Falling Dollar: Finally Front-Page News 63 comments
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The front page of the Financial Times captures the concern that has been expressed by this writer for at least the last four years. Today we see “Obama’s critics pounce on falling dollar as fears grow over currency:” .
I don’t believe the focus is precisely spot on, for the cause of the problem is not just Obama and the Obama administration. The Republicans are just as responsible for this crisis as is the current administration. And the issue, to me, is not “whether or not” the dollar will remain a reserve currency. But we will get to that.
The underlying problem is the fiscal irresponsibility of the United States government, with the exception of one administration, beginning in the 1960s. In the 1960-1968 period, the Gross Federal Debt increased at an annual rate of 2.8%. This was not bad, but the die was cast. President Nixon (“We are all Keynesians now”) oversaw the beginning of excessively rapid growth rates for federal debt. The president who followed him continued these excesses. Between 1968 and 1978, the debt rose by 8.5% a year and between 1978 and 1992 the federal debt rose annually at a rate of 12.6%. During the 1992 to 2000 period the Gross Federal Debt rose by just 3.6% per year, but the budget was in a surplus by the end of the Clinton administration.
From March 1973, right after the dollar was taken off the gold standard (again by John Maynard Keynes Nixon), until January 1992, the value of the dollar dropped by 14.5% against a basket of trade-weighted major currencies. This decline includes the period of time that Paul Volcker was the Chairman of the Board of Governors of the Federal Reserve System, a time of monetary tightening that actually brought the value of the dollar substantially above its March 1973 level. The drop in the value of the dollar from 1985 through 1992 was precipitous.
After rising by 16% over the 1992 to 2000 period, the value of the dollar plummeted during the fiscal slackness of the Bush (43) administration. By the end of this term in office the dollar was down 23%, but at one time the dollar had declined by about 40%. As the economic and financial crisis beginning in 2007 worsened there was a “flight to the dollar” for safety reasons and that is why the dollar was down only 23% at the end of the Bush (43) administration.
However, the decline has resumed. As the Financial Times points out, the value of the dollar against major currencies has fallen by 11.5% since the Obama administration has taken office.
Why? Because the Obama administration has created the expectation that the Gross Federal Debt will increase by at least the amount it increased annually in the 1968 to 1978 period!
And, although administration officials have said that they support a strong dollar (see my post of October 5) the current leadership in Washington, D. C. seems to have about the same credibility in the market place as did the leadership in the Bush (43) administration. “Watch the hips and not the lips!”
Furthermore, yesterday the Congressional Budget Office released figures on the deficit for the fiscal year ended September 2009. It was an all-time record of $1.4 trillion And the estimates for the upcoming years threaten this record.
As I said earlier, I am not that concerned about the United States dollar and its reserve status. That will be a lingering concern and will take care of itself. However, there are three things that I am worried about.
First, right now, there is no end in sight to large fiscal deficits. The concern of the marketplace is that deficits at this level are unsustainable. Furthermore, with all the reserves the Federal Reserve has put into the banking system, market participants are rightfully concerned that a large portion of these deficits will have to be monetized in order for the future deficits to be funded.
The last half of the 20th century was a period that international financial markets penalized national governments that created large deficits which were seemingly going to be monetized. The most notable example of this was the time when François Mitterrand was the leader of France and had to back off from excessive budget deficits and a government controlled central bank. But there are many other examples.
The United States escaped this punishment, although the value of the dollar did decline substantially in the 1973-2008 period, because of its position in the world and the fact that the dollar was the only reserve currency in the world. The Volcker episode and the Clinton surplus postponed the day of reckoning, but the excessive budget deficits resumed with Bush (43). This time period may be at an end.
My first concern is that, in the face of continued excessive budget deficits, the value of the dollar will continue to decline. This is my fundamental scenario for the next five years or so.
Second, because of this, the bargaining power of the United States in the world will be weakened more than necessary. With the rise of the BRIC countries and the Euro-zone, the relative position of the United States in the world is shrinking. (See my post of October 6) If the value of the dollar continues to decline, the bargaining power of the United States will be just that much less. This is not the way to world leadership.
Third, as the value of the dollar declines, American assets, physical assets like companies and resources, become cheaper. The “Buy America” plan can then accelerate from the pace that it has been on over the past eight years. A weaker dollar is nothing more than an invitation for foreign interests to purchase more and more of America.
The problem of the declining value of the dollar is real. Maybe we are at the stage where the political implications of the falling dollar will gather more attention. I can only hope so.
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This article has 63 comments:
What would worry more is if the world follows suit as to what Australia has done and begin to slowly creep interest rates upwards while the Fed doesn't increase rates here. This will put significant pressure on consumers as commodity prices will rise, the dollar purchasing power diminished, and real wages staying the same. The world can torpedo the recovery here in the US if they so choose to.
Yes and no. The Bush administration was certainly irresponsible, as was (and is) the entire Congress.
Democrats are now in control of both houses of Congress, and with Obama at the helm, we have seen some of the most reckless and irresponsible spending in the history of this country: A stimulus bill that was loaded with as much pork and political payoff as they could fit into it, a budget that is insane, cash for clunkers, 8k tax credits for buying a home, bailouts of car companies (unions, actually) and on and on.
In addition, Obama continues to push very expensive programs like the health care "reform", college for everyone, and other costly government inititives. This piling on of expense -- rather than cutting back to get matters under control-- is contributing greatly to the angst about the dollar.
The world is clearly getting the idea that we are deliberately trying to destroy our currency in order to be able to pay our debts with cheap money. No surprise that everybody seems to be trying to get rid of dollars. And gold is looking like the safe haven.
The raminifications of a declining dollar are actually huge. You captured it relatively well, but at the worst it could lead to a massive paradigm shift in the the world where US is no longer the controlling power it is today (and already declining). At the best, US is going to get a lot less bargaining power in the world and the dollar could even be pushed off the rails as the leading currency.
Check out my blog at www.youngandinvested.com
This scrip serves the interests of the entrenched ruling class in 2 ways
1. It allows them to effortlessly bribe the lower class with money illusion: increasing nominal transfer payments that have steadily decreasing purchasing power. The lower class focuses on the nominal transfers and does not comprehend that the material quality of life depends on real purchasing power, not scrip. An expanding lower class, caused by increased unemployment/underempl... does not trouble the upper class which can simply issue more scrip to enlarge the fraudulent bribe.
2. It allows them to inflate the price of financial assets and selected commodities which increases their net worth, since a majority of financial and commodity assets are, directly or indirectly, owned and controlled by a very small fraction of households. When vast liquidity is selectively and deliberately concentrated on a few asset classes, these assets will inflate. At the same time, coerced liquidity starvation for the remaining asset classes will cause these assets to deflate in value: hence simultaneous inflation and deflation.
Assets and organizations that hugely benefit the net worth and income of the tiny upper class are inflated. Assets and organizations that comprise the primary wealth and jobs base of the middle class are deflated. Bigger bonuses for the bosses; income and wage reductions for the middle class.
The debasing dollar primarily damages the middle class, which will experience a steady increase in the cost of essential goods and services while experiencing a notable decline in its aggregate, after tax, discretionary income and its tangible net worth. This will occur even as Wash DC and Wall St claim there is "no inflation". There is ,for the Middle Class, as the exchange rate of the scrip declines versus the material goods and services needed to sustain a middle class life. As the dollar declines so declines the middle class in terms of both its real material quality of life and its total share of US households: a smaller, poorer middle class.
The upper class has made and is making a vastly profitable and massively criminal trade: use the dollar to sacrifice the middle class and America's global stature, bribe the lower class and aggrandize and enrich the upper class. This trade is increasingly transparent to the rest of the world. It is the ordinary American who cannot or will not see it.
Coupled with an overly lax Federal Reserve and a destructive QE policy instituted by them it is a wonder we can sell any US Treasury bonds at all. Already demand for long term bonds is dwindling and the very low interest rate short term rates may follow if another stimulus bill gets passed. Then it will cost the Federal government and taxpayers in higher rates and most likely inflation even if we are still in the same recession or another one.
John Mason elaborated our country's financial misdeeds well but really didn't lambast Bush Jr. as much as he should. For it is him more than any Democrat before who spent the US into economic ruin. You could reasonably argue he was a fiscal liberal in a Conservative disguise.
America's financial problems didn't start with Obama. But Obama is taking orders from the same robber barons who helped to unman George Bush. The problem is: the bankers are running our government, and they want a weak dollar now, so their bad loans don't go up in smoke. If they can just stall for a few more years, maybe they won't have to face the fact that they lost trillions of dollars when no one was looking.
On Oct 08 01:42 PM Moon Kil Woong wrote:
> It seems quite clear that this is the last stimulus plan in which
> there will be some leeway in fiscal implications. After a drastic
> Bush Jr. administration with massive deficits followed by a Bush
> Jr. TARP and a Bush Jr. stimulus tax cut. And now a Obama mass spending
> stimulus plan that is more just a across the board budget increase
> for federal workers it is little wonder that people believe that
> mass deficits are becoming institutionalized and that monetary value
> should reflect our out of control spending.
>
> Coupled with an overly lax Federal Reserve and a destructive QE policy
> instituted by them it is a wonder we can sell any US Treasury bonds
> at all. Already demand for long term bonds is dwindling and the very
> low interest rate short term rates may follow if another stimulus
> bill gets passed. Then it will cost the Federal government and taxpayers
> in higher rates and most likely inflation even if we are still in
> the same recession or another one.
>
> John Mason elaborated our country's financial misdeeds well but really
> didn't lambast Bush Jr. as much as he should. For it is him more
> than any Democrat before who spent the US into economic ruin. You
> could reasonably argue he was a fiscal liberal in a Conservative
> disguise.
And even more egregiously, through this very same dollar destruction, Bernanke hands tens, perhaps ultimately hundreds of billions of dollars of unholy profits to the US major banking cartel that this administration has thrown its full support behind due to a couple of pocketfuls of gold in the form of campaign contributions by Goldman Sachs and the like.
Make no mistake about it, Bernanke is doing everything he can possibly do to destroy the US dollar and "inflate" us out of the mess his co-conspirators in the banks created, and he's doing it by creating the exact same credit bubble that got us here in the first place. This is nothing short of monstrous, and it is a crime against the American people.
Of course the dollar will fall in value - since 1913 it has lost 93% of its value. The question is not if the dollar will fall, but how fast.
I would be interested to see the breakout and how much of the surplus came from capital gains paid on Enron, MCI, and the rest of the tech bubble which exploded in 2000. Income taxes generated on the tech bubble were sizable as well.
Failing to punish the people who encourage these asset bubbles is why people like Bush and now Obama go out of their way to create them.
Long-term, purchasing power parity is a good guide to where currencies are going to go.
Looking at the Federal debt levels in isolation tells you -- not much. Private debt is collapsing, through default and the rapid shrinking of consumer credit. So total dollar denominated debt is actually pretty constant -- the composition of it has changed, with more government and less private sector, but from a monetary perspective the aggregate is a more important number.
And one might take a look at US Federal debt levels compared to our peers. . . US is at %60 of GDP, Japan at %170 of GDP . . . yet the Yen keeps on hitting new highs. Clearly massive government deficits and debt alone won't crater a currency.
A second point is the contrarian: when you see a headline "is the dollar finished?" you're probably near a dollar bottom.
Don't believe me?
Just dial back the Seeking Alpha posts by, oh, say, six months . . . back in March, GE was going broke, JP Morgan was broke, Goldman Sachs was broke, Aflac was broke, take your pick-- you'll find a remarkable number of people who were certain that the market was going to keep on falling.
You'll notice that they're the same folks who're sure that the dollar is finished, gold is on its way to $8 million an ounce, and that the Chinese will own us.
My prediction: not so much, really.
On Oct 08 12:47 PM User 353732 wrote:
> The dollar is falling because it is no longer real money but fiat
> scrip.
> This scrip serves the interests of the entrenched ruling class in
> 2 ways
> 1. It allows them to effortlessly bribe the lower class with money
> illusion: increasing nominal transfer payments that have steadily
> decreasing purchasing power. The lower class focuses on the nominal
> transfers and does not comprehend that the material quality of life
> depends on real purchasing power, not scrip. An expanding lower class,
> caused by increased unemployment/underempl... does not trouble the
> upper class which can simply issue more scrip to enlarge the fraudulent
> bribe.
> 2. It allows them to inflate the price of financial assets and selected
> commodities which increases their net worth, since a majority of
> financial and commodity assets are, directly or indirectly, owned
> and controlled by a very small fraction of households. When vast
> liquidity is selectively and deliberately concentrated on a few
> asset classes, these assets will inflate. At the same time, coerced
> liquidity starvation for the remaining asset classes will cause these
> assets to deflate in value: hence simultaneous inflation and deflation.
>
> Assets and organizations that hugely benefit the net worth and income
> of the tiny upper class are inflated. Assets and organizations that
> comprise the primary wealth and jobs base of the middle class are
> deflated. Bigger bonuses for the bosses; income and wage reductions
> for the middle class.
>
> The debasing dollar primarily damages the middle class, which will
> experience a steady increase in the cost of essential goods and services
> while experiencing a notable decline in its aggregate, after tax,
> discretionary income and its tangible net worth. This will occur
> even as Wash DC and Wall St claim there is "no inflation". There
> is ,for the Middle Class, as the exchange rate of the scrip declines
> versus the material goods and services needed to sustain a middle
> class life. As the dollar declines so declines the middle class in
> terms of both its real material quality of life and its total share
> of US households: a smaller, poorer middle class.
>
> The upper class has made and is making a vastly profitable and massively
> criminal trade: use the dollar to sacrifice the middle class and
> America's global stature, bribe the lower class and aggrandize and
> enrich the upper class. This trade is increasingly transparent to
> the rest of the world. It is the ordinary American who cannot or
> will not see it.
So my two cents worth is that at some stage foreign US dollar holders, like China, will need to support the currency.
Any thoughts on that proposition?
So far so pin-the-tail-on-the-do... rumour. But the news this morning Asia time seems to lend credence to the story. The central bank of Thailand has intervened after the baht appreciated "too fast". The South Korean government will restrict overseas borrowing by state-run companies because excessive dollar lending by local banks is driving up the value of the won, according to an anonymous finance ministry official. And just now Bernanke has boosted the dollar by talking about eventual tightening. It all points to the collusion between China and the US being uncovered and pressure being brought to bear.
There is a tradeable move here. The dollar is undoubtedly in a long term secular decline as reserves are rebalanced away from it. But the anti-dollar consensus is too strong at the moment. Go long the dollar on a short term view, against Yen, Euro or, the lowest risk option, pounds. Targets 92, 1.4250, 1.50.
On Oct 08 12:47 PM User 353732 wrote:
> 1. It allows them to effortlessly bribe the lower class with money
> illusion: increasing nominal transfer payments that have steadily
> decreasing purchasing power. The lower class focuses on the nominal
> transfers and does not comprehend that the material quality of life
> depends on real purchasing power, not scrip. An expanding lower class,
> caused by increased unemployment/underempl... does not trouble the
> upper class which can simply issue more scrip to enlarge the fraudulent
> bribe.
> 2. It allows them to inflate the price of financial assets and selected
> commodities which increases their net worth, since a majority of
> financial and commodity assets are, directly or indirectly, owned
> and controlled by a very small fraction of households. When vast
> liquidity is selectively and deliberately concentrated on a few
> asset classes, these assets will inflate. At the same time, coerced
> liquidity starvation for the remaining asset classes will cause these
> assets to deflate in value: hence simultaneous inflation and deflation.
>
> Assets and organizations that hugely benefit the net worth and income
> of the tiny upper class are inflated. Assets and organizations that
> comprise the primary wealth and jobs base of the middle class are
> deflated. Bigger bonuses for the bosses; income and wage reductions
> for the middle class.
>
> The debasing dollar primarily damages the middle class, which will
> experience a steady increase in the cost of essential goods and services
> while experiencing a notable decline in its aggregate, after tax,
> discretionary income and its tangible net worth. This will occur
> even as Wash DC and Wall St claim there is "no inflation". There
> is ,for the Middle Class, as the exchange rate of the scrip declines
> versus the material goods and services needed to sustain a middle
> class life. As the dollar declines so declines the middle class in
> terms of both its real material quality of life and its total share
> of US households: a smaller, poorer middle class.
>
> The upper class has made and is making a vastly profitable and massively
> criminal trade: use the dollar to sacrifice the middle class and
> America's global stature, bribe the lower class and aggrandize and
> enrich the upper class. This trade is increasingly transparent to
> the rest of the world. It is the ordinary American who cannot or
> will not see it.
On Oct 08 12:47 PM User 353732 wrote:
> The dollar is falling because it is no longer real money but fiat
> scrip.
> This scrip serves the interests of the entrenched ruling class in
> 2 ways
> 1. It allows them to effortlessly bribe the lower class with money
> illusion: increasing nominal transfer payments that have steadily
> decreasing purchasing power. The lower class focuses on the nominal
> transfers and does not comprehend that the material quality of life
> depends on real purchasing power, not scrip. An expanding lower class,
> caused by increased unemployment/underempl... does not trouble the
> upper class which can simply issue more scrip to enlarge the fraudulent
> bribe.
> 2. It allows them to inflate the price of financial assets and selected
> commodities which increases their net worth, since a majority of
> financial and commodity assets are, directly or indirectly, owned
> and controlled by a very small fraction of households. When vast
> liquidity is selectively and deliberately concentrated on a few asset
> classes, these assets will inflate. At the same time, coerced liquidity
> starvation for the remaining asset classes will cause these assets
> to deflate in value: hence simultaneous inflation and deflation.
>
> Assets and organizations that hugely benefit the net worth and income
> of the tiny upper class are inflated. Assets and organizations that
> comprise the primary wealth and jobs base of the middle class are
> deflated. Bigger bonuses for the bosses; income and wage reductions
> for the middle class.
>
> The debasing dollar primarily damages the middle class, which will
> experience a steady increase in the cost of essential goods and services
> while experiencing a notable decline in its aggregate, after tax,
> discretionary income and its tangible net worth. This will occur
> even as Wash DC and Wall St claim there is "no inflation". There
> is ,for the Middle Class, as the exchange rate of the scrip declines
> versus the material goods and services needed to sustain a middle
> class life. As the dollar declines so declines the middle class in
> terms of both its real material quality of life and its total share
> of US households: a smaller, poorer middle class.
>
> The upper class has made and is making a vastly profitable and massively
> criminal trade: use the dollar to sacrifice the middle class and
> America's global stature, bribe the lower class and aggrandize and
> enrich the upper class. This trade is increasingly transparent to
> the rest of the world. It is the ordinary American who cannot or
> will not see it.
' let's have a neat little iraq war & put it all on the national credit card'
> jack
On Oct 08 12:47 PM User 353732 wrote:
> The dollar is falling because it is no longer real money but fiat
> scrip.
> This scrip serves the interests of the entrenched ruling class in
> 2 ways
> 1. It allows them to effortlessly bribe the lower class with money
> illusion: increasing nominal transfer payments that have steadily
> decreasing purchasing power. The lower class focuses on the nominal
> transfers and does not comprehend that the material quality of life
> depends on real purchasing power, not scrip. An expanding lower class,
> caused by increased unemployment/underempl... does not trouble the
> upper class which can simply issue more scrip to enlarge the fraudulent
> bribe.
> 2. It allows them to inflate the price of financial assets and selected
> commodities which increases their net worth, since a majority of
> financial and commodity assets are, directly or indirectly, owned
> and controlled by a very small fraction of households. When vast
> liquidity is selectively and deliberately concentrated on a few asset
> classes, these assets will inflate. At the same time, coerced liquidity
> starvation for the remaining asset classes will cause these assets
> to deflate in value: hence simultaneous inflation and deflation.
>
> Assets and organizations that hugely benefit the net worth and income
> of the tiny upper class are inflated. Assets and organizations that
> comprise the primary wealth and jobs base of the middle class are
> deflated. Bigger bonuses for the bosses; income and wage reductions
> for the middle class.
>
> The debasing dollar primarily damages the middle class, which will
> experience a steady increase in the cost of essential goods and services
> while experiencing a notable decline in its aggregate, after tax,
> discretionary income and its tangible net worth. This will occur
> even as Wash DC and Wall St claim there is "no inflation". There
> is ,for the Middle Class, as the exchange rate of the scrip declines
> versus the material goods and services needed to sustain a middle
> class life. As the dollar declines so declines the middle class in
> terms of both its real material quality of life and its total share
> of US households: a smaller, poorer middle class.
>
> The upper class has made and is making a vastly profitable and massively
> criminal trade: use the dollar to sacrifice the middle class and
> America's global stature, bribe the lower class and aggrandize and
> enrich the upper class. This trade is increasingly transparent to
> the rest of the world. It is the ordinary American who cannot or
> will not see it.
As far as our current dollar crisis goes, this is exactly what the Fascists who are now in charge of this once great nation want, for
crisis is the friend of the state. Just ask the head tax cheat who now runs the Treasury, Mr. Tim Geithner.
We are now officially a third world nation.
Obama is on track to make Jimmy Carter look like George Washington.
This was the strategy of the Bush and Obama administrations b/c it served the same goal, to create more jobs for Americans. In a free trade world, a governement can not throw up protective tariffs without bringing the whole global trade system down. So they use monetary policy to make their goods and services cheaper.
This works except for the Chinese who peg their currency to the USD. So for the foreign governments, their counter strategy must be to buy dollars to make the USD more expensive or at least counter the effects of the forces driving dollar down. Without zero interest rate and QE, we would have massive deflation. Even with it, there will be deflation, but nothing like the 1930's.
He robbed the retirement savings holdings-that's why!
Odd,Mr.John does not mention peanut Farmer Jimmy Carter. Remember the 17-20 % interest rates that just happened to have occurred while he was in office and just before the election ?
I guess not! After the election, Reagan and sidekick CIA Bush,in matter of minutes the interest rates bottomed.
Why? Because Jimmy upset the Israel Firsters because he wanted a settlement in M.E. and the Fed reserve poundouce on the poor guy.Just imagine what would happen to O'bama if he went down the same road? High interest rates or end up like JFK!
The reason Jr. Bush and his Israel firster controllers got interest rates low and spent like drunken sailors was to get folks pacified and not question the real reason for invading AFG/Iran and who really did 911 attacks.
Don't like the truth--too bad :^/
This is the shabby secret of the welfare statists’ tirades against Gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty understanding the statists’ antagonism toward the Gold Standard.
By Allen Greenspan (1966)
America cannot continue to discount its labor, commodities, real estate, corporate stock and other assets. We are sending a message to the world that we do not respect our workers, our citizens, our corporate structure and worst of all, ourselves.
America should not be for sale at any price, much less at a 40% discount. This inequity exists only because international politicians owe favors to their international friends and financial backers.
There is no logical reason the dollar should not be equal to, or greater than, the Euro.
The collapse of the World Trade Center was obviously the actions of physical terrorists. The actions of the financial terrorists are not so obvious. Will americans react soon enough to prevent the collapse of the dollar, the collapse of capitalism and democracy?
...James E Gambrell
We can not keep rolling the Interest payments on the National Debt over into the National Debt. Since 2001 no Interest payments on the National Debt have been made. Add to that all the Senior's Drug Progam and cost of wars that were not budgeted.
We are shafted as the Wealthy are cashing out and buying Euro's and Gold. Each time there is a Banking problem the price of Gold jumps. Prices jump on an increase in demand.
On Oct 08 12:47 PM User 353732 wrote:
> The dollar is falling because it is no longer real money but fiat
> scrip.
> This scrip serves the interests of the entrenched ruling class in
> 2 ways
> 1. It allows them to effortlessly bribe the lower class with money
> illusion: increasing nominal transfer payments that have steadily
> decreasing purchasing power. The lower class focuses on the nominal
> transfers and does not comprehend that the material quality of life
> depends on real purchasing power, not scrip. An expanding lower class,
> caused by increased unemployment/underempl... does not trouble the
> upper class which can simply issue more scrip to enlarge the fraudulent
> bribe.
> 2. It allows them to inflate the price of financial assets and selected
> commodities which increases their net worth, since a majority of
> financial and commodity assets are, directly or indirectly, owned
> and controlled by a very small fraction of households. When vast
> liquidity is selectively and deliberately concentrated on a few
> asset classes, these assets will inflate. At the same time, coerced
> liquidity starvation for the remaining asset classes will cause these
> assets to deflate in value: hence simultaneous inflation and deflation.
>
> Assets and organizations that hugely benefit the net worth and income
> of the tiny upper class are inflated. Assets and organizations that
> comprise the primary wealth and jobs base of the middle class are
> deflated. Bigger bonuses for the bosses; income and wage reductions
> for the middle class.
>
> The debasing dollar primarily damages the middle class, which will
> experience a steady increase in the cost of essential goods and services
> while experiencing a notable decline in its aggregate, after tax,
> discretionary income and its tangible net worth. This will occur
> even as Wash DC and Wall St claim there is "no inflation". There
> is ,for the Middle Class, as the exchange rate of the scrip declines
> versus the material goods and services needed to sustain a middle
> class life. As the dollar declines so declines the middle class in
> terms of both its real material quality of life and its total share
> of US households: a smaller, poorer middle class.
>
> The upper class has made and is making a vastly profitable and massively
> criminal trade: use the dollar to sacrifice the middle class and
> America's global stature, bribe the lower class and aggrandize and
> enrich the upper class. This trade is increasingly transparent to
> the rest of the world. It is the ordinary American who cannot or
> will not see it.
On Oct 09 10:04 AM James G wrote:
> When you find yourself in a hole the best thing to do is stop digging!
>
>
> America cannot continue to discount its labor, commodities, real
> estate, corporate stock and other assets. We are sending a message
> to the world that we do not respect our workers, our citizens, our
> corporate structure and worst of all, ourselves.
>
> America should not be for sale at any price, much less at a 40% discount.
> This inequity exists only because international politicians owe favors
> to their international friends and financial backers.
> There is no logical reason the dollar should not be equal to, or
> greater than, the Euro.
>
> The collapse of the World Trade Center was obviously the actions
> of physical terrorists. The actions of the financial terrorists are
> not so obvious. Will americans react soon enough to prevent the collapse
> of the dollar, the collapse of capitalism and democracy?
> ...James E Gambrell
How I wish for the days of the Roosevelts and a Congress and politicians far smarter than the garbage in DC we have today. Back then politicians/statesmen acted against their own interests to ensure a powerful and successful America. Today all the politicians protect their OWN interests and the hell with America and Americans.
To put it bluntly, failed leadership will ensure the destruction of America as we knew it up to the mid 70s when EVERYONE benefited from America's rise. Since the 70s the middle class has lost ground and the top 10% have gained it.
On Oct 09 09:44 AM Long Silver John wrote:
> There has been a tremendous bi-partisan break-down of leadership
> on fundamental issues for the past 25 years. Neither party, nor Congress,
> nor the Administration, has done their job of safeguarding the American
> public. It is an across-the-board failure of leadership and it will
> be registered as one of history's most tragic, and needless, break-downs
> of a promising society.
Although it is unclear exactly who first penned the above quote, it seems to hold a lot of truth today.
I personally believe the pains America is going through are compounded by the recession coupled with a fundamental change in the underlying work infrastructure. We have, for many years, discussed the rise of the Knowledge/Information Worker but we, as a nation, continue to try to cram this into an early 1900s Industrial Age infrastructure. Peter Drucker actually predicted this happening in one of his last interviews in Businessweek, December 2003.
While this process is going to be painful, I firmly believe that when this is over a new, stronger and enlightened America is going to emerge. Gone are going to be the days of incompetent polititions and reckless, greedy big business. The rise of the small, international business will demolish the last bastion of the Industrial Age and give rise to the strongest America yet.
"I would wake up "Geezer", to which the professor said who and why Geezer? and Leroy answered " Geezer is asleep in the back of my truck sleeper cab - and Geezer is from the same part of the good old USA like me and he ain't never seen a wreck like this before!"
On Oct 09 10:50 AM stockwatcher66 wrote:
> I have to agree that things are tough right now for many, American
> citizen anger is at an all time high and many are frustrated, but
> the fact remains the US GDP still far outstrips all other leading
> developed nations (the next 22 in line, in fact).
>
> I personally believe the pains America is going through are compounded
> by the recession coupled with a fundamental change in the underlying
> work infrastructure. We have, for many years, discussed the rise
> of the Knowledge/Information Worker but we, as a nation, continue
> to try to cram this into an early 1900s Industrial Age infrastructure.
> Peter Drucker actually predicted this happening in one of his last
> interviews in Businessweek, December 2003.
>
> While this process is going to be painful, I firmly believe that
> when this is over a new, stronger and enlightened America is going
> to emerge. Gone are going to be the days of incompetent polititions
> and reckless, greedy big business. The rise of the small, international
> business will demolish the last bastion of the Industrial Age and
> give rise to the strongest America yet.
"I-Believe-in-Strong-D... Turns Relic as China Begs (Update2)"
By Matthew Brown and Oliver Biggadike
Oct. 8 (Bloomberg)
my own biased excerpts ;-)
"Americans are getting poorer...."
"The decline means it’s becoming relatively more expensive to live in the U.S. The difference in per-capita income with Canada has shrunk 87 percent since October 2008...."
www.bloomberg.com/apps...
Bretton Woods established an international monetary system tied to gold.
Following WWII, US had the most stable currency which became the world's reserve currency. In 1971 the US unilaterally terminated gold convertibility thereby changing the dollar from a specie currency to a fiat currency. nonetheless still remaining as the accepted reserve currency because of the balkanization and instability of other nations and currencies.
This placed the US in the unique position of being able to simply print money (backed by "full faith and credit") to cover its debts.
The world has since changed--currently. other nations, particularly the EU and China. "BRIC", are showing enough political and economic strength to make their currencies strong enough to be considered for an international "market basket" reserve currency.
It is no surprise that world nations will no longer put up with the current US reserve currency situation.
Nor should they.
The more telling question is what specific tactic large creditor nations (particularly China) will employ to carefully bail out of the dollar and convert to a more stable and acceptable form of internal reserve currency without overly devaluating their dollar denominated assets.
It appears to me that the day of reckoning for the world US dollar is very much upon us.
On Oct 09 10:44 AM Kevin_T wrote:
> "A democracy cannot exist as a permanent form of government. It can
> only exist until the majority discovers it can vote itself largess
> out of the public treasury."
>
> Although it is unclear exactly who first penned the above quote,
> it seems to hold a lot of truth today.
Cicero - 55BC.
Germany is still in the lead but has a lot of problems. Their deficit is a little bit above 20% of the US, but if you consider that the population is about 25% of the US, the debt per inhabitant is not much less. And let me repeat, most of the other Eurozone countries are much worse of. My conclusion or my question is, why is the Euro so strong, it doesn't make any sense, certainly not b/c of the brilliant ECB.
Now take a closer look at the possibility to raise revenue. In Europe you have all kinds of high taxes and social security, even people with good paying jobs can't make it anymore. It is not the income or corporate tax, but Germany has a sales tax of 19% and even food is charged with 7%. A gallon of gas is about 8 $, 75% is tax and you still have to pay MAUT ( toll ) and tax for your vehicles.
Energy and water is twice as expensive than in the US and the new EU-tax for "global warming" is on the way. The list could go on and on forever but I guess you get the picture. They can't raise anything it is already way to much for the individual, their only chance is growth and therefore they would need a weak Euro and a strong $.
The only other alternative would be cutting spending but this would end in massiv demonstrations by the left and unions and very violent too.
The US on the other side could raise taxes and create revenue and start repaying debt without even getting close to these European levels and that should make the $ much stronger.
On a personal note. I came to this country 10 years ago, I always admired and loved the American way and pretty much everything else in this country, while at the same time I didn't understand what my fellow Germans did to their own country and their people and they still doing it and it's getting worse. Unfortunately I see more and more negatives things arising here too and it looks like they might even do the same mistakes Germany and the EU did.
Don't get me wrong, I love seeing better relationships between the US and the old world, but I might be paranoid it seems we always adapt the wrong things not trying to figure out together what could be done better. Simple example: While the US tries to cut back on fast food chains and looks for a healthier diet, MCD and others are expanding like crazy all over the world.
I hope I didn't bore you to death, have a nice weekend.
It’s not clear to me, however, that the deficit does all that much harm to the dollar. You cited those scary statistics and then noted that the dollar declined for two decades at an annual rate of less than half a percentage point. Big deal. In any case, the super-sized Obama deficit is no secret, and I suspect that the dollar’s depressed value fully factors in the impact, or close to it. Here are a couple of recent posts I did on the subject if anyone is interested in reading more:
moneywatch.bnet.com/in...;older-post
moneywatch.bnet.com/in...;blog-river
The current weakness of the Dollar and the Pound delivers power to China, Korea and Japan without the necessity of war to achieve it. They now control the purse strings of the West and make no mistake that in future we will pay heavily for this change of leadership.
The west's governments are now having to negotiate with their hands tied behind their backs to repay the enormous deficits they are bearing.
So what is to be done?
My suggestion is that the West's owners of large wealth ignore the west's investment 'opportunities' and concentrate their investments in Asian companies so as to gain control over them over the next two years. If we do not control them, those companies will earn sufficient profits to buy-up the West's businesses and we will in the near future become totally controlled by them.
The balance of power in the world had changed and we must adapt to ensure we win in the longer term.
Over the past few years the West has transferred their intellectual technical knowledge and skills to Asia on the correct assumption that our products can be produced more cheaply there. Whilst this is true, the I.P.R and technical skills they have acquired from the West, at no charge, has been unbelievable. The Chinese and Japanese, in particular, are very fast learners and copiers and we will all pay for these short-term gains. So we have to maximize our short-term profits, then draw back from Asian manufacturing in the next two years and re-locate our skills for the benefit of our own people in our own countries before it's too late.
The drop in the value of the Dollar and the Pound allows us this window of opportunity and I hope and trust it will be recognized, otherwise the West can expect to be the new third world countries within a generation or two
'concentrate investments by west's owners of large wealth in asian companies so as to gain control' - by what means will we prevent asian governments blocking your proposed action?
> jack
Euro 57.6%
Japanese yen 13.6%
Pound sterling 11.9%
Canadian dollar 9.1%
Swedish krona 4.2%
Swiss franc 3.6%
===============
Regarding weak dollar and exports. Oil and raw materials go up when the dollar is weak if the demand for them by emerging markets is growing. That means that once exporters sell the current inventory and buy more raw materials, they cost more, transporting them costs more, electricity costs more and shipping the exports to other nations goes up.
One comment said an equities sell-off would drive the dollar up and that is correct. If the global recovery is shown to be an illusion, then the dollar will rally until the real recovery is underway and then it will fall fast again. The world is currently betting the recovery is real and there are 2.5 billion people that control 2/3 of the global economy with the other 5 billion controlling the other 1/3.
This global rise in middle class consumers has been mostly in the last 10 years and it has change the economic power of the U.S. forever. It is the fact that prices haven't gone up that makes me wonder about that "global recovery." Those 2.5 billion aren't spending that much as indicated by the Baltic Dry Index.
However, don't set that aside in your investment decisions. Until that recovery is proven false, the 76% of the S&P companies that get at least some of their revenues from overseas (and that trend is growing at about a 36% rate as more companies send operations and even sales overseas) could keep our markets up even if they don't rise much after this rally (and possible correction of maybe 10% - much more if global recovery is false). This will continue to put pressure on the dollar.
Raising interest rates when employment isn't supposed to improve for years (Fed says "no net new jobs for five years") and the need to keep loan rates low is just talk unless they want to send us into a deep depression.
Do not focus on the U.S. economy or what our government does, much. It is the 2.5 billion people less our middle class consumer, and the trillions of dollars in other nation's hands that will determine our prices and value of the dollar. Our FED and government are no longer in control. That is why our administration is constantly making trips to other nations to beg and make concessions to get what support we do get from them.
Also, using our "large GDP" is not a good measuring tool since government spending can outweigh the other 3 items in the formula and create an illusion. Better to look at the fact that government spending for 2009 will be 61% of national income.
As the person from Germany pointed out, that is not sustainable and that is even what our GAO told Congress in their report when they warned we face the "sudden" loss of our standard of living and that was before this crisis even hit.
Yes, we could see the dollar rally but not one policy has been changed that made it weak to begin with. Only a crumbling global economy will help the dollar and if it does, things will get even worse here for jobs and tax revenues and deficit spending.
Most of us are just pawns who have our pockets picked & are ask to smile & thank them for doing a good job.
Just remember those that have the most to lose cry the loudest.
Having more don;t make you more secure. You have to rely on those about you who have less.
creation of the Federal Reserve. In the dirty little secret between those who supposedly represent us in this country, and the FED, the Fed has created absolute control of the people. Without a real store of value, as with gold and silver, and the ponzi schemes which began with the original derivative, the Federal Reserve Note, conceived in debt, this would never have happened. As long as the politicians have the socialists' fiat currency with which they spread the freebies that keep them in office, what freedoms are left will be destroyed completely, courtesy of our commanding oligarchy. The 2 party system has made it possible, because the blame is placed between the 2 parties, which play good cop, bad cop. A true shell game has gotten us here.
On Oct 08 12:47 PM User 353732 wrote:
> The dollar is falling because it is no longer real money but fiat
> scrip.
> This scrip serves the interests of the entrenched ruling class in
> 2 ways
> 1. It allows them to effortlessly bribe the lower class with money
> illusion: increasing nominal transfer payments that have steadily
> decreasing purchasing power. The lower class focuses on the nominal
> transfers and does not comprehend that the material quality of life
> depends on real purchasing power, not scrip. An expanding lower class,
> caused by increased unemployment/underempl... does not trouble the
> upper class which can simply issue more scrip to enlarge the fraudulent
> bribe.
> 2. It allows them to inflate the price of financial assets and selected
> commodities which increases their net worth, since a majority of
> financial and commodity assets are, directly or indirectly, owned
> and controlled by a very small fraction of households. When vast
> liquidity is selectively and deliberately concentrated on a few
> asset classes, these assets will inflate. At the same time, coerced
> liquidity starvation for the remaining asset classes will cause these
> assets to deflate in value: hence simultaneous inflation and deflation.
>
> Assets and organizations that hugely benefit the net worth and income
> of the tiny upper class are inflated. Assets and organizations that
> comprise the primary wealth and jobs base of the middle class are
> deflated. Bigger bonuses for the bosses; income and wage reductions
> for the middle class.
>
> The debasing dollar primarily damages the middle class, which will
> experience a steady increase in the cost of essential goods and services
> while experiencing a notable decline in its aggregate, after tax,
> discretionary income and its tangible net worth. This will occur
> even as Wash DC and Wall St claim there is "no inflation". There
> is ,for the Middle Class, as the exchange rate of the scrip declines
> versus the material goods and services needed to sustain a middle
> class life. As the dollar declines so declines the middle class in
> terms of both its real material quality of life and its total share
> of US households: a smaller, poorer middle class.
>
> The upper class has made and is making a vastly profitable and massively
> criminal trade: use the dollar to sacrifice the middle class and
> America's global stature, bribe the lower class and aggrandize and
> enrich the upper class. This trade is increasingly transparent to
> the rest of the world. It is the ordinary American who cannot or
> will not see it.
if it was being used to finance education, or infrastructure, or research - the payback is in the future.
we are creating debt to make our lives better today. when economies compete against one another, their currencies reflect the score. the most efficient economy scores the highest.
we are not winning this game. we need a new plan and a better coach.
Jerry
On Oct 08 05:00 PM a fat panda wrote:
> "The Clinton Surplus?."
>
> I would be interested to see the breakout and how much of the surplus
> came from capital gains paid on Enron, MCI, and the rest of the tech
> bubble which exploded in 2000. Income taxes generated on the tech
> bubble were sizable as well.
>
> Failing to punish the people who encourage these asset bubbles is
> why people like Bush and now Obama go out of their way to create
> them.
The government enjoyed increased revenues from taxes during the tech boom, which they can’t take credit for either. They still managed to spend more then they took in so I fail to see how any of then can take credit for a surplus.
nexalogic.com/gold.html
On Oct 09 08:50 PM Jan Paul wrote:
> First, we don't really know if the dollar is rising or falling when
> we use other falling currencies in the basket that it is measured
> against. The Euro is given 57% of the weight in the basket and Japan
> and the U.K. less as are the rest.
>
> Euro 57.6%
> Japanese yen 13.6%
> Pound sterling 11.9%
> Canadian dollar 9.1%
> Swedish krona 4.2%
> Swiss franc 3.6%
> ===============
>
> Regarding weak dollar and exports. Oil and raw materials go up when
> the dollar is weak if the demand for them by emerging markets is
> growing. That means that once exporters sell the current inventory
> and buy more raw materials, they cost more, transporting them costs
> more, electricity costs more and shipping the exports to other nations
> goes up.
>
> One comment said an equities sell-off would drive the dollar up and
> that is correct. If the global recovery is shown to be an illusion,
> then the dollar will rally until the real recovery is underway and
> then it will fall fast again. The world is currently betting the
> recovery is real and there are 2.5 billion people that control 2/3
> of the global economy with the other 5 billion controlling the other
> 1/3.
>
> This global rise in middle class consumers has been mostly in the
> last 10 years and it has change the economic power of the U.S. forever.
> It is the fact that prices haven't gone up that makes me wonder about
> that "global recovery." Those 2.5 billion aren't spending that much
> as indicated by the Baltic Dry Index.
>
> However, don't set that aside in your investment decisions. Until
> that recovery is proven false, the 76% of the S&P companies that
> get at least some of their revenues from overseas (and that trend
> is growing at about a 36% rate as more companies send operations
> and even sales overseas) could keep our markets up even if they don't
> rise much after this rally (and possible correction of maybe 10%
> - much more if global recovery is false). This will continue to put
> pressure on the dollar.
>
> Raising interest rates when employment isn't supposed to improve
> for years (Fed says "no net new jobs for five years") and the need
> to keep loan rates low is just talk unless they want to send us into
> a deep depression.
>
> Do not focus on the U.S. economy or what our government does, much.
> It is the 2.5 billion people less our middle class consumer, and
> the trillions of dollars in other nation's hands that will determine
> our prices and value of the dollar. Our FED and government are no
> longer in control. That is why our administration is constantly making
> trips to other nations to beg and make concessions to get what support
> we do get from them.
>
> Also, using our "large GDP" is not a good measuring tool since government
> spending can outweigh the other 3 items in the formula and create
> an illusion. Better to look at the fact that government spending
> for 2009 will be 61% of national income.
>
> As the person from Germany pointed out, that is not sustainable and
> that is even what our GAO told Congress in their report when they
> warned we face the "sudden" loss of our standard of living and that
> was before this crisis even hit.
>
> Yes, we could see the dollar rally but not one policy has been changed
> that made it weak to begin with. Only a crumbling global economy
> will help the dollar and if it does, things will get even worse here
> for jobs and tax revenues and deficit spending.
On Oct 10 01:42 AM Steven Hansen wrote:
> i do not believe it is the debt per se, but the reason for the debt.
>
>
> if it was being used to finance education, or infrastructure, or
> research - the payback is in the future.
>
> we are creating debt to make our lives better today. when economies
> compete against one another, their currencies reflect the score.
> the most efficient economy scores the highest.
>
> we are not winning this game. we need a new plan and a better coach.
>
On Oct 08 06:18 PM Wildebeest wrote:
> The trend is for a weaker dollar but surely foreign holders of large
> amounts of dollars (China) don't want it falling through the floor.
> While China has been using its dollars to stockpile commodities ,and
> buy commodity producing companies, this has only scratched the surface
> of its US dollar holdings. China also wants a strong dollar for trade
> and commodity purchases.
>
> So my two cents worth is that at some stage foreign US dollar holders,
> like China, will need to support the currency.
>
> Any thoughts on that proposition?
mar
ket-ticker.denni
nger.net/archives/1500...
Well, Karl Denninger is digging again and what he found is really interesting. There are a couple short videos to set the stage on some FED purchases that are verified by the CUSP numbers as monetizing debt.
In the first case, last week's 7 yr bond sale has already seen the FED buy it back. Think of that. In less than a week they buy back about 1/2 of it. But, it gets worse with "agency" debt.
Thirty minutes after Fannie debt was sold, the FED bought it back.
Now, If Karl can dig this out, you can bet foreign governments that lend to us can, as well. This is total insanity. The full article is well worth the read.