Re: Greenspan concerned with weak dollar

From: devil (devil_at_attglobal.net)
Date: 11/21/04 

Date: Sun, 21 Nov 2004 21:56:08 GMT

On Mon, 22 Nov 2004 07:03:21 +1100, Rod Speed wrote:

>
> devil <devil@attglobal.net> wrote in message
> news:pan.2004.11.21.19.00.53.516507@attglobal.net...
>> Rod Speed wrote
>>> Joel M. Eichen <joeleichen@yahoo.com> wrote
>>>> devil <devil@attglobal.net> wrote
>
>>>>> The dollar falling is in a way a huge tax.
>
>>> Nope, not much of a tax for most.
>
>>>>> Basically, it's a devaluation of all assets denominated in US dollars.
>
>>> Which doesnt matter a damn for most.
>
>> Except when it gets to imports. Triggers inflation.
>
> Its more complicated than that with quite a few imports that have
> in fact seen big price drops, most obviously with imports from china.
>
> The main theoretical exception is the imports of oil, but in fact the
> price of oil is affected far more by other factors than the weak dollar.

Theoretical? Theoretical?

BTW it's not just oil, it's still, aluminum, mostly all raw materials.
And yes these increases will be reflected in short order in the price of
all the junk that comes from China. Inflation is already on the rise in
the US. But it will pick up, just watch.

>> Forces a raise in interest rates.
>
> Its much more complicated than that too now that interest
> rates are the main method used to control the economy now.

Did you listen to the man?
 
Sure, there is another option, inflation. But I can't see him letting
that happen.

>> Kills your economy.
>
> Its much more complicated than that too. A weaker currency does in fact
> help with exports, discourages purchasing imports over the locally
> produced product, most obviously with cars etc.

Thanks for the theory. Problem is, most of what the US export doesn't
really go that way. Lost of inelasticity.

The Canadian dollar has gone up from 62 cents to 84 cents in the last
couple of years. Supposedly a disaster for Canadian exporters to the US,
right? But guess what, the effect has been minimal.

Substantial chunks of the economy are not markets. But rather, managed
prices.

> That is in fact a large part of the reason Japan did so well for
so
> long, an artifically underpriced currency which had those benefits.
>
>> Did you read Greenspan on Friday?
>
> He didnt say anything like what you claimed above, on Friday.

Hmm... What do you think he meant then? "Problems for the economy" eh?
 

>> Not so cheap Chinese junk means inflation.
>
> Yes, but thats a very small part of total consumer spending, so that
> doesnt affect inflation much.

Dream on. Ask Walmart.
 
>>> And its got other benefits as well, most obviously with US exports.
>
>> Not to China. Small frqction of US exports.
>
> Irrelevant to the total US exports.
>
>> Not that there are so many in the first place anyway.
>
> Thats completely silly. Most obviously with PC software, heavy aircraft
> which still completely dominate the world trade, the bleeding edge of
> technology, movies, tv shows, etc etc etc.

Most of that is not really a market. Microsoft will make a windfall
profit in USDs, yes. But that's not going to help the US economy in any
significant way.

> Seen plenty of that sort of mindless hyperventilation about currency
> relativitys over that time. Saw lots of it the last time the USD was
> weak. Didnt have that much effect on the US economy at all.

True. But there is one difference. There is now serious alternatives to
the USD. Since WWII, the US has benefited a few times from capturing
significant investment from abroad when the USD was high, only to let the
money go back in devalued USDs. In other words, taxing foreign
investors.

difference is, now the foreign investors have alternate currencies, at
least the Euro, to take refuge in. At this point, it's true that China
still is willing to pay the US bills, but I suspect they won't forever
either. Actually it smells like they are starting to convert their USD
holdings into hard investments in resources. Which may well be what has
fueled the latest drops in the USD.

 
> Essentially because its not necessarily a bad thing, particularly when
> the holders of USDs dont have any real viable alternative. They're the
> ones that get very comprehensively shafted as the value of their USD
> holdings degrades. Most obviously with Taiwan etc.

Point is, now they do.
 
> And regardless of the mindless hysteria we saw in the past about Japan
> ending up owning all US assets worth owning, it didnt actually pan out
> like that after all and it was the Jap economy that ended up down the
> toilet very badly indeed compared with the US economy that managed to do
> much better.

True, but that's for different reasons.
 
> The sky aint falling, chicken little.

Not yet. But the combination of both the trade and federal deficits at
the current level cannot go forever without leading to a global
empoverishment in the US.

The historic record has shown this to happen. What is true however is
that it is possible to recover. But that also takes years of financial
discipline and lean times.

The end of the world it's not. But bills sooner or later need being paid.
 Years of profligate spending will need to be followed by years of
 austerity.

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