Economics, currency and geopolitics

[xpanda]

Alright. So here we are. GWB Four More Years and blah blah. Y'all know I'd like to see him cold on the floor with a hole between his eyes, so I'm not going to turn this thread into a Bush-bashing opportunity. I've had plenty of those already and suspect more will follow.

This thread is intended to be a wee bit serious, so indulge me if you will.

I'm reading today several disconcerting things that worry me tremendously. A couple of weeks back we heard that both the Russian central bank and Cuba had decided to stop supporting the US dollar. The latter is obviously for political reasons while the former left me a little perplexed. Taken in combination with Putin's new dictatorial efforts and his ratifying Kyoto, I see this maneouvering as an attempt to counter US hegemony, perhaps readying his populace for a confrontation vis à vis Iran and gaining some international support.

Now, today I read this:

India and Russia have reportedly been selling US assets, as well as petrodollar-rich Middle Eastern investors.

China, which has $515bn of reserves, was also said to be selling dollars and buying Asian currencies in readiness to switch the renminbi's dollar peg to a basket arrangement, something Chinese officials have increasingly hinted at. Any re-allocation could push the dollar sharply lower and Treasury yields markedly higher.

http://news.ft.com/cms/s/257979a6-3...000e2511c8.html

In addition, OPEC is making a case for foreign aid should nations begin to move to renewable energy sources, and lessening their reliance on ME oil. This may well signal an awareness by the Saudis that the US is on the verge of abandoning them, given the domestic attitudes toward the Saudi Royals. To counter/avenge this, and/or to encourage aid to ME states, might OPEC move to the Euro?

http://edition.cnn.com/2003/TECH/science/12/12/climate.kyoto.reut/index.html

Could it be that the Bush administration's real goals with the tax cuts for the über-rich, strange-but-true immigration practices (at least where Mexicans are concerned), and the (likely) intentional depreciation of the US dollar, are to bring back manufacturing to the US, making it all the more attractive by offering up an array of cheap labour and exports? Or, are forces working against the US, in the guise of China, Russia and the EU, in an effort to stimulate the fall of the US as global hegemon?

Right now I'm wishing I'd majored in Economics ...

Thoughts from anyone who knows their shît would be greatly appreciated.

 

[JinnRikki]

I'm no economist, but long have I pondered illegal immigration and the governments inaction to it. I believe someday in the not to distant future amnesty and the privilege to pay taxes will be offered up to the illegals. I think this will be part of a strategy to shore up social security which will soon be bankrupt when the baby boomers start retiring in greater numbers in the next 5-10 years. I'm not sure that manufacturing in the U.S. will ever be able to compete as long as there is a minimum wage. Of course bush probably has plans to abolish that also.

 

[eek.]

2cents
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If I was an Islamic I would unload at least half my USA stuff.

The christian fundamentalists gave him a mandate.
Being a Moslem in the US is relatively high risk at the moment anyway.

There could be a freeze on Islamic assets for various 'reasons'.
sell high, buy low, coupled with a large dose of "by allah! they re-elected him!"

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If I was Russian I would try and make a buck out of anything.
sell high, buy low.

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If I was Chinese I would insure the intrinsic value in my savings pot by uncoupling it from the dollar, at least for a while.
sell high, buy low

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Bottom line

Everyone can see that Bush is crashing the $$, and he's not noted for his changes in policy.

 

[PatPatriot]

and the privilege to pay taxes

There is no law that says you can't pay more taxes if you want.

Sombody forgot to tell Kennedy that because when his mother died he had the misfortune of making the will out in Fla. he lost his privilage of paying state tax in Mass. and had is privilage of paying tax in Fla. taken away because their is no state tax in inheritence.....gee if he only knew.

 

[GAMEFACE]

When I say doom you say gloom and the beat the goes doom gloom boom gloom doom!

If Americas economy/dollar crashes all others follow closely, so pray to GOD for the best.

 

[xpanda]

When I say doom you say gloom and beat the goes doom gloom boom gloom doom!

If Americas economy/dollar crashes all others follow closely, so pray to GOD for the best.

[sarcasm] Really? You mean my economy might falter if the US collapses? Is this another example of how you demonstrate that you're never wrong??? [/sarcasm]

No shît, dumbàss. That's what I'm trying to dig for here. I want to find out how severe this stuff is, how it inter-relates and what I can do (if anything) to protect my investments without overreacting. Your constant dismissal of such actual issues (doom and gloom blah blah blah) demonstrates a belief that the US is invincible. Why would you think that? What evidence do you have to support this position?

Your solution to pray for the best certainly isn't very helpful.

 

[DarrylParsons]

IMO market forces will prevail over any centrally orchestrated plan just as they have done all through history. I'm betting on the dollar strengthening vs. the euro and I've even got a modest futures position to support that. The reasoning is nothing more than people and businesses acting on the new incentives they are getting from the weak dollar. Of course I could be wrong but my track record on currency trading has been pretty decent thus far.

 

[bblight]

What would happen to the $ if an A bomb goes of in downtown Manhattan? I expect the economy would take a serious dive. A big time war would follow - because even the diehards like Doc would be screaming for heads!

Mexico and Canada would also tank, since their economies are tied to ours.

And much of the rest of the world would go with it!

Think about it - what % of Euro GNP is tied to US exports?

Thinks about this also - right now, the Canadian $ is at about .83, up from about .76 - that's nearly 10%. Ditto the rest of the major currencies.

For America, the currency rise has mixed blessings: -
the cost of the dollar keeps me at home and makes it easy for foreigners to vacation here. But the raising cost of foreign imports prevents me from buying as much or as often - even Walmart will feel the Pinch. And those manufacturing companies who purchase materials from foreeign countries will also feel the pinch.

This helps no one and hurts everyone.

But, if I thought an A bomb were about to go off in mid town Manhattan, I'd sell the $ in a second!

 

[xpanda]

IMO market forces will prevail over any centrally orchestrated plan just as they have done all through history. I'm betting on the dollar strengthening vs. the euro and I've even got a modest futures position to support that. The reasoning is nothing more than people and businesses acting on the new incentives they are getting from the weak dollar. Of course I could be wrong but my track record on currency trading has been pretty decent thus far.

What's your timeframe on this? Speculation that I am reading pits the Canadian dollar to rise above the US dollar perhaps within the year ... I've got a whack of cash tied up in US funds and would rather bail now than when it hits $1.05CAD. Or, do I just sit on it, maybe even buy more if it tanks further, and then sell when it rises back to normal levels? I read that if it hits $1.60 against the Euro, it will signal the collapse of the US economy entirely. Do you have any thoughts on that?

(I'm borderline retarded when it comes to currency valuation, ftr. Maybe I shoulda got married after all. )

 

[bblight]

xpanda,

Think about what would happen to your economy if the Canadian dollar went above the US $ in a few months.

First, there'd be an inflationary backlash as the value of the Canadian $ went up - what would happen with interest rates - 10%, 15%, more? - what would a can of beans cost? Then, your products would be to expensive to sell to your largest trading partner (that's us) - your economy would quickly tank.

In the US, the opposite would happen - the cost of foreign goods would go out of sight, but the cost of US goods on foreign markets would be very cheap. Our trade deficit would shrink and disappear. Those companies that are dependant on imports for their manufacturing process would have to pay more - jobs in those areas would shrink.

The Pharmaceuticals companies would feel the pinch as very few drugs are manufactured in the US - they've been litigated overseas.

It just goes on and on.

You might want to remember one thing , when economies tank, people go to war.

 

[xpanda]

Judging by your post, it seems you have me mistaken for someone who wants to see the US economy collapse.

I am exceedingly aware of what it's like to have a lower dollar vs. your nearest competitor. When ours hovers around the 72-75 cent point, we benefit tremendously; tourism and exports increase, imports decrease. I am also more aware than you how intimately tied my economy is to yours. We fundamentally rely on the US market for our exports -- a full 85% of our exports go to the US. A tanking USD will really hurt us.

I didn't start this thread to get a crash course in what will happen to Canada if the USD tanks. I started to this thread to determine if, and when, we can predict that the USD will tank. The articles I point to are worrying me, is all.

Thus, please stop with the combativeness. That is not what this thread is aobut.

 

[docmercer--banned]

Xpanda:

The good ol USA is like a drunken woman in a shopping mall with a Credit Card ....

The Neocon attitude of this administration is our downfall

 

[Phaedrus]

xpanda
With the Euro having gone from $ 0.85 to $ 1.29, gold at 16-year highs, other precious metals (with the exception of palladium, which suffers from market manipulation by the Russian government) also at major highs, what makes you think that the dollar has not already collapsed?

Nearly every government in the world holds USD-denominated securities, either Treasury bonds or otherwise, as well as holding large amounts of dollars on deposit, since the USD is the international trade currency. As a result, it can only slide so far before it is either abandoned or propped up. When Hussein traded in his $ 10 billion or so worth of "Oil for Food" money and made a cool couple of billion in the process, I really thought that OPEC would follow suit. This seemed to be the case when Russia announced a plan to price its oil exports in Euros rather than USD a little over a year ago (in fact, the Russian "lack of support" of the dollar is likely nothing more than them finally getting around to doing what they said they would back then.) But as long as OPEC and the IMF support the dollar as a trade currency, it isn't going to go anywhere as far as rapid collapse. It is further possible that if Treasury Secretary Snow does not stay around for a second term, that the trend on the dollar will reverse, since it has been largely as a result of his policies that the dollar has devalued so significantly over the last couple of years (and Snow is one of several Bush cabinet members thought to be leaving, along with Ashcroft, Powell, Ridge and possibly Rumsfeld.)

So, short version is -- watch what Snow announces at the start of the year with regards to his position as Treasury Secretary, and if he leaves what sort of history his successor has.


Phaedrus

 

[Shotgun]

What's your timeframe on this? Speculation that I am reading pits the Canadian dollar to rise above the US dollar perhaps within the year ... I've got a whack of cash tied up in US funds and would rather bail now than when it hits $1.05CAD. Or, do I just sit on it, maybe even buy more if it tanks further, and then sell when it rises back to normal levels? I read that if it hits $1.60 against the Euro, it will signal the collapse of the US economy entirely. Do you have any thoughts on that?

(I'm borderline retarded when it comes to currency valuation, ftr. Maybe I shoulda got married after all. )

Too bad the Expos already left...that might have helped them out a bit. Isn't the dollar about where it was in the late 70's when compared to the Pound? The dollar has been pretty strong for a while now...if it weakens a little there isn't a problem. I don't understand why the Euro would be so high...Europe has far more economic problems than the US. Maybe George Soros is getting ready to crash the Euro.

Here's a fine website made just for you Xpanda. Unfortunately the overall quality of liberal males in the United States isn't very high; be prepared to set firm ground rules regarding bathing, employment, and clean underwear. They also will likely want to share your late-night toys...be ready to share.

http://www.marryanamerican.ca/

 

[lander]

Phaedrus,
This is not a loaded question, but what polocies of Sec Snow do you believe have led to a weaker dollar? Of all the Bush cronies, I admit that Snow is the one that I have followed the least.

Thanks.

 

[Shotgun]

Phaedrus...why is the Euro so hot right now? The German and French economy is far worse than the US; doesn't that matter?

 

[Anonymous1]

i would like to know why we see "flight to quality" as in fed notes/bonds in times of uncertainty, yet the USD gets hammered at the same time...is not the buying of US notes/bonds a capital inflow by foreign capital...this seems to me to be inconsistent...i think more simply the twin deficits...trade and current account...of the US can only be reduced by a weaker USD...we can't continue to cut tax revenue and expect these to improve as consumption will not make up for the higher federal spending...the USD decline should come as no surprise...however...watch what happens to the USD should our bearded buddy in the mountains be caught/killed...perception...

 

[bblight]

ECB's Trichet Makes an Effort
To Talk Down Value of Euro
By G. THOMAS SIMS
Staff Reporter of THE WALL STREET JOURNAL
November 9, 2004

FRANKFURT -- Jean-Claude Trichet, president of the European Central Bank, yesterday tried to talk down the euro as it hit a new high against the dollar, in an ascent that is putting the euro zone's fragile economic recovery at risk.

For the second time this year, Mr. Trichet warned of the impact of "brutal" moves in currency exchange. The sternest warning since January, his words were designed to correct a feeling among investors that the bank is unwilling to intervene directly to keep the euro from rising further.

But investors remained skeptical, and Mr. Trichet's strategy isn't without risk. Some economists say the ECB chief could be putting the ECB's reputation on the line by trying to break a trend that many investors perceive as unstoppable, unless central banks intervene in concert by buying and selling currencies to influence their value.

After a regular meeting with the world's top central bankers in Basel, Switzerland, Mr. Trichet told journalists, "The recent moves, which tend to be brutal on the exchange markets between the euro and the U.S. dollar, are not welcome from the standpoint of the ECB." Shortly before Mr. Trichet spoke, the euro hit a record $1.2986. It then fell to $1.2907 before gaining again slightly.

In late New York trading, the euro was at $1.2918, compared with $1.2966 in late New York trading Friday. The dollar was fetching ¥105.56, steady from ¥105.59 late Friday, and 1.1818 Swiss francs, compared with 1.1777 francs. The pound was at $1.8558 from $1.8562 late Friday.

Against the yen, the U.S. currency's movements were constrained after Friday's dollar selloff, largely because of concerns over whether Japan's Ministry of Finance will intervene in markets anytime soon.

Fears of growing U.S. budget deficits in the wake of the re-election of President Bush have put the dollar under pressure against a range of currencies. The nearly six-year-old euro is 57% higher than its low in 2000.

The stronger euro is bad news for the European economy primarily because it makes the region's exports relatively more expensive. That is a real concern when exports are the only major force driving growth as the economy struggles to recover from a three-year malaise.

Mr. Trichet's tone yesterday went well beyond that of last Thursday, when he said, "I am very clear that excess volatility and disorderly moves in exchange markets aren't desirable." Despite those words, the euro continued its rise Friday, hitting a record.

Many analysts believed the ECB was secretly pleased because a strong currency also takes the edge off inflation -- which the bank now considers "worrisome" -- primarily by decreasing the price of imports.

The sequence of events of the past few days has parallels to those earlier this year when the euro also was soaring, albeit at a much faster pace. In January, Mr. Trichet warned that he disliked "excessive volatility or excessive turbulence." Financial markets ignored the warning, and a few days later at a similar meeting in Basel, Mr. Trichet also warned that "excess volatility and brutal moves were not welcome and not appropriate."

Mr. Trichet's words then may have helped stem the euro's rise, though other factors likely played a role in enforcing the trend, economists say. For one, the Bank of Japan intervened heavily in financial markets to stem the yen's rise by purchasing dollars and selling yen, and that may have helped weaken the euro, too.

 

[Anonymous1]

blight...when it comes to growth as in exports...gdp...versus inflation don't you think the ECB would much prefer growth...as growth will traditionally bring inflation...last week in the midst of the USD meltdown...nobody made mention of germany and its -1.2 decline in growth in the manufactoring sector...the euros largest country...italy is suffering under major red ink...france is also having fiscal problems...and come wednesday if greenspan and group raise to 2.00% the US short end of the yield curve will be inline with the euro region...so take away yield curve...take away manufactoring growth...take away inflation and whats left...perception...i also think the currency market...by nature...must run on a heavy diet of liquidity...so these types of swings are necessary in order for the market to remain liquid...take the CHF...the last time it traded this high v. the USD was 1996...we were still in recession from the end of the cold war...you think were that bad off now...no way in hell...

 

[Phaedrus]

lander


Snow is basically keeping Rubin's ghost alive by paying lip service to a "strong dollar policy" while allowing the dollar to fall in order to boost American exports and allow for nominal economic growth. While he publicly denies this, it is hard to understand how he expects anyone with any knowledge of economics to take his denials seriously, since this was a successful gambit by Rubin under Clinton and the evidence -- e.g.a lack of attempts by the U.S. government to prop up the dollar, gambling instead on foreign countries whose economies are largely dependent upon the dollar to do so (especially China and Japan) -- is right in front of everyone. Some interesting info and insight can be found here.

Shotgun
I have no idea why the Euro is so popular. It is ultra-soft even by the most generous economic standards. I think it's partially due to a sort of European "economic solidarity" movement. Even considering all of the waves that the latest additions to the EU have been making Latvia for example benefits from having access to a more broadly-accepted and higher-valued currency than the lat. I think that a Euro collapse is far more likely than a USD collapse (although again, how anybody doesn't characterise the USD as "currently collapsed" is beyond me) as far as rapid, year-on-year devaluation goes, as long as the USD remains the currency of choice for foreign trade. Virtually every nation on earth, even many Third World nations, would lose billions and billions of (dollars/Euro/Quatloos/etc.) if the USD was just tanked and retired, which is why it is not likely to happen. The Euro does not enjoy that sort of imperative need for global support, so it basically will enjoy its run only for as long as the assorted EU nations can tolerate each other's crap.


Phaedrus