Dollar Devaluation

I'm a big fan of economists and economic analysis. It all depends on who you listen to. If you get your economics from TV economists and government economists, the results are, of course disappointing. Some of the private forecasts provided for the purpose of making money are surprisingly accurate and worthwhile. Many folks read a half dozen internet articles and conclude that they know as much as the economists.

 

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^^This.

Its amazing how quickly having your own fortune on the line sharpens perceptions. If an economist is working for someone trying to sell you something, then the picture is rosy. If they work for government, education, etc. then they pontificate using 4 degrees from reality. It is not until their money, their job, their career is on the line that their predictions become amazingly specific and much more accurate.

Capitalism is wonderful that way.

 

Milton Friedman says there are four ways people spend money:

1. You spend your money on yourself - you buy what you want, and at the best possible price.

2. You spend other people's money on yourself - you buy what you want, and don't care about the price.

3. You spend your money on other people - you care about price first, and their wants second.

4. You spend other people's money on other people - you get it over with quick, because who cares?

The government is always operating in category 4.

 

Not in Nevada, since they changed the laws.

 

hahaha love it!!

Oh? What is going on in Nevada?

 

I get way too many cards from CHASE and AMEX. It really annoys me. It's the principal of it all, I don't want to have to call 800# to tell them to get me off their list. It's not right. What if 100 card issuers sent me an application? So I have to call 100 and spend my time to get them to **** off?

I recently purchased a car earlier this year, had no trouble getting the loan. My score is above 700 as well.....

 

u.s. dollar. the slowest devaluation of all nation. others, when they declare devaluation. it jump so much. but u.s. dollar. like snake.

 

It will be interesting to see what happens to the dollar, market, and commodities tomorrow, since the Chinese as a surprise holiday present raised the rate 1/4% ( 25 basis points). Last time they did this, the dollar went up and PM went down about 2%, but perhaps not this time.

Everyone has considered China the "Hammer" to the world economy, but ( please view this as my opinion)I think they have been overestimated, as no one really knows the conditions of their banks, but since they have been trying to limit inflation by banking events and failing, one could assume they have problems. Even though many thought the US banks/Fed Res. was the world's worse a couple of years ago, they should re evaluate, or they may not take advantage of the US market. All in my opinion. As I mentioned last week in another thread, I am out of PM , still expanding US stocks and copper.

Jim

 

I tend to agree about China. It reminds me of Japan in the 1980s when that nation looked economically unstoppable. The main problem with China, as I see it, is that they have so much excess cheap labor that they can produce everything needed by the world for a lower cost than any domestic industry. The whole economic theory of comparative advantage has become obsolete. I also agree about the Fed. There are so many negative articles about them that folks forget [or don't know] that they are light-years ahead of other central banks.

 

Good to see someone else is not all glossy eyed about China. Yes, they are a large consumer of products, and have a lot more buying power than they used to. But, they have seemingly insurmountable problems of their own. They are rapidly aging, (faster than any country on earth), having huge pressures to raise wages, their environment is maybe the worst on earth, and are still ruled by secret huntas that show very little control over regional powers. Their accounting systems are a joke, there is little to protect stock investors in their stock markets from manipulation.

China is a big power, no doubt, but the analogy to 1980's Japan is a good one. I have some exposure to China, but like Jim am buying undervalued US stocks.

 

Let's talk hypothetical. If China doesn't turn out to be the economic power we thought they were, how does that affect us and our dollar?

 

Well, if the politicians do not stop spending money like drunken sailors, it doesn't matter either way. If we can get our house in order, I say we are still the world's reserve currency and it should strengthen the dollar. Also do not forget a large reason for the dollars weakness right now is our extremely low interest rates. If our economy picks up the Fed will raise them, and that will strengthen the dollar.

Arguments for a weaker dollar would be Europe forming a better EuroZone and Germany paying the bill. That would force more reserves into Euros and send our dollar lower. If China's problems need to be paid for, China could stop buying our bonds and sell them to pay for their own needs.

So, anyone thinking that a weaker dollar is a foregone conclusion must be concluding the first arguments are false. That is fine, I am just not convinced that Europe will be overly successful in reforming their Euro, because I am not sure the German people are willing to pay that for other countries fiscal policies. Also, do not underestimate the affect of our near zero interest rates. As soon as we start raising them, the dollar will go up.

My viewpoint.

 

I think the jury is still out on whether we will have deflation or inflation, and whether the dollar will rise or fall. The outcome depends on things that haven't happened yet. If forced to bet, I would choose inflation plus a lower dollar, but things could also go the other way.

 

Except that with inflation the Fed is supposed to raise interest rates to combat it, and those higher interest rates should attract capitol to the dollar raising the dollar, everything else being equal. Lots of moving pieces.

As Cloud points out, the jury is out. I am more optimistic than he of the US, (or maybe more pessimistic of the rest of the world), and think the dollar will strengthen if I had to place a bet.

Chris

 

The fly in the ointment of higher rates is the possibility that it will also increase the chance that the federal government will default on the debt, or at least some portion of it, when the debt service becomes unbearable. The only way out may be to permit the Treasury to issue US Notes, as Dennis Kucinich has proposed. Leave it to the socialist to come up with the remedy for capitalism!

 

What exactly happens if the U.S. defaults its debt? What does it do to everyday consumer prices/living expenses?

 

Your mortgage rate and availability is predicated on the US Treasury never defaulting. Therefor rates will be higher IF you can find a loan. The US dollar would crash, so in US dollar terms, PM, commodities, food, imported items, etc would explode in price. You would see $6-$8 a gallon gasoline pretty easily.

 

It will probably be somewhat deflationary. It is unlikely there will be an outright default. It will be "sold" in another manner such as special taxes on treasury interest, means testing social security, special redemption restrictions on some owners, tiered interest rates depending on who owns them, etc... But just to be clear, I think that on balance higher interest rates will be positive.

 

Would the prices ever come back down at some point or would this be permanent moving forward? Would we still be using US Dollars or would we have some new currency to work with?