value of the currency,'' Fischer said. ``We will continue to rely on the market under exceptional circumstances. We hope that intervention will be rare.''
Citing the market's ``exceptional behavior,'' the central bank bought foreign currency on March 13 and 14, the first time it had entered the market to influence the exchange rate since 1997. The move came after the shekel appreciated to 3.3531 to the dollar on March 13, its strongest in about 11 years.
Fischer is trying to balance efforts to control inflation, which has risen to above the government's target for the past three months, with concerns about a slowing economy. A strong shekel likely will crimp Israeli exports at a time when the U.S. is leading a deceleration of the global economy.
The Israeli currency had appreciated as much as 14 percent against the dollar since the middle of December, ignoring a 0.5 percentage point reduction in the Bank of Israel's base rate (http://www.boi.gov.il/deptdata/monetar/monetari_press_all_eng.htm) to 3.75 percent, announced Feb. 25.
Bank Said Divided
Bank of Israel officials are divided about whether to continue buying dollars or cut the base lending rate, to stem a strengthening of the shekel, Yediot Ahronot (http://www.ynet.co.il/home/0,7340,L-6,00.html) reported today, without saying where it got the information.
While the central bank will probably enter the market again tomorrow, many officials at the central bank support the alternative of an interest rate cut of between 0.5 percentage point and 1 point to weaken the shekel by reducing the rate differential with the U.S., Yediot said. They say buying dollars will inject more shekels into the economy, boosting inflation, the newspaper said.
The shekel doesn't trade on Sundays. The yield on the government's Shahar bond due in 2016 fell to 5.33 percent today, its lowest since July, amid expectations that the Bank of Israel will lower interest rates again when it meets on March 24.
At the current shekel-dollar exchange rate, the Bank of Israel will probably cut the interest rate by 50 basis points, Leader & Co. said today in a note to investors. It said the central may be able to ``halt or at least slow'' the shekel's gains by buying dollars.
Interest Rate Outlook
Psagot Investment House Ltd. said Fischer may opt for a rate reduction of as much as 1 point before the next scheduled rate decision.
Among Fischer's concern is how the U.S. Federal Reserve will act this week. The Fed has lowered its benchmark rate five times since September to 3 percent from 5.25 percent, and a survey of 85 economists by Bloomberg shows 56 percent expect a 1 percentage point cut to 2 percent and 44 percent expect a 75 basis point reduction to 2.25 percent on March 18.
http://www.bloomberg.com/apps/news?pid=20601087&sid=a_mTiOAyV_4w&refer=home
Bill, did you have a chance to check out the hearing on SWF held by the Fin. Services Subcommittee on March 5th?
Matthew Slaughter, Associate Dean and Professor of International Economics, Tuck School of Business, Dartmouth College (.pdf): (http://www.house.gov/apps/list/hearing/financialsvcs_dem/slaughter030508.pdf)
With the support of the U.S. Treasury Department and others, the International Monetary Fund has
launched a discussion with several Funds to create and follow a set of best practices. These
discussions are well underway and should be supported.
Take the money!
Jim Nickerson
03-16-08, 11:51 AM
I don't know if there is a better place for this or not. I have terrible cold/flu and don't give a shit.
Albert Edwards (Société Générale): Uravelling commodities
“Commodity prices and emerging markets will unravel before the end of the year, and it is highly likely that the developed world will see negative headline consumer price inflation within 12 months, believes Albert Edwards, global strategist at Société Générale.
“‘Investors believe they have found a safe haven in commodities and decoupling emerging markets – and commodities have become totally detached from fundamental and cyclical logic in the process,’ he says. ‘The structural arguments supporting these bubbles will turn to cyclical sand.’ Mr Edwards believes one factor will trump all others to destroy the emerging market and commodity boom.
“‘The unfolding US consumer recession is likely to suck liquidity away from the Emerging Market (EM) region as the US current account deficit declines and EM accumulation of foreign exchange reserves slows sharply. As EM asset prices slide and decoupling arguments evaporate, commodity prices will react sharply as recent speculative ‘safe haven’ froth unwinds.’
“Mr Edwards goes on: ‘After the biggest cost push pressures on inflation from commodity prices in decades, isn’t it absolutely amazing that the worst core inflation can do is hover around 2% (slightly higher in the US, slightly lower in Europe and ‘slightly zero’ in Japan). As commodity prices slide in this downturn, expect negative headline CPI inflation within 12 months.’”
Source: Albert Edwards, Société Générale (via Financial Times (http://www.ft.com/cms/s/0/21a46d66-f047-11dc-ba7c-0000779fd2ac.html)), March 12, 2008.
http://www.investmentpostcards.com/2008/03/16/words-from-the-investment-wise-for-the-week-that-was-march-10-16-2008/#more-674
Would "negative headline CPI inflation within 12 months" equal deflation?
Do you reckon this guy knows WTF he is writing about?
metalman
03-16-08, 12:04 PM
I don't know if there is a better place for this or not. I have terrible cold/flu and don't give a shit.
http://www.investmentpostcards.com/2008/03/16/words-from-the-investment-wise-for-the-week-that-was-march-10-16-2008/#more-674
Would "negative headline CPI inflation within 12 months" equal deflation?
Do you reckon this guy knows WTF he is writing about?
sorry you're sick.
when i read stuff like this without so much as a farting note about currencies i shake my head in wonder. how do you have deflation in a depreciating currency, albert? yes, "core" inflation is up 2% as everything else pushed up by import prices is yanked out of the index. duh. come over, eat and drink and drive and tell us all about 2% inflation.
what's Société Générale angle, i wonder? short commodities, i guess. albert is either on the other side of the trade or he's just a ******* idiot. i also suspect he doesn't know who his daddy is.
Starving Steve
03-16-08, 01:53 PM
sorry you're sick.
when i read stuff like this without so much as a farting note about currencies i shake my head in wonder. how do you have deflation in a depreciating currency, albert? yes, "core" inflation is up 2% as everything else pushed up by import prices is yanked out of the index. duh. come over, eat and drink and drive and tell us all about 2% inflation.
what's Société Générale angle, i wonder? short commodities, i guess. albert is either on the other side of the trade or he's just a ******* idiot. i also suspect he doesn't know who his daddy is.
My 2cents:
Bill Bonner of The Daily Reckoning says that the U.S. (and maybe the rest of the world) may be in for a mix of both asset deflation and hyper-inflation in the cost of living. So, if he is right, and I think he is, then the result in numbers ( in the language of the geeks in the central banks ) is that everything will be wonderful: mean inflation will be low or zero.
Adopting this kind of central bank planning to a camping trip: Put one leg in ice-water and the other leg in your campfire, then go to sleep. Your mean temperature will be perfect. :)
My 2cents:
Bill Bonner of The Daily Reckoning says that the U.S. (and maybe the rest of the world) may be in for a mix of both asset deflation and hyper-inflation in the cost of living. So, if he is right, and I think he is, then the result in numbers ( in the language of the geeks in the central banks ) is that everything will be wonderful: mean inflation will be low or zero.
Adopting this kind of central bank planning to a camping trip: Put one leg in ice-water and the other leg in your campfire, then go to sleep. Your mean temperature will be perfect. :)
"Asset deflation and hyper-inflation in the cost of living."
We've been saying that for several years.
"Asset deflation and hyper-inflation in the cost of living."
We've been saying that for several years.
and here are more converts. from alan abelson's column in this weekend's barron's:
The excuse for this little prologue is a recent dispatch from them entitled "It's a dollar bubble -- not a commodity bubble." Since both the dollar and commodities have been making news lately, if not exactly of the same kind, the theme attracted us as timely and the distinction -- between which is and which is not a bubble -- intriguing.
Paul and Lee's firm belief is that commodity prices, despite their recent sprints, still have a long way to run. And the nub of their argument, they coyly contend, is "simple."
To wit: Thanks to the determined debasement of our currency "it will take many more dollars and credit than it does today to purchase a real asset because the global purchasing power of each U.S. dollar is declining at a rapid rate and will continue to do so."
They do not, lest you're ready to leap to the logical conclusion, assume a sharp and quick increase in demand. Rather, they anticipate that "global demand for wheat, energy and base metals will remain relatively constant, even if prolonged recession hits the developed economies." And, they confidently predict that "We're going to see numbers (commodity prices in U.S. dollars) that the world hasn't seen before." Why doesn't that strike is as an unabashed blessing?
As a nation, Lee and Paul reflect, the U.S. is burdened by a monstrous mountain of "paper claims priced from extraordinary high rates of past consumption." To pay off those claims, we're counting on future wage and asset gains and the Fed, almost reflexively, is doing its part by steadily providing us with fresh infusions of money and credit.
As it happens, the money and credit the Fed is destined to continue to create is "the currency with which commodities are traded globally." So, the QB duo contends, "the nominal prices of those commodities must continue rising" because the currency will continue to be diluted.
it is the gradual and ongoing conversion of disbelievers into believers [in your investment hypothesis] that keeps prices moving your way. perhaps some readers of abelson's column will also be swayed.
Here's perhaps an early warning sign...
Bank of Israel Bought Dollars to `Anchor' Shekel, Fischer Says By David Rosenberg and Alisa OdenheimerMarch 16 (Bloomberg) -- The Bank of Israel bought dollars last week after the shekel strengthened against most world currencies, indicating the local foreign currency market wasn't ``anchored well,'' Governor Stanley Fischer (http://search.bloomberg.com/search?q=Stanley+Fischer&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) said. The decision to buy dollars and weaken the shekel has so far been ``successful,'' Fischer told a news conference today at the bank's Jerusalem headquarters. The central bank will only act in the market under ``rare circumstances,'' he said.
Here's another potential early warning sign...
Korean Won Gains After Government Says It Will Act If Needed
By Kim Kyoungwha
March 18 (Bloomberg) --South Korea's won rose the most in almost seven years after the government and central bank pledged to take action against the currency's decline if necessary.
The local currency ended 12 days of losses after Deputy Finance Minister Shin Je Yoon said in a statement before trading opened that the authorities will ``form a joint team'' to monitor the market. The won had the biggest decline yesterday since 1998, touching the lowest level in more than two years.
``There were some orders for the won that appear to be intervention,'' said Ko Yun Jin (http://search.bloomberg.com/search?q=Ko+Yun+Jin&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), a currency dealer at Kookmin Bank based in Seoul. ``The amount is a bit too large to consider it exporter demand...
...``If we judge the market doesn't stabilize, the foreign currency authorities will take necessary measures,'' Shin said in the statement issued in Gwacheon. ``The government and the Bank of Korea will form a joint team to monitor the currency market closely.''...
...Korean institutions have invested ``aggressively'' in overseas equities with ``aggressive currency hedging'' buying the won in the past few years, according to Morgan Stanley. As the world's equity markets are sold off, these hedges are also being unwound, Stephen Jen (http://search.bloomberg.com/search?q=Stephen+Jen&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1), chief currency strategist at New York-based Morgan Stanley, wrote in a research report yesterday.
The won is ``one canary in the coal mine'' and other regional currencies may follow it by weakening, Jen said. ``The won is the most remarkable example of how the dollar could rally in the face of unnerving news. Others will follow.''...http://www.bloomberg.com/apps/news?pid=newsarchive&sid=afJWo4yTD98Y
[/indent]Here's another potential early warning sign...
Korean Won Gains After Government Says It Will Act If Needed
On the other hand...
Strauss-Kahn Sees No Need for Currency Intervention
By Sandrine Rastello
March 17 (Bloomberg) -- International Monetary Fund Managing Director Dominique Strauss-Kahn (http://search.bloomberg.com/search?q=Dominique+Strauss-Kahn&site=wnews&client=wnews&proxystylesheet=wnews&output=xml_no_dtd&ie=UTF-8&oe=UTF-8&filter=p&getfields=wnnis&sort=date:D:S:d1) said the plunge in the dollar shouldn't prompt central banks to prop up the currency.
``We are in a more tense situation'' in foreign-exchange markets, Strauss-Kahn told reporters in Paris today. ``It doesn't appear that in this situation central banks need to intervene. But even if I thought they should, it's not up to the IMF director to make a public declaration.''...
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=axX1J1PhYQS0
Bill, did you have a chance to check out the hearing on SWF held by the Fin. Services Subcommittee on March 5th?
Update:
http://www.house.gov/apps/list/hearing/financialsvcs_dem/hr101008.shtml
Sovereign Wealth Funds: New Challenges from a Changing Landscape
Wednesday, September 10, 2008, 2:00 p.m., Rayburn House Office Building, Room 2128
DIMP
Click Here To Watch Archived Webcast (http://financialserv.edgeboss.net/wmedia/financialserv/hearing091008.wvx)
DIMP Subcommittee Hearing to Examine Sovereign Wealth Funds
phirang
10-06-08, 09:35 PM
The worse the credit crunch gets, the more debt that gets incorporated into the US debt markets. The credit-crunch is the dollar-hegemony catalyst.
Now we're talking a commercial paper market getting taken over by the Fed??? huh!?
Gee, maybe going long the 10 yr is the trade of the year! Yields are still a bit high if the Fed really wants to ramp up the economy.
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