Re: OT: End of the dollar?


"Bruce In Bangkok" <decypher.address@xxxxxxxx> wrote in message
news:3fcgs45cv4mi899r0msuc5slrm4r5hv10m@xxxxxxxxxx
On Mon, 23 Mar 2009 15:49:08 -0400, "Ed Huntress"
<huntres23@xxxxxxxxxxxxx> wrote:


"F. George McDuffee" <gmcduffee@xxxxxxxxxxxxxxxxxxxxxx> wrote in message
news:8gmfs4pm7fncmrrglbc7i2l2nl0797s21d@xxxxxxxxxx
On Mon, 23 Mar 2009 11:29:37 -0500, Ignoramus3690
<ignoramus3690@xxxxxxxxxxxxxxxxxxx> wrote:
<snip>
Secondly, dollar that is valued based on US economic fundamentals, and
not on the basis of being the world's reserve currency, would be more
suitable to the US economic conditions and to balance of imports
vs. exports.

Thus, the fall of the dollar, in my personal opinion, would not cause
economic collapse, though it would cause quite a bit of economic
dislocation and wealth redistribution.

I agree with you that if we lose our ability to borrow money at
artificially low rates, we will not be able to be involved in so many
foreign entanglements simultaneously.
<snip>
-----------
The current economic situation appears to closely parallel the
period after WW1 with the United States [Dollar] playing the role
of the UK [Sterling].

The huge international debts, amplified and exacerbated by CDS
and other derivatives, combined with the huge capital imbalances
and flows, parallel the international credit situation in the
run-up to the "great depression," i.e. a "house of cards" that
the slightest puff of wind [or reality] can bring down at any
time.

The private American financial sectors have continued to play at
being the world's bankers, but by borrowing money from China at
2% to lend at 5 or 6% rather than investing the surplus value
added by domestic American activities.

As the UK did after WW1, the US is attempting to maintain the
Dollar at an artificially high level, promoting imports and
restricting exports, with a continual effort to drive down
domestic production costs, generally through wage/benefit
reductions.

Wait, wait, wait. George, promoting imports and "restricting" exports
(which
we're not) is precisely what causes the value of a currency to *fall*, not
to rise to artifically high levels. That is, according to Milton Friedman
and neoclassical theory. But ours isn't falling. Nor is it rising, except
against a few other currencies in countries that are in worse shape than
we
are. Contemporary trade theory, the one that Krugman just won the Nobel
Prize for, says that balances of trade don't have any direct, fundamental
effect on exchange rates -- and what he predicted is exactly what's
happening now.

And if you've looked at the export and production numbers recently, you
know
that Europe is in worse shape than we are. Japan is in *much* worse shape.
And China's leaders are downright scared, because they need over 8% growth
to keep a lid on social unrest, due to their extraordinarily high (by
western standards) rates of unemployment and underemployment.

The dollar remains the safe haven. The ultimate safe haven continues to be
US Treasury bonds. That's why we're pumping money into the economy and
money
is still pouring in from foreign countries and private investors.

As for the parallels with the UK, no way. The whole world is in a
different
place, as are all of our economies.


I hesitate to enter the realm of high finance but last night's news
had the US dollar at 35-something baht. Only about 5 baht off its all
time high.

While the dollar's intrinsic value may fall through the floor, as
someone suggests, its value vis-a-vis S.E.A. currency is approaching
it highest value in years.

Cheers,

Bruce
(bruceinbangkokatgmaildotcom)

The closest thing to "intrinsic value" of any currency today is measured by
what it will buy. In that regard, the overall US consumer-price index for
February was up by 0.2% over a year ago, and down by a fraction of a percent
over the past three months.

In other words, a dollar will buy slightly more than it did a few months
ago. In terms of "value," then, the dollar's worth is *increasing*, not
decreasing.

And, as you point out, it's fairly flat, and certainly not declining
overall, against most foreign currencies.

That's happening despite large increases in the money supply. I guess those
weekend economic pundits are going to have to get out a fresh piece of paper
and start over.

(Actually, it's pretty simple to explain. There is a lot of money around,
but it's sitting in bank accounts, including bank deposits with the Fed,
rather than changing hands and heating up the economy. Money supply is only
half of the story in terms of inflation or deflation. Velocity, or the rate
at which the money turns over in transactions, is the other half. The
tendency for money to inflate or deflate is a product of supply and
velocity. And velocity is in the tank because people aren't buying any more
than they have to.)

--
Ed Huntress


.

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