Anyone Else At The Panic Point On The Dollar?

[vetiver]

To what extent do Fed rate cuts impact the dollar? Is another rate cut in December priced in?

[Exsubmariner]

I'm not panicked.

Not by far.

I'll tell you why....

The financial markets are a system. That system has feedbacks. Right now, American products are looking really good overseas. Capital equipment manufacturers are reporting really good overseas sales. Farmers are raking it in with cheap American food exports. The dollars outside the borders will flow back into the capital markets. There will be no capital shortage and everything will be fine.

The economy is diverse and robust. The sub-prime crisis is the result of a bunch of money spewing banks making bad decisions. Who is really going to be hurt by the value of their house dropping 5%? Really? Think about that. There has been excess supply in the housing market for a long time and a correction is way overdue. There are plenty of other sectors in the economy that see opportunity and are roaring right along. This is all a cycle. It will pass.

[disjunction]

[ QUOTE ]


The financial markets are a system. That system has feedbacks. Right now, American products are looking really good overseas. Capital equipment manufacturers are reporting really good overseas sales. Farmers are raking it in with cheap American food exports. The dollars outside the borders will flow back into the capital markets. There will be no capital shortage and everything will be fine.


[/ QUOTE ]

Yes but you can argue that this system is the reason why the American standard of living must decline. All things being equal, there is no reason why an hours work by a person in America should allow him more purchasing power than a similar person doing a similar job in Romania. But of course historically all things haven't been equal.

But that's not the natural state. The more you allow free trade, the more you allow the water to find its own level, the more that everybody will have equal purchasing power. This means Americans losing some, and other countries gaining. In a state of equlibrium, that farmer exporting cheaply will make the same amount as a Chinese farmer.

[mmctrab]

[ QUOTE ]
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That's right,except "everyone" doesn't already know the dollar is going to get weaker. People routinely underestimate how bad things are going to get, and come to believe that the worst is already past. But, they often don't understand that things can continue to get worse for quite a bit longer than they thought.

Things can get quite a bit worse for the dollar, because the economy in the US will likely get quite a bit worse over the next several years. I'm not saying the dollar will keep going down, but I don't think the dollar is pricing in everything that can wrong by a long shot. There are too many reasons to not buy the dollar and buy other higher yielding currencies.

[/ QUOTE ] But there is no real economic evidence in this post.

The only evidence apparent to me is that imports are flat while output and exports are skyrocketing. Europe can hardly afford to import lots of goods into the US anymore, nor compete with US imports into their domestic markets. Companies that ignore this are being censured strongly by the business press for missing out on staggering cost savings.

If nothing else we have far and away the best freight infrastructure on Earth (every other country is completely lol except a couple in Asia) and an extremely well educated and skilled workforce. And we a like to be paid in dollars. And that's not going to change any time soon.

Please explain to me how American labor productivity has collapsed in the last few months and maybe I'll heed your conclusions. The fact that people routinely underestimate problems is just as irrelevant as the fact that people routinely overestimate problems, unless you have some basis that the whole market (not just some people) are underestimating the problem.

[/ QUOTE ]

I can't prove the market is underestimating the problem just as you can't prove the opposite. My point is that there are a lot of serious economic problems in this country which may not be reflected in what the dollar is trading at, especially since some of them are longer term issues. There's data out the wazoo to substantiate the claim that we have these problems, but that's not really necessary. My point is that it's not at all impossible that the dollar doesn't reflect all the problems out there.

[lehighguy]

http://www.europac.net/whitepapers/T...bout%20CPI.pdf

Being able to misreport CPI is a HUGE asset to the government and the people who run it. They can get exceedingly rich of this great fraud.

[spider]

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By contrast, there is no reason to be buying the dollar.

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I have read rumors from the standard rumor-mongers (Economist, WSJ) that the dollar is undervalued based on purchasing power parity.

[kimchi]

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I can't prove the market is underestimating the problem just as you can't prove the opposite.

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The only fact is that the market price at the moment is correct, since the market is always right.

[lehighguy]

Depends how they calculate it. I don't believe the CPI. Inflation is 5-6%. And it is only that low because half our inflation is being exported to foriegners.

[Ray Zee]

disjunction, my claims exactly and the american standard of living has peaked and over time will erode towards the waters level. it will take a long time i hope but needs to be prepared for.

there has to be many ups and downs as capital flows to the best buy. so right now tons of money is coming in from europe and others to purchase the great american products and services. this holds a so called bottom on the dollar and the economy.

the next hit could be a transition away from u.s. dollar based oil and world goods.

the final hit if it ever comes is when the u.s. is no longer needed for world protection. that is the main thing that keeps our dollar up and respect for our wishes.

[disjunction]

[ QUOTE ]
http://www.europac.net/whitepapers/T...bout%20CPI.pdf

Being able to misreport CPI is a HUGE asset to the government and the people who run it. They can get exceedingly rich of this great fraud.

[/ QUOTE ]

I agree with everything in there that says there has been stealth inflation. But I don't understand it when they refer to "the government" like it is one person. Who specifically, is it a power-mad Bernanke trying to overstep his authority? This is all an elaborate ruse to cut Social Security? Because the dude counting the price of hamburgers has no interest in the rest of the government, nor does his supervisor.

There is an alternate hypothesis here -- the government is dumb. I think I agree with "geometric weighting" more than the old system. The drawback is it ruins our ability to compare to the past.

The reason I asked this is because I have 5% of my savings in TIPS. I had been assuming the stealth inflation would find its way into the real numbers at some point.