Friday afternoon greenback funnies:
Dollar Funnies
October 12, 2007 3:30pm by Barry Ritholtz
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I think it’s important to distinguish between a low dollar and a falling dollar. Its not like the dollar will just settle at some level and be good for the economy. Its the actual “dropping” that’s good for the economy!! That means it’s got to keep dropping or else!! No floor!! My theory is there can be no %gain in the S&P without an equal loss in the dollar.
jim – “My theory is there can be no %gain in the S&P without an equal loss in the dollar”
The giant bull market started in 1982 with a high and rising USD (major currency index), crashed in 1987 in the face of a weak USD. The economy slipped into recession in 91 with a falling USD, and markets ran up big in the late 90’s with the USD ramping.
I don’t know that there’s a true cause and effect relationship running from the USD to S&P currently, but the theory doesn’t seem to hold historically.
Data that far back is not relevant to today. The world is completely different. Fact is there is a very strong inverse correlation between the S&P and the Dollar in the last few years. On a daily basis even. That ain’t a coincidence. Its thnx to all that money pumpin and spendin.
Problem is, can’t drop the dollar forever.
As the unfunded liabilities require funding and the fiscal deficit explodes, the world will be shocked how low the dollar gets.
The peak barometer: “It’s different this time.”
Ya you make a great point. A strategy that didn’t work 50 years ago is worthless today. Better test it on a 100 years of data to be sure.
I wonder if there is a set value for the dollar index where the holders of dollars will have to dump them? The dollar is around 78 now, would 70 do it? I wonder if a dollar dump can even happen considering the ginormous amounts foreign countries hold. I think that they would have to eat it, even down to 65 on the index. Anyone have any ideas?
My wife said inflation is getting very bad every time she come back from the store, she can see some food shortages and my kids want larger and larger allowances. I think currency devaluation is at the heart of it.
“That now
Sweno, the Norway’s King, craves composition;
Nor would we deign him burial of his men
Till he disbursed at Saint Colme’s Inch
Ten thousand DOLLARS to our general use.”
Shakespeare
WTF? I smell a rat here try to cover its tracks.
Big Banks Push $100 Billion Plan To Avert Crunch
BY CARRICK MOLLENKAMP, IAN MCDONALD AND DEBORAH SOLOMON
Word Count: 1,167 | Companies Featured in This Article: Citigroup, Bank of America
In a far-reaching response to the global credit crisis, Citigroup Inc. and other big banks are discussing a plan to pool together and financially back as much as $100 billion in shaky mortgage securities and other investments.
The banks met three weeks ago in Washington at the Treasury Department, which convened the talks and is playing a central advisory role, people familiar with the situation said. The meeting was hosted by Treasury’s undersecretary for domestic finance, Robert Steel, a former Goldman Sachs Group Inc. official and the top domestic finance adviser to Treasury Secretary Henry Paulson. The Federal Reserve has …
Soooo…who’s going to fund this?
Who’s going to fund this? Maybe noone.
“The Chairman noted that the President had recently signed the Financial Services Regulatory Relief Act of 2006, which among its provisions gave the Federal Reserve discretion, beginning October 2011, both to pay interest on reserve balances and to reduce further or eliminate reserve requirements.”
http://www.federalreserve.gov/fomc/minutes/20061025.htm
“or eliminate reserve requirements”…
That means unlimited, uncontrolled monetary creation controlled by a handfull of banks….
Say hello to your new currency…the Amero.
Winston, I’m in Canada. There a snowball’s chance in hell that Canadians will transfer control over our monetary policy to Washington. Nil. The topic of the Amero might be known to 1 out of a 1000 up here-maybe. The minute it hits parliament and the street start discussing any currency union, any politician that supports giving up the currency forfeits winning any election ever again. The Amero is not going to happen, ever.
One theory I’ve heard that is credible why the greenback is dropping is the Treasury is actively substituting the GDP lost from housing with that of exports. Alot of sense to this theory. Hence why they have not intervened to halt the slide.
I think that most of us have been missing the ‘forest for the trees’ so to speak here. In this iteration of globalization, the only thing that really matters is a weak currency. NOBODY WANTS A STRONG ONE. That is why China is beating the pants off both the US and Europe. All they wanted was the technology…and now they have it. This is a race to the bottom, and we are still loosing. Do you think Paulson really sits up at night thinking about how he can produce a strong dollar in order to increase the real servicing costs of our national debt? The real tell will come when China devalues their currency again over the next 12 months. The idiots in DC will interpret it as some magnanimous gesture and continue to do Beijing’s bidding. What do we really make in this country again?
1. I smell several rats. Stuart’s post about the Federal Reserve and the big banks $100 billion scheme to bail out shaky mortgage securities and other investments is truly scandalous. The banks have suffered great losses, so how can they bail themselves out? What kind of shell game are the big banks and the Federal Reserve playing? Something is rotten in Washington and Wall Street.
2. Paulson appears to be saying one thing but doing another. A few weeks ago he said the markets are going thru a repricing of risks. Yet here is conniving with his big banker buddies to prevent the repricing of risk.
Winston’s post about the Federal Reserve’s capacity to reduce or eliminate reserve requirements shows the lengths to which the Federal Reserve can go to thoroughly debase U.S. currency.
3. Consider the market-toppling stir caused by Axel Weber’s call to fight inflation:
“European Central Bank governing council member Axel Weber said the bank may need to raise interest rates to a level that restricts economic growth to keep inflation under control.” (Bloomberg Oct 12)
http://www.bloomberg.com/apps/news?pid=20601087&sid=aR6v4VsHuPjw&refer=home#
Axel’s rage against inflation reminded me of a Dylan Thomas poem, revised as follows:
Do not go gentle into that good night,
Old central bankers should burn and rave at the inflation of day;
Rage, rage against the dying of the currency.
4. The bottom line is that Paulson, Uncle Ben, the federal home loan administrators, and the Wall Street establishment are doing all they can to prevent a repricing of risk, even if that means destruction of U.S. currency and run-away inflation.
China’s competitive advantage is not the ratio of its currency to ours. That’s a “nominal” ratio; not a real one.
China’s competitive advantage is cheap, healthy, educated labor that was previously:
(a) heavily regulated, therefore:
(b) underutilized, therefore:
(c) underbid.
Wage and asset inflation in China is doing the job of currency appreciation. Labor is being paid more. With the extra money, they buy cheap land and build more expensive apartments. With more money, they flip it to someone else who now takes on a higher cost basis. For the next worker to afford to buy it again, s/he needs higher wages still.
After the cheap land is bought up, a McDonald’s franchisee must pay higher prices for a new location. There’s less farmland, too. So, now meat costs more. Between those two and many other factors, they must charge more for their burgers.
Eventually, wages, assets, and cost-of-living will adjust — even if the currency does not. The advantage will fade and eventually disappear.
Currency appreciation and wage inflation are two independent variables. As long as one is constrained, the other variable will “do the heavy lifting”. It’s impossible to constrain both. (Unless they return to centralized planning! That ain’t happening.)
Respectfully, I say again that China’s competitive advantage is not the ratio of its currency to ours. I think that is a meaningless statistic, an “intermediate variable”. I think the better comparison is the Big Mac Index. Once a Big Mac costs the same in China as in the US, then — regardless of the currency ratio — the cost of delivering goods and services in China has basically reached parity with the US.
I wish the “China keeps their currency undervalued” accusation disappear from public discourse. Every organization — public or private — tends to “shift blame” somewhere else. So it is with our economy. Oil going up in price? It’s Russia using oil as a weapon. Losing jobs? It’s China not playing fair.
Balance the budget and stop printing money? Oh, no, that can’t be the explanation for inflation. Nope. It’s them foreigners. The US’s competitive advantage has disappeared with the arrival of a billion well-educated competitors? Nope. They’re not playing fairly.
It’s a blame game based on nationalism. Politicians put on the “#1” giant foam finger on one hand and point the other finger abroad. The hometown crowd eats that up.
Its very simple. The US blew a massive real estate bubble and we need to deal with it as soon as possible. The fed and treasury are in ass covering mode right now. Im sure Bob Rubin called and requested more time to sort things out because C is insolvent.
“I think that most of us have been missing the ‘forest for the trees’ so to speak here. In this iteration of globalization, the only thing that really matters is a weak currency. NOBODY WANTS A STRONG ONE”
You want a strong one when you’re a net importer and a weak one when you’re a net exporter.
Americans have been a net importers for the last couple of decades thanks to a strong dollar! Now it’s becoming more and more apparent that Americans are going to have to start exporting to survive.
Now I wonder how fast the the world will adapt to a net exporting US when nearly every country in the world has been built to export to Americans!!!!
As I said in a previous post:
http://www.reuters.com/article/reutersEdge/idUSL1227332920071012
Fund sees move away from dollar-based commodities
LONDON (Reuters) – Resource-rich countries will move away from the dollar as a base for the commodities they produce to protect their earnings as the dollar’s slide accelerates, UK-based Emergent Asset Management told Reuters.
The debate about commodity denomination has heated up over the past few months because the dollar has come under persistent selling pressure as markets started to price in economic slowdown and falling interest rates in the United States.
…
D. wrote: “Now I wonder how fast the the world will adapt to a net exporting US when nearly every country in the world has been built to export to Americans!!!!”
Have you heard of the Doha round? That is the developed countries trying to force the developing ones to buy industrialized goods while putting barriers to import commodities. It is not working and I don’t think it will. The globalization utopia is coming to an end.