USD - What economic factors will make it strengthen? | Forex Factory

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USD - What economic factors will make it strengthen?

  • #1
  • First Post: Apr 16, 2007 11:40pm Apr 16, 2007 11:40pm
Hello everyone,

I'm no economics professor or anything, but somebody out here has to know a good deal about it. We all realize the USD has gone down a mudhole the last year and I was wondering what economic factors over a period of time would we need to see to help see a recovery in the strength of the USD.

The way I see it the biggest factor harming the USD is the government's spending deficit. Is this true? If so, I think we are in for a long road of seeing the dollar continue to slide.

Thoughts anyone?

GirlFlyer
  • #2
  • Apr 16, 2007 11:49pm Apr 16, 2007 11:49pm
An exogenous market shock like a sudden and dramatic unwinding of carry trades. A sustained rise in inflation prospects. And /or some noticable improvement in the fiscal situation.

BTW: It has plagued me for some time; are you a girl that flies or a guy that flies girls around?
  • #3
  • Apr 17, 2007 12:06am Apr 17, 2007 12:06am
Quoting Darkstar

BTW: It has plagued me for some time; are you a girl that flies or a guy that flies girls around?
LOLMAO

Darkstar, you haven't followed my thread over in the EA's I see. It's Option #1 that you put out.

Marci (GirlFlyer)... yes I fly!
  • #4
  • Apr 17, 2007 12:10am Apr 17, 2007 12:10am
Quoting GirlFlyer
Darkstar, you haven't followed my thread over in the EA's I see.
No, sadly I don't get into that part of the forum much.
  • #5
  • Apr 17, 2007 2:05am Apr 17, 2007 2:05am
  •  CWH
  • | Joined Feb 2007 | Status: United We Buy, Divided We Sell | 249 Posts
Quoting GirlFlyer
*The way I see it the biggest factor harming the USD is the government's spending deficit. Is this true? If so, I think we are in for a long road of seeing the dollar continue to slide* GirlFlyer
US has been a 'deficit' nation for too long. Its dependence on cheap imports, foreign oil, war engagement in Iraq etc has made matter worse.

I'm no economic genius either. Your assessment could be right; its spending deficit, unemployment, inflation (which is mostly influenced by oil prices) & subprime problem are some of the biggest threats to its economy. USD has a long way to go..
"If, at first, you don't succeed, try, try, try again" - Winston Churchill
  • #6
  • Apr 17, 2007 2:10am Apr 17, 2007 2:10am
Quoting CWH
I'm no economic genius either. Your assessment could be right; its spending deficit, unemployment, inflation (which is mostly influenced by oil prices) & subprime problem are some of the biggest threats to its economy. USD has a long way to go..
It may be helpful to understand that inflation is a BENEFIT to the value of the dollar, not a cause for weakness. HIgher inflation = higher interest rates = increased foreign capital flows into USD seeking yield. That is as long as inflation doesnt get out of control (ie- >5%).

And unemployment is a non-issue right now and into the forseeable future. 4.4-4.7% is considered "full" employment by most measures.
  • #7
  • Apr 17, 2007 2:31am Apr 17, 2007 2:31am
If Mr Greenspan was still in charge he'd probably be plotting his next rate cut right now, rather than causing PR trouble for his hapless successor, Ben Bernanke. But will Mr Bernanke continue to follow Mr Greenspan's recipe for success? It may be harder than he thinks...
Alan Greenspan's current bearish outlook on the US economy is rather amusing to those - like ourselves - who have consistently criticised his policies while he was playing with the monetary levers of the world's largest economy.
We're far from being the only ones - one Charles White from Thomas Lloyd Asset Management in New York tells Bloomberg of Mr Greenspan: "This is a guy who presided over a bubble in the equity markets. He was the provider of liquidity to the financial markets, and he took the risk out of people doing these trades."
But unfortunately, it looks as if Greenspan's one trick of cutting interest rates every time it looked like trouble was on the horizon may not be open to his successor.
In recent months - the price of goods at the manufacturing stage, basically - jumped by 1.3%, far in advance of the 0.6% expected. Costs were higher across the board.
And even as inflation was rising, there was more evidence of the economy slowing - manufacturing growth in both the New York and Philadelphia regions slowed to a near standstill.
As Neal Ryan of Blanchard told Marketwatch: "Can the Fed continue to walk down the middle of the road on the growth or inflation equation without being hit by trucks traveling in both directions?"
We doubt it. Higher rates will make the housing market even worse, and lower rates will hammer the dollar and send inflation higher. Mr Bernanke is likely to get squashed whichever way he turns - and in the meanwhile, Mr Greenspan will simply tut and say "I told you so."
And it seems inflation's not just a problem in the US.
Wage deals here in the UK increased at their fastest pace in eight years in the three months through February, according to Industrial Relations Services (IRS), which covers about 60% of pay deals in the period, says Bloomberg. The median average wage rise came in at 3.5%.
"Pay awards in the private sector remain high, with the hike in headline inflation at the end of last year continuing to feed through to 2007 pay deals," said IRS's Sarah Welfare.
Meanwhile, the Bank of England reported yesterday that inflation expectations among the general public remain high, at 2.7%, also an eight-year high.
The UK isn't yet seeing the kinds of problems the US is having, but there's no way it can remain immune to a US slowdown.

  • #8
  • Apr 17, 2007 3:15am Apr 17, 2007 3:15am
Quoting GirlFlyer
Hello everyone,

The way I see it the biggest factor harming the USD is the government's spending deficit. Is this true? If so, I think we are in for a long road of seeing the dollar continue to slide.

Thoughts anyone?

GirlFlyer
is it the number one factor? maybe. right now it seems like theres just a general air of malfeasance about the US/dollar. wait til the US starts suffering a true finance/brain drain, then we may see some real drops in the coming decades.

but just like the mere thought of the chinese selling the dollar can bring a drop in the dollar, some budgetary/trade deficit improvement or discipline i would think, ceteris paribus, cause it to rise. this game is as much about future expectations as present performance (although the person is rare that can/will plan further than a year out, so its probably pointless for you to also). maybe people in the bond market are forced to, somehow, but id really have to think about that one lol.

like many things, its has to get worse before it can get better lol. for the moment i say enjoy the bliss of so called one way trading while it lasts. and why not have at least one account in euro/pound/swissy ?

gooner i somewhat disagree that greenspan would be cutting rates right now. i think that he cut rates because inflation wasnt such an issue at the time, and from what i can remember he made that clear. i may be mistaken. of course we can blame the current inflation expectations on bernanke if we want to for not raising rates fast enough in the beginning right.
  • #9
  • Apr 18, 2007 11:24am Apr 18, 2007 11:24am
I remember the good old days - about the time Bush came to town - when Greenspan feigned concern over "paying the deficit down too quickly" and thus gave a green light for the most financially irresponsible period in U.S. history.

On the bright side - we'll probably never be faced with the threat of "paying the deficit down too quickly" again in our lifetimes.

Great job, Greenspan. Great job, Bush!
  • #10
  • Edited 9:05pm Apr 18, 2007 12:11pm | Edited 9:05pm
Quoting GirlFlyer
The way I see it the biggest factor harming the USD is the government's spending deficit. Is this true? If so, I think we are in for a long road of seeing the dollar continue to slide.
The deficit is certainly a problem - but it's being compounded by a fundamental weakening of the U.S. economy. Warren Buffet and I beg to disagree with the cheerleaders out there who have the audacity to claim "that the U.S. economy has never been better."

For a quarter-century, too much of the American public bought into the belief that the nation would grow richer by its people growing poorer. The absurdity of that belief is now becoming somewhat apparent.

The last time I worked for a Fortune 500 company (early '90's) - they actually gave a damn about competing - and benefitting the "stakeholders" in that company - the community, vendors and customers, employees AND the shareholders.

Today, only the shareholders are considered to be relevant. All of the other "old stakeholders" are considered temporary and disposable.

Unfettered free market capitalism doesn't work - for the bottom 90%, that is.

As Warren Buffet has observed, the people of U.S. wake up every day and diligently get about the business of exporting its wealth. We may as well just load up super-tankers with dollar bills and wave as they set sail for far off ports.

This brave new economic model of producing little to nothing - and borrowing the money to buy the goods produced by others - doesn't seem to be panning out.

I suspect that there's no substitute for returning to the fundamentals - which includes a dose of the dreaded word, "protectionism."

I want a government that crafts trade deals based on what's best for at least 50% of its citizens - not merely the top 1% - who get to play out their games on a global, rather than national scale.

If technological advancements and productivity gains fail to generate prosperity for a country, something is wrong with the mix.

Now I know that some will disagree with me. But be aware that you're also disagreeing with Warren Buffet. And I suspect, George Soros, too.
  • #11
  • Apr 19, 2007 12:04am Apr 19, 2007 12:04am
Quoting brentmack
The deficit is certainly a problem - but it's being compounded by a fundamental weakening of the U.S. economy. Warren Buffet and I beg to disagree with the cheerleaders out there who have the audacity to claim "that the U.S. economy has never been better."

For a quarter-century, too much of the American public bought into the belief that the nation would grow richer by its people growing poorer. The absurdity of that belief is now becoming somewhat apparent.

The last time I worked for a Fortune 500 company (early '90's) - they actually gave a damn about competing - and benefitting the "stakeholders" in that company - the community, vendors and customers, employees AND the shareholders.

Today, only the shareholders are considered to be relevant. All of the other "old stakeholders" are considered temporary and disposable.

Unfettered free market capitalism doesn't work - for the bottom 90%, that is.

As Warren Buffet has observed, the people of U.S. wake up every day and diligently get about the business of exporting its wealth. We may as well just load up super-tankers with dollar bills and wave as they set sail for far off ports.

This brave new economic model of producing little to nothing - and borrowing the money to buy the goods produced by others - doesn't seem to be panning out.

I suspect that there's no substitute for returning to the fundamentals - which includes a dose of the dreaded word, "protectionism."

I want a government that crafts trade deals based on what's best for at least 50% of its citizens - not merely the top 1% - who get to play out their games on a global, rather than national scale.

If technological advancements and productivity gains fail to generate prosperity for a country, something is wrong with the mix.

Now I know that some will disagree with me. But be aware that you're also disagreeing with Warren Buffet. And I suspect, George Soros, too.
Hear hear! I think you hit the nail on the head as well. I'm a bit of an ex-patriot when it comes to the U.S. After living outside the US now for a couple of years and seeing the differences, it's like... why would I want to ever go back to that?! I see a great majority of the nation working their fool heads off for nothing in return. They're not saving anything, they're not improving themselves, and they're not being encouraged to do different. That's the bottom 40% or so. You have then the middle of the crowd who have the aspirations, but bury themselves so far in debt that their personal finance sheet looks like that of the US government itself. So they never make it anywhere, either. They may look like it, but they're only 2 steps from hitting the poverty life. Finally, you get to the top crowd who have either battled their way through it all or gotten lucky enough to have it handed to them from somebody who did. Either case, do they care about the rest. Not really. I do feel as if I have to mention Bill Gates and his charity foundation. At least it looks like it appears that he may care enough to give back some of his billions. But to what avail... hmm?

GirlFlyer
  • #12
  • Edited 10:54pm Apr 19, 2007 10:44pm | Edited 10:54pm
Out of curiosity, why would you want a stronger dollar? (FWIW, I really don't like the notion of "stronger" vs "weaker" with all the implications; "higher" vs "lower" is probably better). An overly strong dollar leads to a decline in productive industries - like manufacturing - and an increase in McJobs (the US is now largely a service economy, with the big growth happening at the low end - like food retailing and support staff for health care). It makes the country much less robust as internal production of everything from cars to food is placed offshore.

FWIW, I just saw on another forum that China's reserves increased at 1 million USD per minute over the first quarter. One of the only reasons the USD is isn't much weaker than now is because of accumulation by countries like Japan & China; if they stop accumulating, the USD is in big trouble....
  • #13
  • Apr 29, 2007 11:08am Apr 29, 2007 11:08am
Quoting brentmack
I remember the good old days - about the time Bush came to town - when Greenspan feigned concern over "paying the deficit down too quickly" and thus gave a green light for the most financially irresponsible period in U.S. history.

On the bright side - we'll probably never be faced with the threat of "paying the deficit down too quickly" again in our lifetimes.

Great job, Greenspan. Great job, Bush!
I recently heard that Bush's plan will have the budget balanced by the time he leaves office. So he'll hand the new congress the same thing Clinton handed him - a budget balanced just prior to leaving office - a budget that could not possibly work, and would undoubtedly fail. It's not about the country's good, it's all about politics and who gets the blame! That crap must have worked, as indicated by your posts.

Clinton cut the budget by gutting the military and intelligence, and doing nothing when Bin Laden was handed to him on a silver platter at least twice. The result was 9/11. Great job, Clinton!

Military spending happens to be covered by the constitution, unlike most of what the government spends money on.

Most conservatives are against Bush's spending, too, but don't act like he invented the deficit budget - that was brought in by a democrat.
  • #14
  • Apr 29, 2007 11:16am Apr 29, 2007 11:16am
Quoting brentmack
But be aware that you're also disagreeing with Warren Buffet. And I suspect, George Soros, too.
hmm, i disagreed with these guys (add Bill Gates to that list) a few years back about the future of the dollar and made a killing!

although, since subprime i have been a dollar bear also
Relax and be happy.
  • #15
  • Apr 29, 2007 5:29pm Apr 29, 2007 5:29pm
The key level is the 80 mark for the US dollar index. No doubt it will be defended by the central banks here for a while. Longer term all stations south with FED injecting extra billions each week into the money supply.
  • #16
  • Apr 29, 2007 7:09pm Apr 29, 2007 7:09pm
This is some of the best reading I have found in these forums for a long time... and some of the best poeple too...

But we have not answered the question as to whether I should go short or long on GBP/USD tonight... actually I think it will be short... but whatever...

And I too have so often wondered if girlflyer is boy or girl... I am so glad to get that cleared up !!!

I give a '10' for that has been said here in this thread... really hits the nail on the head !!!!!!

Darkstar... would you be my mentor ??? Serious question actually !!!!!!!
  • #17
  • Last Post: Apr 29, 2007 7:23pm Apr 29, 2007 7:23pm
I think the fact that the US is a consumer economy means that the dollar is going to be weak for a loooooong time. The trade balance between other countries is always negative due to the fact that half of the US "economy" is consumerism... not agriculture, not manufacturing, not information or high tech, not finance... but the mere buying of crap. If that doesn't scare the hell out of you, I don't know what will.

And no, you can't blame this on Clinton, Bush or any one person, as the negative trade balance has been going on for at least two decades, and has gotten worse. It's just that it finally caught up with us.
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