When is Low Too Low For the Dollar?
The US dollar hit 1.52 vs. the Euro this week. A few years ago, the dollar was considerably stronger than the Euro, a currency that most in the States thought was destined to fail. For Americans, this does not just mean an inability to visit Europe due to the astronomical cost of a European vacation when measured in dollars. There are many other implications to the dollar collapse, most poorly understood. As the dollar evaporates in value and the US economy rapidly shrinks in global significance (the dollar has been on a free fall against all significant currencies in the world) we should wonder when will the dollar reach a value that makes the financial world crack.
When will the Arabs stop taking dollars for their oil? When will the sovereign funds, now the most significant global investors massively shift their holdings to euros? When will the Chinese get tired of buying US debt and holding US dollars, especially since the US government seems to block them on any significant purchase Chinese companies want to in the US for security reasons? When will the US regulators realize that the world financial center is not New York City anymore, but London, because not only the dollar is such an unstable currency but because the US is beginning to look like a bureaucracy compared do the Old Empire? Can the US really be a super power and at the same time the world biggest debtor with an economy that is less and less relevant in global terms? I apologize for a post that mostly contains questions but I believe that the US government not only has shown to be an irresponsible global power in the security arena but equally important it is now showing the same by neglecting the dollar. If trends continue the talk will not be about petrodollars anymore but about peso dollars and how the USA joined the rest of Latin America as a nation unable to rise above its financial troubles.
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This is what happens when you mix the neo -cons and incompetence with Enron-style government. Just cook the books, embezzle as much as you can, set yourself up for even more unearned riches and by the time the American people wake up, the one percenters can be living in Dubai or Switzerland in their splendor. We are so screwed it isn't even funny. Our economy is a house of cards and we are too stupid to get it. Wait until the credir card debt piles onto the mortgage disaster. The Repubes have conned the American people and have made off with everything but the kitchen sink. We have no respect in the rest of the world thanks to GW and if everyone turns their back on the dollar, it's over. It will be 1929 all over again. I guess we could threaten to bomb the hell out of everyone that won't play with us anymore. We'll have to spend our last dollars on the military.
The FAIR TAX would turn this around....
FOR NAFTA TO WORK THE U.S. DOLLAR MUST BE EQUAL TO THE SOUTH AMERICAN CURRENCIES.
WELCOME TO THE 3 RD WORLD LADIES AND GENTLENMEN!
LOVE THAT REGEAN NOW DON'T YOU. WHERE ONCE STOOD A RICH AND PROMISING LANS NOW STANDS ONE OF FEAR AND NEAR COLLASPE. COLLASPE FROM NEGELECT BOTH IN MAINTANCE AND INVESTMENT.
MORAL: NEVER LET A CEO COME INTO A BUSINESS THAT IS STRONG AND VIABLE AND REDIRECT THE FUNDING THAT MADE THE BUSINESS SO STRONG AND VIABLE.
THE USA IS NOW A TRAIN WRECK WAITING TO HAPPEN.
When I studied econ 101, that was called inflation. At least the Iraq war will end as soon as the Chinese and Saudis do not buy our debt anymore.
Mr. Varsavsky, don't apologize for asking the right questions, and most Americans aren't going to like the answers, but that's reality, not this fantasy we have been living the last 25+ years.
One of the frequent responses from the Right is that GW Bush had nothing to do with the dollar decline. You could mention the three trillion of new Bush debt, but they see no connection. So pull out the archives (quotes in black and white) and show them that a devalued dollar has Bush policy for at least five years.
I use these"
current excange rate -- http://www
hitrical excange rates -- http://www
Why do you hate America? (Heavy Irony) My favorite far right wing observer, The great Bill Bonner and his ilk have been warning about this for years. We've been able to get away with financial murder because the dollar is the world's reserve currency. When it cease to be, that's when all hell will break loose. Sure wish I bought more gold & silver. This tradgedy was so inevitable.
To clarify my previous comment:
"You say you can't afford to lend at low terms to that person? Fine. Don't lend to that person. You are not ALLOWED to lend to that person, because what you have been doing all this time -- and do not say that you do not and did not know it -- is to steal the shirt off his back, the bread from his childrens' mouths, and the gleam of hope from his eyes.
"Nay, you have yourself committed an ancient and accursed crime, and the money that boils through your besotted greedy fingers is blood money. And the eyes of the overseers and the legislators and the politicians who looked upon what you have done and pretended not to see it; their eyes (again, figuratively speaking because this IS the 21st Century and not the 13th) should be put out."
Remove all the computers and the fancy jargon and boil this thing down to the root cause of the crime, and that root cause is truly ancient... Usury.
Indeed.
Certainly, the practice of "borrowing from oneself," literally more than $1 million a minute 24/7/365, is coming home to roost for the United States. And as more nations develop an appetite for oil, the less sensible it becomes (if sensible ever it was) to denominate those transactions in Dollars. America likewise would feel ill-used if an out-of-date treaty forced such exchanges to be denominated in, say, Hungarian Forints, and it was well-known that said government was printing the things round-the-clock every day.
So, the traders will do what their business requires them to do: they will abolish that everybody-loses treaty and thus stop the pointless loss-of-profit caused by the bogus exchange-system. The only people who will be upset would be the Hungarians.
But there's another side to this story, specifically in the case of America.
In the past seven years particularly, America has shown herself to be a violent, unpredictable, I-wanna-be-emperor of-the-whole-world country whose word cannot be trusted. Bristling with conventional firepower and tens of thousands of nukes, it nevertheless has a spectacular economic vulnerability. Body-armor from the waist up, but only body-hair from the waist down. How do you stop that country's military ambitions? Exactly. Kick right *there* and make it count. Step out of the way so the tough guy doesn't fall on you on his way down. "World War Three? Sorry, not interested
My understanding was that Uncle Sam reduced the value of the dollar intentionally (against the Chinese gov't kicking and screaming about it). The idea, of course, was to reduce the value of US goods so the rest of the world would continue to buy our products. There's a point at which they seem to have lost grip of it as they can't balance the triangle of interest rates, the value of the dollar, and the price of commodities without breaking down the economy.
Put on your seat belts. All houses of cards will crash at some point.
the us gov has not been NEGLECTING the dollar, they have been carefully steering its demise (Bernake has done a fine job...fine job Bernake...
Laughing at Zimbabwe doesn't look so cool, any more.
Welcome to banana republic territory.
The answer to a falling currency, of course, is to raise interest rates...sk
But there seems to be no easy way out of the economic problems created by this Bush administration. The current policy of reducing interest rates is killing off the dollar making everything bought from abroad more expensive ie it is inflationary. Raising interest rates will kill off the economy and bring massive unemployment. Reducing taxes will increase the requirement to borrow from abroad as the deficit gets bigger, and will cause interest rates to increase, since sensible foreign savers don't want any more dollars. Increasing taxes will dampen the economy sending the country into a recessionary, possibly deflationary spiral. Someone suggested tariffs as the answer....
The US had a fleeting chance to do something about it's indebtedness at the beginning of the Bush administra
The only remedy is a long and painful process. It involves putting aside the hubris that everything American is best and taking some sensible ideas from other nations (eg nationalized health insurance); it also involves making some sacrifices in order to live within one's means both at a personal and national level...bu
Your politicians are lying when they say that they can give you a $300 bonus and all will be well....th
Actually, "retarius," I would argue that the best thing to do would be not only to sharply increase the Fed's interest-rate but also to force down by-fiat the consumer's interest rates. What we have right now is usury, and there are very sound reasons why that used to get your hand whacked-off like that of a common thief.
Our banking systems are filled with fraudulent practices that steal from account-holders and share-holders alike. This isn't smart-business; this is stupid-business, most especially in the finance business.
Every single qualified borrower should be able to get a loan at a reasonable interest rate, and subject to strict rules concerning changes to that rate. It's against the law (fraud on the market...) to grant money to an unqualified borrower or to fail to qualify him or to misrepresent his qualification. Enforce those laws. A financial institution has a fiduciary duty to its account and share holders.
Go through the rolls of the regulators who have allowed those practices to happen. Impeach them. ("Any Civil Officer" can be Impeached.
Clean house. Enforce the laws of the land rigorously but fairly. If you don't want this kind of abuse to happen and to continue to happen, all you really need to do is to (figurativ
Sundial,
In a free society one cannot force lenders by 'fiat' to lend. Basically our credit problem is not one of interest rates, although I agree that there are sharp practices and usury in the banking sector...
Now the fed can reduce interest rates or raise them all it wants, it doesn't really matter, because bankers can't afford to make any more bad loans, so they won't lend unless either you really don't need the money, or you have peerless credit...i
The thing I am most offended about is the idiocy of this 'stimulus'
But there seems to be no easy way out of the economic problems created by this Bush administration.
__________
The decline of our economy actually began during the last days of the Vietnam war under Richard Nixon (remember that first blast of real inflation and the wage/price controls he was forced to institute?)
It gathered steam under the economic mismanagement of the Carter administration and the first energy crisis. Ronald Reagan might have turned it around, but in failing to respond to the fact that we were becoming increasingly dependant on imported energy when there was still a chance to do something meaningful before it was too late, he blew his chance. Regan berated Carter for a 60 billion dollar budget deficit, then promptly handed us a 200 billion dollar defecit when he left office.
From there it has been pretty much downhill all the way. The Clinton administration did seem to be turning it around for a while, but much of that was due to the illusions of the dot.com era. We've been pretty much in free fall since that went bust.
Now the Bushies seem almost gleeful about stomping on the corpse of what was once the most prosperous nation on earth.
And despite all our fears of nuclear Armaggedon during the cold war, the American Century ended not with a bang, but with a whimper.
I wasn't in the US at the time of Nixon, but I'm sure that the Vietnam war put a strain on the economy. Reagan frankly, was a nut job....I'm not sure how he became beatified in the US....but from an economic point of view he was a total disaster.
Clinton was fortunate in my opinion, he inherited a situation at the end of the cold war in which military expenses could be reduced (remember the 'peace dividend"?) and was able, with a strong economy combined with increases in taxation to run a surplus, and start to pay down the national debt.
From my perspective, the way forward is to start to invest in infrastructure instead of wars. It is ok to buy infrastructure on credit ie if you borrow to build a new airport, or road ways, bridges, parks etc then you get a stimulus now, and the benefit of the better infrastructure for years to come....it
This nutty 'stimulus' scheme to give everybody $300 to spend at the mall is lunacy....
Where are the fiscal conservatives when you need them?
Excellent questions. We all know the direction of dollar is down, way down. The question we need to ask is how do we stop the dollars' fall.
What is causing the dollar to fall ? Well how about a 6% trade deficit and a 4% budget deficit. There is one solution that addresses both these problems - Tariffs ! Tariffs raise money to help pay the budget deficit and slow down imports to bring our trade deficit under control. The fewer products we buy from other countries the fewer dollars go overseas. No serious economist will tell you that these trade deficits are either reversible or sustainable.
Of course you will hear all about how this is a terrible thing to do, but realize where it is coming from, the very multi national corporations that unbolted the manufacturing equipment here in the United States and shipped either to China or Mexico to be used there ! There will be a great hew and cry about how we need exports and how trade is so good for us but in reality we are being bled to death by our dollars going overseas. Don't let the main stream media fool you, like they did about Iraq, we need Tariffs and we need them now otherwise we will have no dollar left to save.
If you have onlly just noticed the problem you have really been out of touch. I haven't done the calulation lately but I believe Bush has increased the mortgage of the country by more than $15,000 per person or $60,000 per family. But never mind at least we are going to get a $300 tax credit which will solve all the nation's financial ills.
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