Any economists or currency traders?

[southsider2k5]

Anyone have any opinions on the dollar slide. This is the Euro chart since this summer

 

http://charts.futuresource.com/cis/lw?cont=REC

[Texsox]

I just traded some currency for a breakfast taco, does that count?

[kapkomet]

Anyone have any opinions on the dollar slide.  This is the Euro chart since this summer

 

http://charts.futuresource.com/cis/lw?cont=REC

you suck. you stole my question. and just for that you won't get my opinion. It's deeper then a "currency" issue. It's a market (macroeconomic and sociopolitical intertwined) situation - as the whole Iraq thing is. And they are indeed intertwined.

 

Whatcha all think about that BS? I'll explain later if anyone cares, but I have to get some work done today.

[southsider2k5]

you suck.  you stole my question.  and just for that you won't get my opinion.  It's deeper then a "currency" issue.  It's a market (macroeconomic and sociopolitical intertwined) situation - as the whole Iraq thing is.  And they are indeed intertwined.

 

Whatcha all think about that BS?  I'll explain later if anyone cares, but I have to get some work done today.

I spent sometime thinking about it last night, and was curious if anyone else had any thoughts. I am wondering what other points of view are out there. It actually was a great question, so I stole it.

[sox4lifeinPA]

without my education in that area, I would think that it's gotta balance out at some point. I would imagine that, barring any futher demostic terrorist attacks, the economy will go back to booming circa 97-98.

 

I don't know much, I'm just interested in the discussion.

[southsider2k5]

Well this is my personal theory. This is George Bush's way of correcting the trade imbalance. What has happened is the Euro has gone from trading about par (floor talk for 100) all of the way up to 127/128 in the last couple of days. The effect this had is anything that is an import from Europe now costs almost 30% more when translated to dollars. It also means any export to Eur now is 30% cheaper to buy there when translanted into Euro's. Simply put this should make it easier to sell our goods overseas, while making it much more difficult to sell their stuff here. It is like a tariffs that the WTO doesn't have any control over.

 

While that part looks good on the surface, the danger comes in foreign investment. If IIRC about 15% of the money in the US equities markets comes from outside of the US. (that is one in seven dollars) The effect this has is that yeah the dow was up 20% on the year, but if you were a European invester, you actually lost money in terms of real Euro's because those dollars are worth 30% less than they were when you bought the Dow. If this slide keeps up foreign money will take flight from the US, and most likely go to Europe or Japan where the currencies are strong, as well as the stock markets. If people start selling stocks, the markets will go right back into the toilet.

 

So in short to me, it will be interesting to see where the dollar settles into. It could be huge for the economic recovery.

[sox4lifeinPA]

"If people start selling stocks, the markets will go right back into the toilet."

 

-but with the economic indicators on the positive side, wouldn't there be other buyers or domestic? aren't there always buyers? if not, does that mean a dip back into recession?

[southsider2k5]

"If people start selling stocks, the markets will go right back into the toilet."

 

-but with the economic indicators on the positive side, wouldn't there be other buyers or domestic? aren't there always buyers? if not, does that mean a dip back into recession?

It would depend on how heavy the flight away from the US markets is. 15% being out of US money is a ton. Without knowing the elasticity of the Dow, that would be a lot of sell pressure on the stocks. And actually IMO with the mob mentality that is the equities it would probably encourage domestic selling. Really it could be a heavy weight on the pshyce of the US. It would be an interesting dance of whether increased profits of US companies could offset decrease in foreign investment.

[Texsox]

Real world example using the peso. I live on the border. When the dollar is strong you see Texans heading across to Mexico to buy medicine, booze, clothes, you name it. They can buy more for their dollar and they are happy.

 

Two months later it swings the other way and Mexicans and crossing in droves to buy stuff in the US. Our winter Texans are sad but our shop owners are singing.

 

Then the pendulum swings the other way. Eventually everyone is happy for a moment.

 

The US Dollar is the standard in the world now. Every dictator getting ready to flee his country buys US. Over the long haul we will win. Other currencies will rise for a while but after the adjustment, dollars will be in higher and higher demand if we continue to innovate.

 

We need a Americas (North and South) Free Trade Agreement. NAFTA doesn't go far enough. I see a world with three or four markets. The Euro, Americas, Pacific Rim, and possibly a fourth depending on how other areas fall in. Possibly a unified African economy. How quickly we get there is a guess that others are probably better at making.

[rafacosta]

We need a Americas (North and South) Free Trade Agreement.

And f*** up all the countries in the South America.

[Texsox]

And f*** up all the countries in the South America. 

Explain?

[rafacosta]

Explain?

The way this trade agreement has been negotiated, will be great for the US. Do you wanna a free trade, open you market for my products and stop asking us to open. f*** the US hypocrisy.

[Texsox]

What we have done with Mexico has caused massive investment by Europeans and Asian companies who want access to NAFTA countries. The same would happen in South America. I want a European style agreement which would open the US markets as well.

[southsider2k5]

anyone else?

[DBAHO]

Australia and the U.S hav been tryin to work out a free trade agreement for months now but talks hav been brakin down because of America's unwillingness to do sumthin about Aussie Agriculture I think.

[Cerbaho-WG]

I'm in AP Econ and wrote a spiffy little paper about the dollar's weakening.

 

As stated earlier, with a weak dollar Europeans can buy more because their Euro is worth more. Because of this, Net Exports will increase and the GDP should as well (Remember, GDP = Consumption + Investment + Government Spending + Net Exports). The problem is that foreign investment will plummet as a result of the weaker dollar (as well as the huge trade deficits and budget deficits). Because of the deficits, interest rates could go up which would corrolate with foriegn investors not wanting to invest in the US. With foreign investment down, the U.S. would finally have to look at the huge ass 6 trillion dollar deficit and the problems it could cause. G'bye Medicare and Social Security!

 

Positives and negatives, as usual

[kapkomet]

There's a lot more behind this then just simple economic policy.

 

Stay with me here - I'm not sure I can explain this thought in a well written dialogue here but I'm going to try.

 

Let's look at the US economy since WWII. The computer, cars, oil, machinery, rapid expansion of infastructre (highways, airports, etc). We Americans have made and consumed EVERYTHING. Early to Mid-90's come along, and POOF, Internet becomes the information boom - exchange of information so rapidly that news is all over the world in an instant. Y2K comes along, which was BS from the beginning which helped along the burst the economic/wall street bubble.

 

Let's talk about American consumption of products with all that as a backdrop. We consumed EVERYTHING. And the more money there was, the more we consumed. Where do you think SUV's came from? It's us rich Americans buying up bigger and better. So the economy goes into more of a services/technology mode, and the real goods start slowing down. The economy's ROARING, right? Wrong. It is inflated because in order to keep real, good paying jobs, you have to make something. After all the network infastructure was there to support the information flow, people stopped buying servers, computers, etc. at the high costs.

 

Things stop being made, manufacturing stops hiring, producing as much, etc etc etc. Well, then, there doesn't need to be so much support (services) anymore, and you all see what happened in the early 00's.

 

Again, we Americans have everything we need. The next step is to start opening up new places to sell our crap. But no one wants it because our dollar is too high. We're still having troubles kickstarting our economy. What starts an economy? WAR. So, gov't contracts start flying out like they're water. Our economy starts rising again, and now, because we are over there in a occupational role, our multnational companies have somewhere else to open up a marketplace for goods and services. We HAVE to expand capitalism elsewhere because we Americans have consumed just about all we are going to consume. We have all our neat s*** to play with, now we have to get everyone else in the world to buy into capitalism.

 

You hear on the news how we are trying to promote democracy. That's BS. We're trying to promote CAPITALISM so we have some more market places to open.

 

I think THAT has been the policies that Dick Cheney and GWB have been trying to push through. It's arrogant, conceited, and causes a great deal of heartburn to other "free market" societies. But let's face it, unless we can make the third world come up to our level, we don't have anywhere else to spin off our crap and information.

 

The dollar? We have to make it somewhat weak, as ss2k alluded to, so that people will buy our stuff for cheaper. And lord knows we want to drive up other countries' goods and prices - so what consumption we do have here (which will never boom again until the electric car comes along, IMO) will continue at the slow pace.

 

*WHEW* I hope this makes sense. I'm sure there are some inconsistencies but I wanted to write the essay to see how it looks and maybe to generate some talk.

 

THOUGHTS?

 

[southsider2k5]

I'm in AP Econ and wrote a spiffy little paper about the dollar's weakening.

 

As stated earlier, with a weak dollar Europeans can buy more because their Euro is worth more. Because of this, Net Exports will increase and the GDP should as well (Remember, GDP = Consumption + Investment + Government Spending + Net Exports). The problem is that foreign investment will plummet as a result of the weaker dollar (as well as the huge trade deficits and budget deficits). Because of the deficits, interest rates could go up which would corrolate with foriegn investors not wanting to invest in the US. With foreign investment down, the U.S. would finally have to look at the huge ass 6 trillion dollar deficit and the problems it could cause. G'bye Medicare and Social Security!

 

Positives and negatives, as usual

Good call, I didn't even think about interest rates, and their affect on bond issues for the sale of government debt. I wonder how much of that would get made up by enhanced tax revenues from increased overseas sales?

[southsider2k5]

There's a lot more behind this then just simple economic policy.

 

Stay with me here - I'm not sure I can explain this thought in a well written dialogue here but I'm going to try.

 

Let's look at the US economy since WWII.  The computer, cars, oil, machinery, rapid expansion of infastructre (highways, airports, etc).  We Americans have made and consumed EVERYTHING.  Early to Mid-90's come along, and POOF, Internet becomes the information boom - exchange of information so rapidly that news is all over the world in an instant.  Y2K comes along, which was BS from the beginning which helped along the burst the economic/wall street bubble.

 

Let's talk about American consumption of products with all that as a backdrop.  We consumed EVERYTHING.  And the more money there was, the more we consumed.  Where do you think SUV's came from?  It's us rich Americans buying up bigger and better.  So the economy goes into more of a services/technology mode, and the real goods start slowing down.  The economy's ROARING, right?  Wrong.  It is inflated because in order to keep real, good paying jobs, you have to make something.  After all the network infastructure was there to support the information flow, people stopped buying servers, computers, etc. at the high costs.

 

Things stop being made, manufacturing stops hiring, producing as much, etc etc etc.  Well, then, there doesn't need to be so much support (services) anymore, and you all see what happened in the early 00's.

 

Again, we Americans have everything we need.  The next step is to start opening up new places to sell our crap.  But no one wants it because our dollar is too high.  We're still having troubles kickstarting our economy.  What starts an economy?  WAR.  So, gov't contracts start flying out like they're water.  Our economy starts rising again, and now, because we are over there in a occupational role, our multnational companies have somewhere else to open up a marketplace for goods and services.  We HAVE to expand capitalism elsewhere because we Americans have consumed just about all we are going to consume.  We have all our neat s*** to play with, now we have to get everyone else in the world to buy into capitalism.

 

You hear on the news how we are trying to promote democracy.  That's BS.  We're trying to promote CAPITALISM so we have some more market places to open.

 

I think THAT has been the policies that Dick Cheney and GWB have been trying to push through.  It's arrogant, conceited, and causes a great deal of heartburn to other "free market" societies.  But let's face it, unless we can make the third world come up to our level, we don't have anywhere else to spin off our crap and information.

 

The dollar?  We have to make it somewhat weak, as ss2k alluded to, so that people will buy our stuff for cheaper.  And lord knows we want to drive up other countries' goods and prices - so what consumption we do have here (which will never boom again until the electric car comes along, IMO) will continue at the slow pace.

 

*WHEW*  I hope this makes sense.  I'm sure there are some inconsistencies but I wanted to write the essay to see how it looks and maybe to generate some talk.

 

THOUGHTS?

 

You have heard my theory on our "recovery" so far, but I will share it with everyone else.

 

Essentially this "recovery" is a figment of our imagination. What is carrying the economic figures thus far is the wars and increased defense spending. Because of Iraq and the war on terrorism we have pumped in nearly $.5 billion extra into the economy (in one form or another) this year. This is what has made all of those pretty growth numbers that you see on CBNC. Net defense spending when you include the wars and terrorism has basically doubled from we GW took office. Military spending is about 20% of our budget. So you double spending on 1/5th of our budget, it can cover the other short falls in the economy.

 

Realize that hiring is essentially at a zero sum figure right now. For every person that this economy is hiring, someone else, somewhere, is losing their job. There has been no recovery in the job market. Wages have begun to creep up, but most of that is paying people for the increased work loads of covering for people who have been laid off. Most of the "reduction" in unemployment is from people who have run out of unemployment benefits, or have accepted lesser work because they can't find anything to replace their former wage, or have simply gave up looking for work. For the unemployment #'s all of those people are either considered "employed" or they are not counted as unemployed, because they are not looking for work. (working 1 hour a week is considered "employed" no matter what wage you make)

 

Finally there is the stock market. Most people don't realize that the market is essentially a crystal ball that looks 6 months to a year into the future. And most of that forward looking is all in peoples heads. The tax cuts have made up profits that companies lost during the downturn. Also starting to be felt are all of the cost cuttings (ie layoffs) that companies have made. The economic figures look great because the military sector is making the entire economy look great. Without dissecting these numbers it really gives the impression that the entire economy is recovering. Which is enough pshycologially to get people to dive back into stocks, because they are also recovering based on these new found profits.

 

The key to this recovery is to dupe enough companies into thinking this recovery is for real, that they start to believe it is real enough to start hiring. If this starts to happen, then it will become self-fulfilling prophecy. If enough people believe, it will become so.

[kapkomet]

which is why the downturn happened in the first place.

 

Remember October 2000, Cheney and Bush "were seeing signs in the economy that it was downturning"?

 

Economics is about 99% psycology, 1% true market forces.

[Chisoxfn]

The key to this recovery is to dupe enough companies into thinking this recovery is for real, that they start to believe it is real enough to start hiring. If this starts to happen, then it will become self-fulfilling prophecy. If enough people believe, it will become so.

Exactly, the economy has so much do to with consumer confidence and businesses being confident there is a market for their products, etc. As long as they believe everything is peachy, all things will continue at a steady rate, in a sense.

 

Its definately not that simple and I'm not an econ major. As far as the war though, lets remember, while it is fake, it is putting money back into the economy and getting things rolling again, just like it did during WW2.

 

And as far as the deficit goes, while it is incredibly high, it still is relatively low in comparison to how much business the US does in a year. Basically a lot of the issues people hear about the deficit are really not true. Its defiantely blown way out of proportion. It is definately something that needs to be addressed, but its also not as big of an issue as people make it out to be all the time.

 

The problem with the government as a whole is they are so damn inneficient. Take NASA for example, they finally did a pretty cool thing with the Mars landing. They made it where you can view the pictures in 3d if you pick up some sort of 3d glasses. Whose to say NASA can't go one step beyond that and start selling their product in a sense. Start things they can market for people, that can raise money for NASA, so that less money comes from the Tax Payers, etc. Not every government entity has the ability to do that, but NASA, if marketed right could do some really cool things that would make it a little less of a tax burden or an expense, although it is still such a small portion of government costs.

 

But if the government really started running things with a business mentality: balanced budget, work on efficiency. This is incredibly hard with all the damn beauracracies, but it would make such a difference. A few things alone could lower government cost drastically, allowing people to pay lower taxes or to simply put the money and slowly kill the deficit or create new programs or clean up the education system, etc.

 

Its nearly impossible to do this, because Republicans and Democrats would never see eye to eye enough to get something like this done.

[southsider2k5]

This was an interesting article that was in the Trib yesterday, and is by Amity Schlaes from the Financial Times

 

Over the weekend came the feeling that this space thing is getting a bit out of hand. All right, so the U.S. probe, Spirit, landed successfully on Mars. And yes, it was perhaps predictable and sad that it succeeded where the European Space Agency's explorer, the Beagle 2, was failing.

 

Everyone could even live with the applause at the National Aeronautics and Space Administration's receipt of the first photos snapped by Spirit from the surface of the Red Planet. But now comes word that the White House is planning a permanent base on the moon and yet further exploration of Mars. U.S.-led, very likely. It all smacks of colonization. When, everyone begins to wonder, will the hyperpower wake up to the perils of space overreach?

 

 

 

 

Meanwhile, a similar question is being raised about U.S. behavior on a more Earthly frontier--the economic one. In a report published even as those irritatingly clear Mars photos were transmitted, the International Monetary Fund sought to expose the perils of U.S. expansion. That space aggressor the U.S., the IMF's economists told us, was running "significant risks" with its grandiose government spending and tax cuts--just as dangerous, greedy Americans were recklessly spending too much abroad.

 

According to this sort of reasoning, economic overreach is a more urgent problem than even a Mars campaign. The trade deficit that U.S. profligacy has generated is huge.

 

Especially troubling is the volume of U.S. purchases in China. U.S. spending could cause what the IMF terms "disorderly exchange rate adjustment." Foreigners would dump U.S. dollars and cause havoc; interest rates would rise worldwide. And, we are told, "higher borrowing costs abroad would mean that adverse effects of U.S. fiscal deficits would spill over into global investment and output." The U.S. economic empire is not content to destroy itself; it has to pull everyone else down with it.

 

This message, however, comes out of some rather Earthbound thinking: that life is all about maintaining accounting balances. When, for example, a country's demand for foreign goods and services does not match foreign demand for its products, that imbalance needs rectifying. It is time for the U.S. to put the brakes on its appetites and harmonize with other developed economies.

 

At least that is the view from the IMF's 19th Street offices in Washington.

 

But let us try looking at the story from a more distant vantage point.

 

Mars, say. From afar, the U.S. story looks more like good news than bad. The Clinton administration did not block growth, at least not in the second half of the 1990s. The Bush administration helped inspire growth by cutting taxes, bringing the capital gains rate and the rate levied on dividend income down to a historically low 15 percent. Over at the mighty Federal Reserve--albeit just a speck when viewed from Mars--space hero Alan Greenspan controls inflation without sacrificing liquidity.

 

All this means a fast-expanding economy, and a fast-expanding economy buys a lot of everything. It buys where the price is best--nothing wrong with that, at least not if you are a free-marketeer. It buys abroad, because borders are relatively open, another inherently good thing. Productivity, another plus, increases as well. Foreigners use the dollars they earn to buy U.S. stocks and bonds, which fuels yet more investment. The headline here ought to be "Outstanding growth," not "Outstanding cash mismatch." The trade deficit is merely a symptom of the growth.

 

To be sure, the trade theorists are not wrong in every respect. The U.S. administration and its congressional friends do need to rein in public spending, which is obscene. The U.S. would indeed crash and burn if foreigners all ceased to buy U.S. bonds and stocks.

 

But while U.S. policy toward the private sector is as stable as it is, the American economy is not likely to--forgive the metaphor--crater.

 

"Under what conditions would foreigners shift gears and sell their positions in U.S. assets," asks Mickey Levy, chief economist at the Bank of America. "Practically none." The perverse part of the trade balance obsession, he notes, is that by emphasizing accounts and abstractions like savings rates, those subscribing to the IMF school of thought are suggesting the U.S. should be like that model saver, Japan.

 

Let us, however, be polite and say that trade balancers are not entirely off the mark. Maybe it is time for greater harmonization of developed economies. Then the question becomes: Do we really have to ask the U.S. to slow down to get that harmony? Perhaps instead everyone can catch up. After all, the only way the U.S. can really become the sort of enduring threat that the fearful imagine is if Europe and Japan continue to apply policies that yield slow growth. Then the new Growth Gap really will replace the old Missile Gap.

 

We can even, if we feel like it, take this further and assume our entire argument is wrong and that the U.S. empire is a genuine growth and accounting problem. If you believe that, colonization of Mars truly is good news.

 

After all, the planet, we all know, has market potential that dwarfs even--dare we say it--China's. Once trade routes become established and the oxygen machines are up and running, American investment banks will open word-processing centers at the Tharsis Bulge and will outsource from the Valles Marineris. This, in turn, will yield the U.S. current-account deficit to end all current-account deficits and finally humble the overweening empire in the way it deserves. Or so we're told.