Re: Greenspan concerned with weak dollar

From: Rod Speed (rod_speed_at_yahoo.com)
Date: 11/21/04 

Date: Mon, 22 Nov 2004 05:34:50 +1100

"devil" <devil@attglobal.net> wrote in message
news:pan.2004.11.21.16.40.57.209609@attglobal.net...
> On Sun, 21 Nov 2004 09:14:27 -0700, AbsolutelyCertain wrote:
>
>>
>> "W_B" <no_one@nowhere.net> wrote in message
>> news:bkl1q05j073ius51mo372cfkj0ghakt4j2@4ax.com...
>>> On Sun, 21 Nov 2004 02:34:01 -0800, Icono Clast <IClast@jps.net>
>>> wrote:
>>>
>>> >The only way I can imagine paying off the Bush/Republican-created
>>> >debt is through significant inflation which I expect we'll see quite
>>> >soon,
>>>
>>> Nope, you can grow the economy out of deficit.
>>> You cannot tax your way to prosperity.
>>
>> A greatly oversimplified and misleading description.
>>
>> You cannot "grow" the economy, it will grow or shrink as it pleases. It is
>> largely intractable, whether you are talking about the short, medium or long
>> term. If it were manageable and predictable, we'd all be rich as Cresus.
>>
>> Taxation, on the other hand, is entirely under our control. We have the
>> power to tax and spend responsibly with an eye toward fiscal health and
>> appropriate debt management. We don't actually do it, but we have the
>> opportunity to do so. (Distracted by phony "values" issues and a useless
>> "war on terror," we are sitting here letting the worst wolves in history
>> clean out the henhouse while nobody pays attention. Pork barrel spending is
>> out of control, and the Republicans have invented new and more efficient
>> porcine giveaways. Taxation is shifted from progressive to regressive, and
>> the gummint spends like a drunken fishing boat crew.)
>>
>> Whereas there is no opportunity to tax one's way to prosperity, either by
>> raising, or lowering, taxes.
>>
>> A tumbling dollar and hideously rising national debt are going to do much
>> more damage to your prosperity than a dozen of those manipulative, useless
>> tax cuts are going to be able to undo. Even with the dollar's precipitous
>> decline, you can lie awake tonight knowing that the decline would be worse
>> without foreigners propping up the dollar. If they stop doing that, you're
>> screwed. Your little George Bush annual spiff is not even going to buy you
>> a cart full of groceries and tank of gas.
>
>
> The dollar falling is in a way a huge tax. Basically, it's a devaluation
> of all assets denominated in US dollars. Which pays for the debt
> reduction that also occurs as a result of the drop in the value of
> dollar-denominated debt.
>
> Of course, that line of argument brings up the issue as to how you do your
> valuation. If you take the view that the USD is your yardstick, then
> there is no loss. That view is, however, a bit of wishful thinking, at
> least in the sense that what you can purchase with your dollar drops whem
> it gets devalued. Both because the price of imported stuff goes up and
> because the raise in price of imports feeds either into inflation or a
> growth of interest rates. The "either" having to do with a choice between
> protecting investors or borrowers from the effect of the drop.
>
> There was of course a time when foreign trade was very marginal to the US
> economy. To the extent that nowadays, foreign trade or at least imports
> is mostly with Asian countries which have pegged their currency to the
> USD, the imbalance remains mostly within the dollar block, for which
> foreign trade still may be relatively marginal. Thus the scenario above
> may not be happening yet.
>
> However, countries such as China will not be able to maintain the parity
> with the dollar forever, or if they do, they will be subject to inflation
> because of the increase of USD-denominated resource prices. So either the
> price of the junk imported from China will go up or, more likely I would
> say, China will let the RMB float or at least go up. China can't go on
> financing the US deficit and the Iraq follies forever.

Corse they can. Just like Japan did in the previous situation.

> I suspect a good deal of the current drop in the USD is because China
> is diversifying their debt holding and selling papers denominated in USD.

You're wrong.

> When the USD was king, the US did get a bit of a free lunch.

And still does, essentially because countrys like China have no choice.

> But these times are over, I am afraid (not).

Nope. You watch.

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