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What's with the US dollar?!

  • #201
  • Apr 4, 2011 3:20pm Apr 4, 2011 3:20pm
Quoting LasVahGoose
More like a ticking time bomb that's going to blow up.

Madoff got away with it for quite a while
No way I'll wreck this... It's a beer truck!
  • #202
  • Apr 4, 2011 3:23pm Apr 4, 2011 3:23pm
Quoting Low
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.
Cheque books are to be phased out completely in UK within 14 months on personal accounts. My bank has told me this.

I have a small business that cant afford to accept plastic.
The costs would price me out.
All existing plastic facilities together with fuel costs will drive many small businesses to the wall..yet again.
I' m training all my customers into carrying cash ...thinking of selling safes as a sideline.
.... Serious.
All systems of divination, like music itself,work through patterns.
  • #203
  • Apr 4, 2011 3:26pm Apr 4, 2011 3:26pm
Quoting Low
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.
Yep. It will go all electronic with bio-metric ID to track and trace everything you buy and sell when it is all said and done. That is the stated plan, so you have to destroy the current system to bring in the new system, which is done slowly with a small changes each year. I think the current goal is to get the cellphone to be mechanism to buy and sell with, for the interim. I know I use my phone to make purchases of coffee. It scans the barcode on the screen which links to a deposit of money with the company.

When used for good and is voluntary I like it, but when it becomes mandatory and you have no other choice, I won't like it.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #204
  • Apr 4, 2011 3:29pm Apr 4, 2011 3:29pm
Quoting Bruce Flea
Madoff got away with it for quite a while
Yeah, they put him in jail because governments hate competition.
Don't wish it were easier, wish you were better. ~ Jim Rohn
  • #205
  • Apr 4, 2011 3:30pm Apr 4, 2011 3:30pm
Quoting LasVahGoose
Yeah, they put him in jail because governments hate competition.
  • #206
  • Apr 4, 2011 4:11pm Apr 4, 2011 4:11pm
Quoting kaspopsicle
All existing plastic facilities together with fuel costs will drive many small businesses to the wall..yet again.
Why do I suspect that's the point.
  • #207
  • Apr 4, 2011 9:34pm Apr 4, 2011 9:34pm
Since we often don't have a chance to discuss economic here, I want to ask other trader some questions:
1. Is it in the US government interest to devalue the dollar? (Our government debts, exports, reduce trade deficit, helping economy...)
2. What are the impacts of the lower dollar on the economy, inflation, short term and long term impact? How it affect other currencies?
  • #208
  • Apr 4, 2011 10:03pm Apr 4, 2011 10:03pm
Quoting Noloqy
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...
Nology, I think you asked some questions that other traders also have. First, I personally don't believe that the EURUSD could raise to 1.6 level with all the troubles that surround the EUR countries right now. Now, the talks may not longer about Portugal, but about Spain, the next target on the line. It likes a self-fulfilling prophecy that when people start to focus their eyes on Spain and expect something bad to happen, it will eventually happen. So, how much money will the ECB need to rescue Spain and where that money will come from? I don't think that the people in Germany would agree to any potential money bail out for Spain since that money would seem hard to get back.

I don't know if a member of EUR could leave the zone and what will happen? But it seemed to be the case back when Soros broke the bank of England and forced Britain to move out of the eurozone.

In the other hand, I believe that the US would raise interest rate soon, and that would help strengthen the dollar. So, if the EURUSD will manage to achieve 1.6 level this year, it would need substantial increase in rate in Euro + No Spain trouble + Fed delay rate increase to later of 2012 or 2013.
Another one is that I looked at the currency future, and it all pointed out that Eurusd will stay around 1.4 this year and below 1.4 next year. I may be wrong on the above number, but that what I found yesterday.

One question, you said "
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." Why inflation can help their PIIGS country? Although by definition term, inflation makes previous debt become less costly (Ex: I owe you $10 month ago with interest rate 2%, now inflation is at 10%, your $10 now could buy only $9 worth of value, and if it on fix term rate, you get only 2% of interest instead of 12% or more), however, inflation would also derail economy, lower employment and could put the economy into recession, thus reduces government tax revenue (1). Government Financing cost also goes up, so it will be harder for their indebt nation to pay their debt --> Increase the risk of insolvency. So, in my view, to help a nation back on track, devalue the currency + keep inflation on check + reduce budget deficit is the only solution. Could you tell me your idea on that. Thank
  • #209
  • Edited 11:34pm Apr 4, 2011 11:07pm | Edited 11:34pm
Quoting mtrader87
Nology, I think you asked some questions that other traders also have. First, I personally don't believe that...
You forget that germany and france and other healthier economies already have lots of money in spain, portugal and so on. If they don't bail them out, then all that money is lost and germany & france will have to announce brankruptcy themselves. It's a chain reaction, since everything is already so much linked together.

Quoting mtrader87
In the other hand, I believe that the US would raise interest rate soon, and that would help strengthen the dollar. So, if the EURUSD will manage to achieve 1.6 level this year, it would need substantial increase in rate in Euro + No Spain trouble + Fed delay rate increase to later of 2012 or 2013.
Another one is that I looked at the currency future, and it all pointed out that Eurusd will stay around 1.4 this year and below 1.4 next year. I may be wrong on the above number, but that what I found yesterday.
In my opinion, the recovery lacks momentum. In order for the fed to raise rates, they need to be sure that the recovery will continue. Let's see if that will happen. Also right now with the oil prices so high, the recovery is in great danger. High oil prices are always dangerous for economic growth.
  • #210
  • Apr 5, 2011 12:04am Apr 5, 2011 12:04am
Quoting mtrader87
Why inflation can help their PIIGS country? Although by definition term, inflation makes previous debt become less costly (Ex: I owe you $10 month ago with interest rate 2%, now inflation is at 10%, your $10 now could buy only $9 worth of value, and if it on fix term rate, you get only 2% of interest instead of 12% or more), however,...
Indeed, inflation makes debt less costly. This is the major point. I just though of it, that as most of the European debt is covered by other European nations, deflating your way out of debt is the same as transferring the burden from the PIIGS to European banks. So this might not be really desirable after all.

You seem to have a somewhat of a dislike towards inflation, while in fact it might not be as bad. Over the years, the ECB has credibly committed to maintaining ~2% inflation. If the ECB can now generate a modest "unexpected inflation", this is likely to have positive effects on employment. Look up information on the "Phillips curve" if you're interested in this subject.


Concerning your questions on the US policy.
Quote
1. Is it in the US government interest to devalue the dollar? (Our government debts, exports, reduce trade deficit, helping economy...)
Yes, it was in US interest to depreciate its currency when the economy needed to get out of recession, as exports became more competitive. Besides the international aspect, a low interest rate generally is a measure to stimulate the domestic economy.

Quote
2. What are the impacts of the lower dollar on the economy, inflation, short term and long term impact? How it affect other currencies?
Theoretically it should work the opposite way around. The lower dollar is the consequence of low interest rates and higher inflationary expectations. Long term impact... We'll see
The nail that sticks out gets hammered back in
  • #211
  • Apr 5, 2011 6:05am Apr 5, 2011 6:05am
Quoting Custos
You forget that germany and france and other healthier economies already have lots of money in spain, portugal and so on. If they don't bail them out, then all that money is lost and germany & france will have to announce brankruptcy themselves. It's a chain reaction, since everything is already so much linked together.


In my opinion, the recovery lacks momentum. In order for the fed to raise rates, they need to be sure that the recovery will continue. Let's see if that will happen. Also right now with the oil prices so high, the recovery is in...
I agree that no European member countries wanted Spain and Portugal go bankruptcy and default on their debts. However, France and Germany will go bankruptcy themselves is a little hard to imagine. The money that set aside to bail out these PIIGS countries was contributed by Eur members, and I think that losing this money is still acceptable for these countries. At least that is what German and France have prepared themselves for the worth when they contributed the money to bail these PIIGS out.

http://www.guardian.co.uk/business/2...ortugal-crisis
German and France (G&F) economy will certainly be damaged if Spain and Portugal go bankruptcy, but I don't think that will lead to the bankruptcy of G&F.
Recovery will certainly need momentum to be sustainable by itself so the government may not raise interest rate soon. However, with inflation that already happened in other region like Europe, Asia, Australia... and commodity, I don't think the Fed can ignore the signal any longer. The Fed can keep the federal bank rate at lower interest rate, but as investors demand more yield to offset for higher anticipating inflation that would force the Fed to raise rate. I think bond yield is good indication of future inflation.
  • #212
  • Apr 5, 2011 6:27am Apr 5, 2011 6:27am
I think France and Gemany are rightfully so looking out for their own self-interest by not making it too easy for the "PIGS" so that they don't get pulled down with the "PIGS" if in the end they default anyway.
  • #213
  • Apr 5, 2011 6:32am Apr 5, 2011 6:32am
Quoting Noloqy
Indeed, inflation makes debt less costly. This is the major point. I just though of it, that as most of the European debt is covered by other European nations, deflating your way out of debt is the same as transferring the burden from the PIIGS to European banks. So this might not be really desirable after all.

You seem to have a somewhat of a dislike towards inflation, while in fact it might not be as bad. Over the years, the ECB has credibly committed to maintaining ~2% inflation. If the ECB can now generate a modest "unexpected inflation",...
Actually, I have to modify my point about Inflation makes debt less costly, that may mislead the way we think. Instead, I think when inflation occurs, creditors lose money because their money become worthless ($10 dollar 1 month ago worth less than it is today). However, to debtors, that $10 still have to pay back in full amount ($10) no matter what the inflation rate is. So, inflation will not make the debt go away, debtors still have to find a way to repay that debt. And to make matter worth, they have to finance more money with higher interest, thus makes repayment become even more difficult. Another solution to pay back debts when borrowing becomes an issue is simply printing more money. But that would accelerate the inflation and makes it more difficult to contain. I think the Zimbabwe inflation is good example of hyperinflation. haha, you need a car of money to buy a piece of bread and when you go to the restaurant, you have to pay for the meal before hand because after you finish your dinner, the price already double.

About government interests in lower the value of the dollar, I think it is a double edge knife. First, lower dollar will make imported goods become more expensive (oil, gas, cars,...)--> accelerate inflation in the short term if domestic industries cannot substitute for these highers imported goods. Lower dollars also fuels more risky investments, thus builds more foundation for future bubble and inflation. When the dollar is lower, investors don't want to invest in bonds, CD or saving and invest their money into stock, commodity, or emerging market. They may even borrowing excessively since borrowing cost is cheaply. We go back to path of 2001-2007 again.
Second, the tendency of lowering value of the dollar may trigger the flight of foreign investors since they do not want to invest in US securities (equity, real estate, bonds...).
Third, if government have foreign debts in term of foreign currency (instead of owing $10 bil to Japan, the US government owes Japan 10 bil Yen, the depreciation of dollar-yen make repayment that 10 bil Yen become more costly. That also involves the sell of government bonds. Now, foreign investor don't want to buy bonds in US dollar, they want it in other stable currency such as the Swiss, pound, or Yen --> the dollar loses it status as world reserve currency--> more difficult to borrowing in the future.
  • #214
  • Apr 5, 2011 6:44am Apr 5, 2011 6:44am
Quoting SunTrader
I think France and Gemany are rightfully so looking out for their own self-interest by not making it too easy for the "PIGS" so that they don't get pulled down with the "PIGS" if in the end they default anyway.
yeah, . That the point. Please connect what happened in Europe today with what happen in the US when the government will have to bail out companies like AIG, GM, Fannie... It might easy to bail out these company seem it closely related to the US economy and interest. If these company failed, jobs would be lost, economy will go down. But if US have to bail out Spain, you can imagine how Americans would say about that decision. We saw a lot of criticism by American citizen when the government bailed out AIG, GM, Fannie. Therefore, the thought of using tax money to bail out foreign countries where we have little interest and economy related is unacceptable. Same thing will happen with German and France citizens when they have to pay to help Spain and Portugal. It will make the government become more reluctant to help, and if they decide to help, they will demand strict rules, further cost cutting, fiscal control and disciplined from Spain and Portugal. Then what will happen? Riot by the Spanish and Portuguese who lost their jobs because the government now have to cut back spending, lay-off, and reduce government compensation and retire money fund... When everything falls in place, it will hard to control the situation.
I don't want to look gloomy here, but that what is happening right now.
  • #215
  • Apr 5, 2011 7:00am Apr 5, 2011 7:00am
Quoting mtrader87
yeah, . That the point.
But what is different in our case is that we are one country and one currency.

If the "PIGS" go down it is goodbye to the Euro unless just France and Germany continue using it as their currency and the rest go back to their own former national currency. Or unless they develop a Euro "red-headed stepchild"* currency for the others.

*american expression for an outcast.
  • #216
  • Apr 5, 2011 7:06am Apr 5, 2011 7:06am
Quoting SunTrader
But what is different in our case is that we are one country and one currency.

If the "PIGS" go down it is goodbye to the Euro unless just France and Germany continue using it as their currency and the rest go back to their own former national currency. Or unless they develop a Euro "red-headed stepchild"* currency for the others.

*american expression for an outcast.
Well, but as the german chancellor said, they will do everything so that the euro remains. There is more to the euro than just being a currency.

It is a medium to unite europe on economic & political decisions. It is also a kind of safeguard so that there is no war again among european countries, cause everything is so interconnected now with the current system.

I would say, going back to national currencies is a step back, even though right now there are lots of troubles with the PIGS.
  • #217
  • Apr 5, 2011 8:12am Apr 5, 2011 8:12am
Quoting Custos
Well, but as the german chancellor said, they will do everything so that the euro remains. There is more to the euro than just being a currency.
Yes, you're right. Politicians will do their best to maintain the euro. However, how will the Portugese and Spanish people react when Brussels starts dictating their country? Note that this is a precondition for receiving money from the rescue fund: giving up your autonomy.

When the people start to revolt, the government becomes powerless (unless you use force, as Gaddafi taught us.)
The nail that sticks out gets hammered back in
  • #218
  • Apr 5, 2011 8:31am Apr 5, 2011 8:31am
Quoting Noloqy
Yes, you're right. Politicians will do their best to maintain the euro. However, how will the Portugese and Spanish people react when Brussels starts dictating their country? Note that this is a precondition for receiving money from the rescue fund: giving up your autonomy.

When the people start to revolt, the government becomes powerless (unless you use force, as Gaddafi taught us.)
Yes, it is tough for people, when suddenly the creditors start ruling, and not their politicians.

I am not quite certain what is better for the people:

1. a country led by creditors leading to more government savings, less government expenditures & also less benefits in the social system
2. or a country going into default and people losing everything at once.

I think the lesser evil might be a country led by creditors. There you just tighten your belt, but when your country goes into default, then you don't have anything anymore and even have problems to get food and water.

Maybe I am wrong here, would love to hear other people's opinions about that.
  • #219
  • Apr 5, 2011 12:57pm Apr 5, 2011 12:57pm
QE2? More Like QE 1.5. The Fed’s Balance Shrinks Even As It Expands

http://finance.yahoo.com/news/QE2-Mo...33666.html?x=0
  • #220
  • Apr 6, 2011 8:36am Apr 6, 2011 8:36am
The USD will fall 20 percent and Japan is in big trouble.The think tank is now talking if this is going to be the perfect time to let the dollar go. They have someone to blame so it seems so this is an open window to let the dollar do a sudden crash. This will be a disaster greater then the media is allowing out.
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