With the inflation banks will get hammered, especially the small ones and ones with lots of fixed loans.
given, there is much more harm than good that will result from a sliding dollar, why isn't the government doing anything to correct the currency?
"finance - can someone explain how a weak dollar is bad?"
"A weak dollar might not be bad, and it might not be good. But a weak currency means something is wrong with the economy, it's allways meant that." - Forsythe
Do you have any idea how many US dollars are out there? About 2/3 are out side of the US. If the people with those dollars try and sell them we will get hyper inflation. - Spencer278
IMO the problem is not with the varying international weakness/strength of the dollar, that is normal market variation. I am more concerned over complete currency devaluation, which is a good possibility.
"A weak dollar might not be bad, and it might not be good. But a weak currency means something is wrong with the economy, it's allways meant that." - Forsythe
Do you have any idea how many US dollars are out there? About 2/3 are out side of the US. If the people with those dollars try and sell them we will get hyper inflation. - Spencer278
IMO the problem is not with the varying international weakness/strength of the dollar, that is normal market variation. I am more concerned over complete currency devaluation, which is a good possibility.
CHINA'S FOOT ON AMERICA'S THROAT
http://www.kitco.com/ind/Texashedge/nov222004.html
"Yang Jiechi: (Paraphrasing) Our goal with our exchange rate and economy is to move to more market-oriented policies over time. But you must understand that many companies in China are owned by American and other foreign entities. Furthermore, the Dollars that China accumulates are re-invested back into U.S. Treasuries, which is good for America. You also should know that while China enjoys a surplus with the United States, we have large trade deficits with many of our Asian neighbors. But to answer your question regarding diversification out of dollars, we are moving in that direction."
http://www.kitco.com/ind/Texashedge/nov222004.html
"Yang Jiechi: (Paraphrasing) Our goal with our exchange rate and economy is to move to more market-oriented policies over time. But you must understand that many companies in China are owned by American and other foreign entities. Furthermore, the Dollars that China accumulates are re-invested back into U.S. Treasuries, which is good for America. You also should know that while China enjoys a surplus with the United States, we have large trade deficits with many of our Asian neighbors. But to answer your question regarding diversification out of dollars, we are moving in that direction."
US dollar is the worlds reserve currency. For example, if Japan needs to buy oil. They use dollars to pay for oil and not yen. The dollar has devalued as compared to other currencies such as the Euro and Gold recently. That is a contributing factor to the rise in oil orices. That is, oil produces realiZes that dollar is devaluing requires more dollars for purchase of barrel of oil Meaning that the worldwide purcashing power of the dollar is eroding.
Since, the US dollar is the reserve currency. ALL countries in the world MUST maintain a US dollar reserve. These countries typically buy US treasuries to hold their US dollar investment.
Now back to the oil example. What if the oil producers allowed or required payment for oil in Euros?
Well, then all countries that buys OIL must pay for oil in Euros. Now countries that maintained a US dollar reserve now must create a Euro dollar reserve. Most likely, these countries would sell their US bonds/bills and purchase Euro bonds/dollars.
This will have the effect of causing a further silde in the US dollar, slide in bond prices and rise in interest rates.
The worst case scenario could be that the Euro or another currency could replace the US dollar as the WORLDS reserve currency. IF that happened then the US would lose a significant control over the world monetary / econmic influence.
Even a weaker dollar does not automatically mean bigger profits for US exporters. It could simply mean that US export volumes would increase but US export values remain the same. This because, as we have seen, a weaker dollar impacts foreign markets negatively and reduces the purchasing power of the potential US export markets. If the Eurozone, for example, is hit by deflation because of Bush's weak dollar policy it's ability to buy US exports is hit accordingly. No wonder the EU is less than impressed by Bush's weak dollar policy.
The same is true for imports. A weak dollar may reduce the volume of imported goods to the US but not the value. The US will import fewer, say computer parts, but the value of those parts will remain the same i.e. they will cost more for the US consumer.
The real beneficiary of a weak dollar policy is US multinational corporations who will be able to boost dollar profits from non dollar business abroad (their foreign currency earnings will be translated into more dollars.) US jobs will not be protected by a weak dollar policy. The weak dollar policy is only sustainable for the short term as the medium and long term effects are far too harmful to the US economy (such as accelerating inflation and interest rates).
Warren Buffett used this example. Imagine there's two islands, with the inhabitants of each island working 8 hours/day - enough to exactly feed themselves. But now one island (China) now decides to work harder - 12 hours/day. Now they can feed themselves, and export 4 hours worth of food to the other island (USA). USA says cool, now I can import and work only 4 hours per day. The rest of the time I'll do as a please - research technology, do some dot-coms, whatever. Life is good for the USA people - they get 8 hours of food for only 4 hours work. How do they do this? They print I.O.U.s to China. The USA people start thinking they're so smart - bragging about how they're so rich and on top of the world. Only problem is the USA people start getting fat and lazy, and getting used to the 4 hour per day lifestyle. Some of their hyped up technology doesn't pan out. So they have to print more and more I.O.U.s. Now China isn't stupid, they say wtf, this number of I.O.U.s is getting a little crazy. They become afraid the dollar will devalue and their I.O.U.s (denominated in dollars) will therefore become worthless. So they trade in their I.O.U.s for tangible stuff - commodities and real estate. Soon they own the whole damn island of USA. Now you can imagine the hardship of the USA people at this point - they have to work 16 hour days to pay rent to the chinese and buy enough food for themselves.
But at this point the 65-year old retiring people don't care. They've lived a good life of working only 4 hours/day, and can now retire and live off S.S. But the 20+ year olds grow up as serfs to the Chinese, and are left wondering why their forebearers did this to them.
But at this point the 65-year old retiring people don't care. They've lived a good life of working only 4 hours/day, and can now retire and live off S.S. But the 20+ year olds grow up as serfs to the Chinese, and are left wondering why their forebearers did this to them.
ambitv:
great story, but you ended it too soon.
Island 1 (china) and Island 2 (USA) story continued........
Island 1's people are working hard and making money. They create a large middle class of consumers that need better medical supplies, drugs, planes to fly in , cars to drive, credit cards to finance consumerism, they want designer clothes, they want food, they now can finally AFFORD to buy what Island 2 is good at producing.
Island 2 exports grows and the trade balance with Island 2 starts to equalize into a healthy trading relationship.
Island 1 finds cheaper labor at Island 3. The same story will continue at Island 3.
Conclusion:
Trade is good for everyone. All parties will benefit.
great story, but you ended it too soon.
Island 1 (china) and Island 2 (USA) story continued........
Island 1's people are working hard and making money. They create a large middle class of consumers that need better medical supplies, drugs, planes to fly in , cars to drive, credit cards to finance consumerism, they want designer clothes, they want food, they now can finally AFFORD to buy what Island 2 is good at producing.
Island 2 exports grows and the trade balance with Island 2 starts to equalize into a healthy trading relationship.
Island 1 finds cheaper labor at Island 3. The same story will continue at Island 3.
Conclusion:
Trade is good for everyone. All parties will benefit.
Here's the continuation of the story:
Island 2 (USA) gets this crazy idea that by borrowing and importing from China, they might somehow stimulate China's economy enough so that the chinese will import from USA. But they soon discover that there's not much that China wants to buy from them - China already makes their own clothes , cars, and planes. Furthermore, when the USA people brought their factories over to China, the Chinese stole a lot of the concepts and technology, and opened up their own factories. Sure there's some stuff that China wants to import from the USA, but there's a whole lot more that the US wants from China.
USA is now out of crazy ideas. They can't export their way out of this, and they can't print any more I.O.U.s. In short, no more bag of tricks that lets them get something for nothing.
Soon the dollar of island USA starts depreciating. The people of USA can no longer 4 hours worth of food. They can only import 3, then 2, then 1, then 0. As a result they have to work more and more hours per day, until they work 8 hours per day and trade balance is restored.
Island 2 (USA) gets this crazy idea that by borrowing and importing from China, they might somehow stimulate China's economy enough so that the chinese will import from USA. But they soon discover that there's not much that China wants to buy from them - China already makes their own clothes , cars, and planes. Furthermore, when the USA people brought their factories over to China, the Chinese stole a lot of the concepts and technology, and opened up their own factories. Sure there's some stuff that China wants to import from the USA, but there's a whole lot more that the US wants from China.
USA is now out of crazy ideas. They can't export their way out of this, and they can't print any more I.O.U.s. In short, no more bag of tricks that lets them get something for nothing.
Soon the dollar of island USA starts depreciating. The people of USA can no longer 4 hours worth of food. They can only import 3, then 2, then 1, then 0. As a result they have to work more and more hours per day, until they work 8 hours per day and trade balance is restored.
OPEC and Iran especially is thinking of switching to the Euro for transactions. That would mean a disasterous turn of events for the US economy because we import so much oil compared to the rest of the world.
alright, let's break it down further.
there was mention that the 65+'s will not care because they have their SS benifits to life off of, but the 20+'s will get screwed.
let's defined screwed. how bad will it be for us 20-somethings? is it something that will be a big inconvenance, where we have to settle for an accord and not the merc, or is it something really major, like not being able to put food on the table and losing our homes?
judasmachine
Diamond Member
- Sep 15, 2002
- 8,515
- 3
- 81
Yeah what's the problem? I hear the chocolate ration is going to be bumped upto 25 grams next month! Long live Big Brother.
We are talking about complete collapse of the dollar if OPEC switches to the Euro. Right now, sales of oil act as if they were part of our economy. If the prices moved to Euros, we'd lose that extra "income" and on top of that we would have to either import less oil or pay a higher price (due to currecny exchange). Also, one of the dollars main supports is oil. Other than oil, we have nothing backing the dollar. And the loss of sales in dollars would mean an undermining of the confidence of the dollar, further spiraling. It'd be inbetween no food on the table and economic collapse.
I can throw in a simplistic answer for that one for you.
Let's say I'm european and I buy lumber from the USA.
If the exchange rate is 1 euro to 1 dollar, and 1 unit of lumber if worth 1 US dollar, then I can buy say, 1000 units of lumber for 1000 euros.
Now the dollar slips down so it's worth only half a euro. With my 1000 euro budget for lumber purchasing I can now buy 2000 units of lumber.
But there's a problem - the US company I buy off also sells to local companies, and they don't have enough spare to sell me 2000. So I say, stuff your other customers, I will pay you 1.5 dollars a unit instead of 1 dollar a unit if you sell me more. To get their share of the amount of lumber, local american companies are going to have to start paying more - either that or the lumber company decides that they are virtuous and would prefer to sell to local companies at $1 instead of foreign companies at $1.50, because it would be good for the economy 8)
The obvious follow ons go from there - if the raw material is costing more for manufacturers in the USA, their end price will increase - if the price increases less people will buy their products. If less people buy their products, they will have less money with which to pay workers. If the workers have less money they will have less money to buy other company's products with, etc etc.
geez...
all the explanations tend to illuminate a bad to worse scenario. so again i ask, why isn't the administration doing anything to halt the dollar slide? will they start acting after the world's prefered currecnt is the Euro?
all the explanations tend to illuminate a bad to worse scenario. so again i ask, why isn't the administration doing anything to halt the dollar slide? will they start acting after the world's prefered currecnt is the Euro?
sandorski
No Lifer
- Oct 10, 1999
- 70,794
- 6,352
- 126
I think it's Blind Faith and the desire to Revolutionize the US. The Bush Admin doesn't like to tinker, but to jump into the fire enthusiastically with both feet head first. I think they are Idealists who will dismiss any doubt and "know" that it will be better someday.
The weaker dollar policy is an attack on the Euro. You can view this policy as a pre-emptive attack. The Euro is a fiat currency backed by 12 % gold and 85 % US treasuries. Gee, you say, isn't it nice of the Europeans to buy so much US debt. Not at all. All non dollar currencies need a large holding of US dollars to hedge against speculative attacks on the non dollar currency. US currency speculators (like Soros) can mobilize sums so vast they dwarf most European nations GDP's.
The Euro is not designed to become the world's reserve currency. At least not at this point in time. For that to happen the ECB would need to release ECB treasuries since debt instruments is the way other nations invest in currencies. The Eurozone is simply not indebted enough, unlike the US which has overplayed it's dollar hand. The Euro is also a common currency for severel different sovereign nations, it does not have one single backer. The Euro was designed to facilitiate trade in the Eurozone and also as a means for future oil trade for the benefit of the Eurozone. That does not mean that the aim was to take over completely from the dollar on a world wide scale. That would be idiotic and put Europe in the position the US finds itself in now with a currency bankrupted all but in name. The only support the dollar has at this point in time is faith. It is financially impossible for the US to collect all the treasuries it has printed over the years and turn them into dollar notes. So the US does not want Euroland to benefit even that much from oil trade because of the precarious situation of the dollar. The US dollar is the main commodity exported by the US. The biggest threat to the US is not military invasion or a physical threat from overseas, but the threat that the dollar scam will collapse. That is why the US is now using it's economic might against the Euro. The other main US weapon, the military might, is invested in Iraq (Iraq switched to trading for oil with Euros under Saddam) and poised to attack Iran (now also poised to trade it's oil for Euros).
So the weak dollar is not bad at all from the point of view of the Bush administration. Especially not for those who put Bush on the throne. Big Oil is raking in the profits on high dollar oil prices, and the Military Industry, already high on war earnings, will find it much easier to increase exports of weaponry, and profits, on a weak dollar. The torrents of dollars released upon the world by Bush's multi billion dollar tax cuts has undermined the dollar further and practically forced the devaluation of the already overvalued dollar. You see, the Neocon, i.e the Bush administration's, mindset is that they are fighting WWIV (their word - WWIII was the Cold War). And as you know in War anything goes. The attack on the Euro is part of this strategy.
LunarRay
Diamond Member
- Mar 2, 2003
- 9,993
- 1
- 76
Regarding the Demand/Supply... 'curve' and the rapidly decreasing price as the demand diminishes theory....
Demand decline does tempt the supplier to 'adjust' prices down consistent with the product/service elasticity and the cost structure of the supplier. But she won't supply below her cost (generally). Demand that declines due to disposable income reductions will not restore demand (much) even if the price is reduced.
The calculus that provides the economic answer of what action to take to both the supplier and the demander is often common sense. Do I have the money to spend on the lower priced gizmo or do I buy less milk since the price is still the same but I can't afford as much... etc.. etc..
Demand decline does tempt the supplier to 'adjust' prices down consistent with the product/service elasticity and the cost structure of the supplier. But she won't supply below her cost (generally). Demand that declines due to disposable income reductions will not restore demand (much) even if the price is reduced.
The calculus that provides the economic answer of what action to take to both the supplier and the demander is often common sense. Do I have the money to spend on the lower priced gizmo or do I buy less milk since the price is still the same but I can't afford as much... etc.. etc..
IAteYourMother
Lifer
- Nov 3, 2004
- 10,491
- 22
- 81
Continuation: To make everything more simple and easy, GWB nukes the other islands so that his island can reign supreme
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