Thursday, December 18, 2008
Dollar poll: What does the decline mean?
I'll be very busy today driving -- if you think people frown on driving while talking on the phone, imagine how they react to blogging from behind the wheel -- in a day-long meeting, and then being a supportive husband. Accordingly, you will have to amuse yourselves. I'll get you going with a question: Does the dollar's steep drop of the last couple of weeks (after a long rally driven by the "fear trade") mostly reflect the Fed's dramatic cut in interest rates, a growing concern that we will have to debase our currency to pay back all this debt, the healthy development that the "flight to quality" is no longer dominating capital flows, or a belief, ill-founded or otherwise, that the American economy is in worse shape than Europe's?
Talk amongst yourselves.
13 Comments:
By 
Charlottesvillain, at
Thu Dec 18, 08:31:00 AM:
Obviously the market read the comment thread from yesterday's post and fears a US debt default.
By Mystery Meat, at
Thu Dec 18, 08:49:00 AM:
There is no problem with blogging from your car. Simply engage cruise control and text away on your cell phone.
Some quotes of Vladimir Ilyich Lenin:
"The best way to destroy the capitalist system is to debauch the currency."
"The way to crush the bourgeoisie is to grind them between the millstones of taxation and inflation."
By 
, at
Thu Dec 18, 09:24:00 AM:
I absolutely see a direct correlation between the Fed Lowering rates and the dollar's free fall. It is not to say that all of those other issues of long-term obligations do not matter; however the desperate nature of the move gives investors very little confidence in the people who are at the helm of the US Monetary policy. They have basically shot their last bullet and the currency markets know it.
One more point that should be made, is that I wish Bernanke and the other Fed Presidents were not the bitches of Wall Street as they are. I mean really, how much more will the economy be stimulated by lowering the rate from 1% to .25%? However, they know the market will get a quick reaction and so they think they have done the right thing. However, the dollar always goes in the can when they lower rates and as such things like oil/gas and commodities begin to rise again because the dollar does not buy as much. Having our Fed policy tied to wooing the praise of some stock jockey on Wall Street, whose attention span even riddlin cannot help, leaves me less than confident about the dollar too...
By Fellow American, at
Thu Dec 18, 09:33:00 AM:
I'm going with all of the above, with emphasis on the Fed's rate cut making the dollar an unattractive investment, and perhaps a growing consensus that we have now undeniably entered just-making-crap-up-as-we-go territory. Jeepers these are scary times.
By , at
Thu Dec 18, 09:49:00 AM:
It's going to be interesting for a while. I do not believe there are any quick fixes for this recession. I think 2-3 years of economic stagnation are going to occur before the economy stabilizes enough for individuals to adjust their economic behavior and plan for the future.
By , at
Thu Dec 18, 10:49:00 AM:
Or is it that the paradigm which says America dollars are always a safe haven currency, is changing?
The world economy is the future, and America will be just another player, not the world's last resort during economic troubles.
Why do you think gold has risen so steeply as the dollar falls?
By Viking Kaj, at
Thu Dec 18, 10:57:00 AM:
The answer is that the people in Washington, and those that are moving there, have no answers. They are presently grasping at straws. If a 0% fed runds rate doesn't do the trick then let's try something else, yeah, yeah, let's buy bad assets, that's the ticket. The rest of the world is definitely watching what we are doing as we rack up all of this debt. Fighting two long distance wars, bailing out banks, and running a trillion dollar stimulus package with no blue print should make anybody nervous. Warren Buffet has continued to bet against the US currency and Hugo Chavez agrees. When you have unanimity between those two sources you have a serious problem.
I have posted elsewhere about the similarities in our present situation and those of the British Empire/Pound during WWI. If the lenders decide all of a sudden to not buy our T-bills then we are in serious trouble. The inevitable result of borrow and spend politics is inflation, and erosion of our currency, and, very soon, problems with our ability to continue to finance the military. We will have to leave Iraq and Afghanistan because we can't afford to stay there.
We are heading for banana republic status, and neither party seems to be able to do anything about it. We ae going to fight a problem with all these bad loans by offering 0 % money? Debt is our crack and the whole economy is addicted. Don'e expect Geither et. al. to have any new ideas. Remember, he's the guy who let Lehman Bros go bankrupt.
As a future financial strategy I'd suggest looking into euro denominated municipal bonds, select foreign shares, and select real estate. US Dollar denominated investments are likely to go the way of Brazil.
By Viking Kaj, at
Thu Dec 18, 11:08:00 AM:
DON'T KNOW IF ANYBODY ELSE NOTICED BUT 0 JUST NOMINATED RAY THE HOOD, ILLINOIS COMBINE POLITICIAN PAR EXELLANCE, AS SECRETARY OF TRANSPORTATION. This is the most important post in Obama's administration since LaHood will be presiding over who gets most of the $ 800 billion stimulus package.
FYI, La Hood is the guy who shot torpedos into senator Peter Fitz so Obama could get Fitz's US Senate seat. He is famous for playing footsie with the Chicago machine. He is about as bipartisan as a freezer full of $ 100 bills (see eg. James DeLeo)
This will ensure that a large part of the $ 800 million we are borrowing goes to feather the pet projects of local pols at inflated price tags. Expect more politician's wives to be named to bank and title company boards so they can afford the condos in Aruba next to the outfit casino.
I think, as a nation, we are well and truly screwed.
By K. Pablo, at
Thu Dec 18, 12:25:00 PM:
Maybe the Fed should announce a huge rate increase, scheduled to occur, say, March '09. Take advantage now before rates go up!
By Mrs. Davis, at
Thu Dec 18, 02:17:00 PM:
What the Fed and Treasury should do is stop expanding the money supply and start withdrawing funds from banks that aren't lending and depositing it in banks that are.
By , at
Thu Dec 18, 03:28:00 PM:
Re: Viking
The sky is not falling. The clouds are just a little thicker. America is far, far away from even approaching banana republic status. In fact, it might take the better part of a century for the light from banana republic status to reach us.
From our physical infrastructure to our rock solid political system to our massively distributed economic system, I'm betting that everything will be OK.
By , at
Thu Dec 18, 04:09:00 PM:
Anonymous 3:28:
I'd like to echo that sentiment, but it sounds too much like whistling past the graveyard on Halloween.
The economy will surely rebound (someday), but the trend in the political class (is there a difference in parties?) is to put more strictures on those who actually produce and create wealth.
"Greening" the industrial base (?), carbon taxes, more expensive electricity and other fuels. How much will the economy rebound?
-David
By , at
Thu Dec 18, 10:24:00 PM:
I was looking for a silver lining in the comments section, guess I might as well go back to digging the underground shelter and stocking food and ammo.
