Re: Greenspan concerned with weak dollar

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

Date: Mon, 22 Nov 2004 09:32:18 +1100

devil <devil@attglobal.net> wrote in message
news:pan.2004.11.21.21.56.06.248155@attglobal.net...
> Rod Speed wrote
>> devil <devil@attglobal.net> wrote
>>> 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?

Theoretical in the sense that the oil price is much more
affected by other factors than the value of the USD.

In fact the oil price is priced in USD, so its
more complicated than it looks there too.

> BTW it's not just oil, it's still, aluminum, mostly all raw materials.

Sure, but thats a relatively small part of total US economy, particularly
when not all that much is manufactured from that in the US anymore.

> And yes these increases will be reflected in short
> order in the price of all the junk that comes from China.

Its much more complicated than that too, particularly when the
price of that junk keeps dropping over time due to other factors.

> Inflation is already on the rise in the
> US. But it will pick up, just watch.

Again, inflation is actually much more affected by other factors,
most obviously by the low interest rates with house prices.

>>> 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?

Corse I did. He didnt say anything like your claims above.

> Sure, there is another option, inflation.
> But I can't see him letting that happen.

He's got quite limited control over the basics, particularly the size of the
deficit that is almost entirely under the control of the Congress, not him.

Thats essentially what Friday's stuff was about, attempting to
jawbone the Congress in the direction he thinks that should go.

It remains to be seen how much difference that will actually make
when the main problem with the deficit is the cost of the Iraq war.

Sure, in theory the congress can certainly hike taxes to reduce
the deficit, but thats unlike with the economy the way it is currently.

Its much more likely the traditional approach will continue, carry
on regardless and hope that the iraq war wont last forever and
that the economy will pick up significantly and that that will help
with the deficit. It certainly did with Raygun's deficit and may
well do again, without even the slightest hint of the end of
civilisation as we know it thats been hyerventilated about.

>>> 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.

Bull***. Most obviously with heavy aircraft exports.

The Euro/USD relativitys has to help in that area.

> 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.

Canada exports *** all. Thats the real reason for that.

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

Not substantial enough to matter with the US economy being discussed.

>> 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?

Nothing like those silly claims of yours above.

>>> 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.

No point, we have much more reliable analyses of what consumers
spend most of their money on. Hint: it aint chinese imports.

>>>> 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.

Complete pig ignorant drivel.

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

Pity there is a hell of a lot more than just MS involved in that list.

>> 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.

Thats what was claimed last time too. Turned out to be just a claim.

> 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.

And that is precisely what will happen this time around too. You watch.

Particularly with china which hasnt been game to float their currency.

> difference is, now the foreign investors have alternate
> currencies, at least the Euro, to take refuge in.

In theory, yes. In practice they mostly dont.

> At this point, it's true that China still is willing to pay
> the US bills, but I suspect they won't forever either.

We'll see. It much more likely that what will actually
happen is that the current weakness in the USD is
temporary, just like it was in the past, and that
nothing fundamental will change in that area.

They might eventually have the balls to float their
currency, but there's a reason why they havent so
far, and that reason wont be changing any time soon.

> Actually it smells like they are starting to convert their
> USD holdings into hard investments in resources.

Sure, and it remains to be seen if they do other than
*** that up completely as they have so often in the past.

> Which may well be what has fueled the latest drops in the USD.

Nope, its primarily been driven by the perceptions on the
US deficit and what is likely to happen to that any time soon.

>> 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 that is to some extent the reason for the Euro/USD relativitys.

None of them have anything like as much in Euros as they have in USDs tho.

>> 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.

Sure, but it is a VERY graphic illustration of how mindless the
previous hyperventilation was, and how wrong it turned out to be.

>> The sky aint falling, chicken little.

> Not yet.

It aint gunna fall any time soon. The US is still where
the full commericalisation of technology happens first,
and there hasnt even been any real change on that,
most recently with software, the net, etc etc etc.

The most thats actually happened is that mature industrys
end up migrating to low cost countrys. Thats been going on
for centurys now and the US economy does fine regardless.

> 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.

Thats what was claimed the last few times that there
were high deficits. Never actually happened the way
the mindless hyperventilators claimed it would. In fact
it was Japan that ended up down the tubes instead.

You'll have to pardon me if I decide that you're just
another mindless hyperventilator on that deficit question.

> The historic record has shown this to happen.

Like hell it does with the US economy and anything
like 'global empoverishment'. The only time that
actually happened in the last 100 years was the great
depression and that wasnt due to deficits anyway.

> What is true however is that it is possible to recover. But
> that also takes years of financial discipline and lean times.

Wrong again. That wasnt what happened between Raygun and Slick.

> The end of the world it's not. But bills sooner or later need being paid.

Sure, but its basically been paid by those foreign holders of USD debt.

They get to like it or lump it basically.

> Years of profligate spending will need to be followed by years of austerity.

How odd that it wasnt with Raygun's deficits. Nothing like austerity in fact.