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What's with the US dollar?!

  • #181
  • Apr 4, 2011 3:37am Apr 4, 2011 3:37am
Quoting medici
OK, but could that be inflation from rising commodity prices rather than from Fed policy?
All the above plus increase cost of goods since Chinese labor is getting paid more. So basically every angle that can increase price is pretty much in the works. Transportation (oil costs), clothing (cotton prices), Fed money printing, etc, etc.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #182
  • Apr 4, 2011 3:39am Apr 4, 2011 3:39am
Quoting mtrader87
SO, the question would be how much could the EUR rise before investors turn their focus back to Europe debts.
I expect EURUSD to reach beyond 1.6 this year, but with all the issues going on in Europe it won't be a straight line upwards indeed.

It would help if the ECB would allow a higher level of inflation for this occasion. This would release some of the pressure on the debt burden of these highly indebted countries. Right now eurozone inflation is at 2.6%, which is already above the ECB's goal of an inflation rate not higher than 2%. Meanwhile the ECB has mentioned intentions of a rate hike.

I was also quite surprised by the common reaction to Portugal's rejection of the government's debt-curbing plans. It seems that Brussels doesn't mind rescuing countries from debt problems, as it allows them to take a certain level of control over the country's policies. The question is, how much will the people of rescued countries put up with. They lived in a bubble, but don't want it to burst. Like I said earlier, the people would have less trouble with inflating their way out of debt, than with real depreciations such as wage cuts, tax hikes, etc.

Could it be that some of the PIIGS will finally leave the eurozone when their citizens start to protest after Brussels starts implementing their policies? If these countries leave the eurozone, what would happen with the value of the euro? And how much of the rescue fund's money would effectively be repaid?
The nail that sticks out gets hammered back in
  • #183
  • Apr 4, 2011 3:41am Apr 4, 2011 3:41am
Quoting medici
OK, but could that be inflation from rising commodity prices rather than from Fed policy?
Don't you think the rising commodity prices (especially when denominated in dollars) might be a consequence of the Fed policy?
The nail that sticks out gets hammered back in
  • #184
  • Apr 4, 2011 3:42am Apr 4, 2011 3:42am
Quoting LasVahGoose
Inflation is about to be a huge problem in the U.S. Walmart CEO just announced that everything in the store is going rise in price and consumers need to brace themselves for the shock.
China Mart is now on the wrong end of inflation. Inflation is a big problem in China and Chinese goods are going to cost much more. Remember China kept the old economy going while other countries had a correction. China did not have their correction so now money is flowing like water here. The govt. over goosed the system and the price is going to be paid in inflation. Basics here have close to doubled in the last year and with the rest of the world showing signs of recovery it could get worse. The price increases are due to the increases here in China.
  • #185
  • Apr 4, 2011 3:45am Apr 4, 2011 3:45am
Quoting LasVahGoose
All the above plus increase cost of goods since Chinese labor is getting paid more. So basically every angle that can increase price is pretty much in the works. Transportation (oil costs), clothing (cotton prices), Fed money printing, etc, etc.
Right, but most of those factors are global rather than US specific, and the same kind of inflation is happening here in the UK.

So in the context of the question that started this thread, perhaps inflation isn't a major factor?
  • #186
  • Apr 4, 2011 3:45am Apr 4, 2011 3:45am
Quoting Noloqy
Don't you think the rising commodity prices (especially when denominated in dollars) might be a consequence of the Fed policy?
rising oil prices is a consequence of the uprisings in the middle east. I can't see how that could be connected to the fed (right now).
  • #187
  • Apr 4, 2011 3:47am Apr 4, 2011 3:47am
Quoting Noloqy
Don't you think the rising commodity prices (especially when denominated in dollars) might be a consequence of the Fed policy?
Could be but doesn't sound likely. Do you have any evidence to support that hypothesis?
  • #188
  • Apr 4, 2011 3:52am Apr 4, 2011 3:52am
Quoting nanningbob
Heck England has been doing that on and off for centuries without destruction of the pound. .
Depends what you consider 'deconstruction'.

Over tha last 150 years the pound has fallen from $10 to the pound to what it is today, around $1.60.
He was looking for the card so high and wild hed never need to deal another
  • #189
  • Apr 4, 2011 4:10am Apr 4, 2011 4:10am
Quoting dr_who
Depends what you consider 'deconstruction'.

Over tha last 150 years the pound has fallen from $10 to the pound to what it is today, around $1.60.
I think this correlation between currencies shows the power of each country. How powerful was England and how weak was USA.
  • #190
  • Apr 4, 2011 4:23am Apr 4, 2011 4:23am
Quoting medici
Right, but most of those factors are global rather than US specific, and the same kind of inflation is happening here in the UK.

So in the context of the question that started this thread, perhaps inflation isn't a major factor?
The U.S. is exporting inflation.

So yeah, prices all over the world are going to go up.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #191
  • Apr 4, 2011 5:00am Apr 4, 2011 5:00am
Quoting medici
Do you have any evidence to support that hypothesis?
I don't have empirical evidence, but consider the following.

Every commodity, including gold, is a hedge against inflation. The Fed has been pumping the monetary base. Austrian economics suggests that a rise in the monetary base leads to consumer price inflation, and these inflationary expectations resulted in excessive sums of money flowing into hedge instruments including commodities.

Through the concept of purchasing power parity, inflationary expectations also lead to a depreciation of the US dollar.

The two results are rising commodity prices, and a depreciation of the dollar. I don't have the exact figures, but combining these effects, we can conclude that commodity prices denominated in, for example, euros, have risen less excessively than prices expressed in dollars.

Of course, there are many other effects that have affected commodity prices, including the things mentioned in this thread. Nevertheless, in my view, the printing of dollars definitely has contributed to rising commodity prices across the board.

Edit: does anybody have a correlation coefficient of the oil and eurusd instruments over, say, the last 6 months?
The nail that sticks out gets hammered back in
  • #192
  • Apr 4, 2011 5:04am Apr 4, 2011 5:04am
Quoting josef
I think this correlation between currencies shows the power of each country. How powerful was England and how weak was USA.

Well, I'd say we're (I'm English) pretty much 'deconstructed' compared to 150 years ago....
He was looking for the card so high and wild hed never need to deal another
  • #193
  • Apr 4, 2011 5:13am Apr 4, 2011 5:13am
Quoting Noloqy
I don't have empirical evidence, but consider the following.

Every commodity, including gold, is a hedge against inflation. The Fed has been pumping the monetary base. Austrian economics suggests that a rise in the monetary base leads to consumer price inflation, and these inflationary expectations resulted in excessive sums of money flowing into hedge instruments including commodities.

Through the concept of purchasing power parity, inflationary expectations also lead to a depreciation of the US dollar.

The two results are rising commodity...
OK, the printing of dollars has an effect on commodity prices, but is it the main contributor?

And gold is unique as inflation-hedge commodity. Having breakfast this morning wasn't a hedge against inflation, still soya and grains are up significantly. Doesn't that have more to do with supply/demand (plus a measure of speculation) than dollar printing?
  • #194
  • Apr 4, 2011 5:48am Apr 4, 2011 5:48am
Quoting Noloqy
Edit: does anybody have a correlation coefficient of the oil and eurusd instruments over, say, the last 6 months?
Here's 30 day running correlation between EUR and WTI, currently at 0.19, plus 20 day SMA.
Attached Image (click to enlarge)
Click to Enlarge Name: EUR WTI 30 day correlation.PNG Size: 104 KB
  • #195
  • Apr 4, 2011 6:08am Apr 4, 2011 6:08am
Quoting LasVahGoose
The U.S. is exporting inflation.

So yeah, prices all over the world are going to go up.
This doesn't sounds good to me.
  • #196
  • Apr 4, 2011 7:06am Apr 4, 2011 7:06am
Quoting medici
.............. In Russian schools children learn that it was they who beat the Germans, and there's a point to that.
The Russian Winter beat the Germans and their stupid strategy overextending themselves trying to fight 2 massive fronts at the same time - ego will do that to you.

Much like Bush (ego again) trying to fight in Iraq before finishing the job in Afghanistan.

We've lost wars in modern times because we listen too much to the pansy azzes and not go at it 100% from the start like once we decided to enter WW1 and WWII and win it - like WE did notwithstanding some who would like to rewrite history.
  • #197
  • Apr 4, 2011 8:54am Apr 4, 2011 8:54am
Quoting seagreen
I'm confused now. Isn't it the Treasury who's in debt?
Yes, I agree with you that it is the government that is in debt, not the FED. But when the fed inflate its balance sheet, it may incur some losses. I heard that the Fed can simply write these losses off, and if the Fed got any profit from interests received from its asset holdings, these revenue will be used to finance the Fed and the rest will be handed back to the Treasury. So, the government issued the bonds to borrow money, the Fed buy them, the government paid the Fed interest, and that money later goes back to the government. How brilliant does it sound?
  • #198
  • Apr 4, 2011 2:13pm Apr 4, 2011 2:13pm
Quoting mtrader87
Yes, I agree with you that it is the government that is in debt, not the FED. But when the fed inflate its balance sheet, it may incur...

Wow it's like a pendulum that doesn't lose momentum
  • #199
  • Apr 4, 2011 4:34pm Apr 4, 2011 4:34pm
Quoting sidhujag
Wow it's like a pendulum that doesn't lose momentum
More like a ticking time bomb that's going to blow up.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #200
  • Apr 4, 2011 4:51pm Apr 4, 2011 4:51pm
I dread the day the paper system fails completely, because we all know the first suggestion our resident geniuses will make is to do away with paper altogether and use universal plastic.

It will be so much easier to defraud everybody that way.
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