when and how does the dollar rally? or does it?

Euro is hitting new highs as we speak, shooting above $1.31. A vacation to Paris is geting more expensive by the minute. I think I'll be spending the holidays somewhere near my neighborhood park instead.

 

Greenspan Hits the Trifecta: Dollar's Decline Inevitable

http://www.cepr.net/columns/weisbrot/greenspan_trifecta.htm

The only feasible way to reduce this foreign borrowing to a sustainable level -- we don't have to have balanced trade -- is for the U.S. dollar to fall against other currencies. This would increase the price of our imports, and reduce the price of our exports to other countries. This is not a bad thing -- in fact it is not only inevitable but necessary in order to save what is left of our manufacturing sector and yes, even recover some of the jobs in that sector that have been lost.

Since 2000 we have lost almost 3 million manufacturing jobs, and the number one cause of this hemorrhaging is actually the overvaluation of the U.S. dollar. If the dollar is overvalued by 30 percent, this is equivalent to giving a 30 percent subsidy to imports entering our markets. At the same time, it is also the same as having U.S. companies face a 30 percent tariff on everything that they export abroad.

It is an understatement to call this a huge disadvantage for U.S. manufacturers. And since wages in the manufacturing sector have historically been higher and have often driven wages in other sectors, the loss of these jobs is one of the causes of increasing income inequality in the United States.

Unfortunately most of our policy makers do not care much about any of these things. Wall Street prefers an overvalued dollar because it keeps inflation low by making imports cheap, and it also makes it cheaper to acquire assets (and hire labor) overseas.

So both the Clinton and Bush administrations have officially embraced a policy of maintaining a "strong dollar." This sounds very nice but is comparable to a doctor pursuing a "strong influenza virus" policy for his patients.

 

I love things like this -- making a statement of opinion as if it's fact without any supporting evidence. Well, at least Keller knows that this guy is full of crap. Right, Karl?

That's right, Karl. You tell 'em!

 

According to an influential senior Morgan Stanley executive, the dollar isn't going to rally, and it could take the rest of the economy down with it, unless we're willing to put up with substantial inflation.

http://business.bostonherald.com/businessNews/view.bg?articleid=55356

And he doesn't even get into what can happen if the (mostly) Asian countries that hold so many dollars begin to get nervous.

 

To be fair, the doctrine of American Exceptionalism has predated the rise of the modern faith-based community.

It does raise the question though - is disagreeing with/refuting american exceptionalism, well, unamerican?

 

It wasn't me, it was Karl. He was the one saying that the dollar devaluation was a planned BushCo act to punish those net-exporter Germans and Chinese for their anti-competitive trade policies -- you know, the ones where they sell things to us that we want, and we pay for them. How unfair is that!

For the record I don't think that this dollar drop has been Bush-mandated. I do think that once it started, Bush and Snow were happy to ride it a bit to temporarily increase imports while our economy sagged. But I don't think they planned on the dollar dropping this much even temporarily, and I don't think they have a plan to stabilize it long-term.

 

China hasn't let the yuan float against the dollar in decades, possibly ever. They've pegged it at a low rate vs. the $ in order to keep Chinese exports high.

That's been their prerogative -- they have had the financial capital to buy dollars and US debt on the open market. But if they start selling US debt and dollars instead of buying them, two things will happen:

1. The price of US debt will plummet (less demand / more supply), sending interest rates higher.
2. Those dollars that they've bought over the years will instantly be worth a lot less yuan.

Through both of those acts, they will have lost hundreds of billions in those transactions. That's why they aren't likely to move from their stance any time soon. They'd prefer to have the dollar be a lot stronger before taking that financial hit.

 

The Economist Weighs In: (this is free content)
http://www.economist.com/agenda/displayStory.cfm?story_id=3421877

Run on the Dollar anyone?

Thank God we retired all our credit card debt and bought a fixed rate mortgage on the house.

 

Good move.

Morgan Stanley Chief Economist Predicts Economic "Armageddon"

http://business.bostonherald.com/businessNews/view.bg?articleid=55356

 

That line says it all. Maybe America's budget should have to pass a global test...

 

But wouldn't it make more sense to increase your debts if the currency is about to plummet? You then pay off with worthless future dollars?

 

You're forgetting that interest rates are going to go up...and up...and up...and maybe up a little more. You don't want to have significant debt on credit cards at that point.

 

Slate:Being John Snow
The treasury secretary believes in a strong dollar. He also believes in Santa Claus.

 

As Chi1871 says, there are going to be lots of problems with this if it continues. i-rates rise, spending power falls, and monthly payments on variable-rate instruments takes off. If you're not part of the investor class, you have to hope that salary increases keep pace with both of those things.

Sound financial decisions pretty much stay the same in all conditions -- low fixed-rate mortgage good, variable-rate credit such as charge cards bad. But these things are likely to become more obvious in the coming months.

 

Krugman: Economic Crisis a Question of When, Not If

http://www.reuters.com/newsArticle....ype=politicsNews&storyID=6888422&pageNumber=0


Crisis might take many forms, he said, but one key concern is the prospect that Asian central banks may lose their appetite for U.S. government debt, which has so far allowed the United States to finance its twin deficits.
A deeper plunge in the already battered U.S. dollar is another possible route to crisis, the professor said.

The absence of any mention of currencies in a communique from the Group of 20 rich and emerging market countries this past weekend only reinforced investors' perception that the United States, while saying it promotes a strong dollar, is willing to let its currency slide further.

"The break can come either from the Reserve Bank of China deciding it has enough dollars, thank you, or from private investors saying 'I'm going to take a speculative bet on a dollar plunge,' which then ends up being a self-fulfilling prophecy," Krugman opined. "Both scenarios are pretty unnerving."

 

Robert Reich....

http://www.tompaine.com/articles/debtor_nation.php

If I were cynical, I’d suspect the White House had an ideological agenda to starve the government so it can’t do much of anything in the future except wage war. But whatever the motivation, the deficits are driving the dollar down and subjecting America to huge economic risks. The sensible move would be to roll back the Bush tax cuts, but don’t hold your breath.

In the meantime, enjoy the holiday buying season, folks. And here’s a buying tip: With the dollar dropping, the nicest and safest gift you can give a friend or loved one is ... gold. But you better move fast. As the dollar drops, the price of gold is soaring

 

Smart man. And you can buy gold now as if it's a stock, first time in history. No need to go through all the tedious details about the gold mining companies any more. All you need to do to buy gold now is buy GLD. It's trading at 44.97/45 as we speak.

http://biz.yahoo.com/opt/041118/533dc346f5b57c3f48df843cfbebfb50_1.html

 

It's ironic that Republican doohniborism may end up seriously harming the super wealthy.

 

Or you can just invest in Euros. It's a less speculative dollar hedge IMO. The world needs currency. The gold price tracks with global levels of certainty/stability. Even a stable world could theoetically dump the $.

 

I'm thinking I'm just going to put some big bucks into shorting the dollar and sit back and enjoy the conflict.