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Melonie
08-14-2009, 02:32 PM
^^^ in overall terms yes, in other terms no. The falling prices are primarily connected with 'discretionary' spending items ... like large screen TV's, video games, appliances etc. ... which many Americans are buying fewer of ( or none at all ). The rising prices are primarily connected with 'necessity' spending items like gasoline / energy, food, etc. which are globally priced ( and thus become more expensive as the US dollar declines ) and which are also unavoidable purchase items for the poor, middle class and rich alike. Thus on the average, the poor see 'inflation', the rich see 'deflation', and the middle class sees little change.

eagle2
08-14-2009, 09:53 PM
It's true that US dollar interest rates have not risen. However, a devaluation of the US dollar as a result of new money printing plus low interest rates has an equally negative long term effect. When the dollar devalues by 10%, the price of all 'world market' commodities from gasoline to food to the steel / copper / plastic components of every manufactured item go up 10% in terms of US dollar price. This is the de-facto equivalent of a new 10% tax on these items for those who must measure their paychecks and 'pay their bills' in US dollars.

~

No it doesn't. Many commodities are traded in US dollars. The price of commodities is determined by the supply and demand for the comodity.

Melonie
08-15-2009, 07:47 AM
^^^ let's try this again. Commodity prices are set by WORLDWIDE demand. This means that the price level for a given commodity goes up or down in ALL currencies if worldwide demand increases. But sales of the commodity to satisfy that worldwide demand are actually being transacted in US Dollars, Yen, Yuan, Euros etc. Therefore if the US dollar, for example, takes a dive in terms of exchange rates versus the Yen, Yuan, Euro etc. , the US dollar denominated price of that commodity will increase DESPITE THE FACT that worldwide demand is unchanged and DESPITE THE FACT that the price of that commodity as denominated in Yen, Yuan, Euros does not increase. In brutally blunt terms, this means that unprecedented amounts of money printing / borrowing by the US gov't that erodes international confidence in the US dollar will cause the exchange rate of the US dollar to drop, with the direct result being rising US dollar denominated prices for worldwide commodities such as gasoline, food, etc.

The only way that the purchasing power 'value' of the US dollar could escape exchange rate effects versus other major world currencies is if the raw materials, the production, and the consumption of a given item ALL take place within the USA - PLUS - the sale price / quantity would need to be regulated by the US gov't to prevent US origin raw materials and manufactured products from being exported instead of offered for domestic consumption ( i.e. in a free economy the US raw material producers and manufacturers would seek higher de-facto profit margins by exporting and selling in Yen, Yuan, Euros etc. instead of selling in US dollars, thus creating shortages on US store shelves !). Even FDR understood this problem, which is the reason that the 1930's saw not only import / export controls but also domestic wage / price controls being imposed by the US gov't.

~

threlayer
08-15-2009, 02:45 PM
From your description....

The 'discretionary' items include most items that are imported from China and are low cost consumer items that used to be (or could have been) manufactured in the US, while the 'necessity' items are not and are largely manufactured or produced here (even oil so far).

Melonie
08-15-2009, 10:02 PM
^^^ you are correct that some 'discretionary' spending involves the purchase of low cost consumer items imported from Asia. However, other 'discretionary' spending involves such items as a local restaurant meal, movie tickets, lap dances, etc. - in other words the US 'service industries' !

threlayer
08-15-2009, 10:51 PM
yes, immediate services are not imported, usually

Eric Stoner
08-17-2009, 08:09 AM
No it doesn't. Many commodities are traded in US dollars. The price of commodities is determined by the supply and demand for the comodity.

Without trying to disrespect you in any way, shape or form ( seriously and sincerely) this illustrates one reason why you and I are having difficulty finding common ground on current fiscal and monetary conditions and policy. For you NOT to know that a weak dollar affects what we ; here in the U.S.; have to pay at the gas pump; grocery store; wine shop; electronics outlet; auto dealership etc. etc. indicates that you might want to read up on macro economics and M O N E T A R Y history and policy.

Supply and demand only affects the WORLD PRICE i.e what a particular good or commodity costs on the world market as it is bought and sold. Here in the U.S. it still has to be paid for in DOLLARS. And if the Fed is pumping out too many of those things that say "Federal Reserve Note" on the top; and the government is borrowing too much money ; and the Treasury is NOT defending the Dollar in world currency markets ( currencies get bought, sold, held and dumped too) then all of us here in the U.S. have to pay more.

Eric Stoner
08-17-2009, 08:12 AM
^^^ let's try this again. Commodity prices are set by WORLDWIDE demand. This means that the price level for a given commodity goes up or down in ALL currencies if worldwide demand increases. But sales of the commodity to satisfy that worldwide demand are actually being transacted in US Dollars, Yen, Yuan, Euros etc. Therefore if the US dollar, for example, takes a dive in terms of exchange rates versus the Yen, Yuan, Euro etc. , the US dollar denominated price of that commodity will increase DESPITE THE FACT that worldwide demand is unchanged and DESPITE THE FACT that the price of that commodity as denominated in Yen, Yuan, Euros does not increase. In brutally blunt terms, this means that unprecedented amounts of money printing / borrowing by the US gov't that erodes international confidence in the US dollar will cause the exchange rate of the US dollar to drop, with the direct result being rising US dollar denominated prices for worldwide commodities such as gasoline, food, etc.

The only way that the purchasing power 'value' of the US dollar could escape exchange rate effects versus other major world currencies is if the raw materials, the production, and the consumption of a given item ALL take place within the USA - PLUS - the sale price / quantity would need to be regulated by the US gov't to prevent US origin raw materials and manufactured products from being exported instead of offered for domestic consumption ( i.e. in a free economy the US raw material producers and manufacturers would seek higher de-facto profit margins by exporting and selling in Yen, Yuan, Euros etc. instead of selling in US dollars, thus creating shortages on US store shelves !). Even FDR understood this problem, which is the reason that the 1930's saw not only import / export controls but also domestic wage / price controls being imposed by the US gov't.

~

Yes but FDR did what he did to reward various unions and NONE of it worked. It exacerbated and lengthened the Depression by radically depressing world trade. It didn't even have a positive effect on the unemployment rate.

eagle2
08-17-2009, 02:17 PM
Without trying to disrespect you in any way, shape or form ( seriously and sincerely) this illustrates one reason why you and I are having difficulty finding common ground on current fiscal and monetary conditions and policy. For you NOT to know that a weak dollar affects what we ; here in the U.S.; have to pay at the gas pump; grocery store; wine shop; electronics outlet; auto dealership etc. etc. indicates that you might want to read up on macro economics and M O N E T A R Y history and policy.

Supply and demand only affects the WORLD PRICE i.e what a particular good or commodity costs on the world market as it is bought and sold. Here in the U.S. it still has to be paid for in DOLLARS. And if the Fed is pumping out to many of those things that say "Federal Reserve Note" on the top; and the government is borrowing too much money ; and the Treasury is NOT defending the Dollar in world currency markets ( currencies get bought, sold, held and dumped too) then all of us here in the U.S. have to pay more.

and oil is bought in DOLLARS, therefore the value of the dollar does not directly affect the price of oil in the US. If the dollar becomes weaker against the Euro, the price of oil would fall in Europe, but it would stay the same here. If oil producing countries were to untie their currency from the US dollar and start selling oil in Euros, then a weak dollar would affect the price of oil. As long as oil producing countries peg their currency to the US dollar and as long as oil is traded in dollars, the value of the dollar would not have a significant effect on the price of oil.

http://www.oil-price.net/

Although oil prices seem high today, they are kept artificially low because many oil-producing nations such as Saudi Arabia peg their currencies to the US dollar.

Deogol
08-17-2009, 08:17 PM
and oil is bought in DOLLARS, therefore the value of the dollar does not directly affect the price of oil in the US. If the dollar becomes weaker against the Euro, the price of oil would fall in Europe, but it would stay the same here. If oil producing countries were to untie their currency from the US dollar and start selling oil in Euros, then a weak dollar would affect the price of oil. As long as oil producing countries peg their currency to the US dollar and as long as oil is traded in dollars, the value of the dollar would not have a significant effect on the price of oil.



Although oil prices seem high today, they are kept artificially low because many oil-producing nations such as Saudi Arabia peg their currencies to the US dollar.

I think you have this a little confused.

Yes, oil is bought in dollars. But this is how it works.

The Euro goes up from $2 to $3 (just to make it really obvious.)

This means it takes the same euro's, that is less work and sacrifice on part of the europeans, to buy a third more oil than americans (in this example.)

So the europeans say, hey, a euro buys a third more while if the americans want the same amount, they have to front up another buck. How nice for us, how bad for the americans.

So hopefully you see (or at least other confused readers do) that the same amount of oil is NOT available to the americans for the same amount of money. If I have oil, I am selling to the highest bidder, which is the guy holding a € worth $3 than an american holding $2 trying to buy the same amount. The american needs to front that extra dollar to make the deal. Oil just went up for that market even though it is in their currency.

eagle2
08-17-2009, 11:30 PM
If the dollar were to decrease in value against the euro, it means the price of oil will drop for Europeans, but it doesn't mean they're going to increase their use of oil by the amount the price drops. For example, if the price of gasoline were to go up to $3 a gallon, and then drop to $2 a gallon, does that mean you're going to automatically increase the amount of gas you use by 1/3, and then if it goes back up to $3, are you going to decrease your use by 1/3?

Melonie
08-18-2009, 03:27 AM
For example, if the price of gasoline were to go up to $3 a gallon, and then drop to $2 a gallon, does that mean you're going to automatically increase the amount of gas you use by 1/3, and then if it goes back up to $3, are you going to decrease your use by 1/3?

no, but perhaps by 10% each way. Some portion of demand for gasoline is inelastic, because people who must drive for business must buy gasoline.


If the dollar were to decrease in value against the euro, it means the price of oil will drop for Europeans,

As long as total worldwide demand for oil remains essentially unchanged, if the Euro's exchange rate is relatively stable against the Yen, SF, Yuan etc. ( but rises against a falling US dollar) the price of oil for Europeans will not change. However, the price of oil for Americans as denominated in US dollars will go up. This is the result of having de-facto 'fiat' currency valuations throughout the world for the past 40 years ... there is no absolute measuring stick.

Eric Stoner
08-18-2009, 06:54 AM
If the dollar were to decrease in value against the euro, it means the price of oil will drop for Europeans, but it doesn't mean they're going to increase their use of oil by the amount the price drops. For example, if the price of gasoline were to go up to $3 a gallon, and then drop to $2 a gallon, does that mean you're going to automatically increase the amount of gas you use by 1/3, and then if it goes back up to $3, are you going to decrease your use by 1/3?

Sadly you are illustrating my point. Yes, oil is currently traded in dollars but that is NOT written in stone. If OPEC decides that another currency serves their purposes better they could demand that all their oil be bought with Euros; or swiss francs or even gold.

A weak dollar makes our EXPORTS cheaper for other countries to buy. That is why the Chinese deliberately undervalue the Yuan; to boost exports. But it makes IMPORTS more expensive. A strong dollar does the converse. Thus a weak dollar inflates the price of imported commodities such as oil. And the sellers of oil on the world market take the dollar's relative value into account in setting their price for a sale.

Zofia
08-18-2009, 10:19 PM
A weak dollar makes our EXPORTS cheaper for other countries to buy. That is why the Chinese deliberately undervalue the Yuan; to boost exports. That does not logically follow. Although, I think I understand you are trying to say China is following the same policy as the US.


But it makes IMPORTS more expensive. A strong dollar does the converse. Thus a weak dollar inflates the price of imported commodities such as oil. And the sellers of oil on the world market take the dollar's relative value into account in setting their price for a sale.Which explains why oil prices have fallen from over $140 per bbl a year ago to $69.80 as of the close of the market today?

Z

Melonie
08-19-2009, 02:28 AM
That does not logically follow. Although, I think I understand you are trying to say China is following the same policy as the US

In the world economy of the 1920's gold standard, trade imbalances ALWAYS resulted in currency valuation / purchasing power shifts. The country that was a net exporter would have to 'settle' with the country that was a net importer by the actual transfer of gold, and in so doing limit the net amount of exports / imports to a level that the importing country could actually afford. The shift to 'fiat' currencies removed that limit via replacing a finite amount of gold with an infinite amount of gov't debt.

Today, as long as the exporting country is willing to 'buy and hold' ever larger mountains of gov't debt of the importing country, they can artificially increase the value of the importing country's currency and artifically decrease the value of their own currency. Similarly, by directly buying the currency of importing countries on the international open market the exporting country can achieve the same result without the need to sell additional export goods.

But all of the above create an unnatural imbalance. Right now China and the USA both enjoy huge benefits from this imbalance. China boosts their growth due to their ability to undersell international competitors ( largely based on an internationally undervalued Yuan ), and America enjoys an artificially high standard of living ( largely based on an internationally overvalued US dollar). But this unnatural imbalance places a ton of risk on China i.e. when they finally go to 'collect' on their mountain of US dollar denominated gov't and other debt they are holding, the US dollar might not be worth very much !

As to oil price moves over the last year, this is a function of US dollar exchange rate but also the result of huge reductions in overall energy demand by scaled back businesses and industries. Natural gas is 'down' even more.

Eric Stoner
08-19-2009, 11:12 AM
In the world economy of the 1920's gold standard, trade imbalances ALWAYS resulted in currency valuation / purchasing power shifts. The country that was a net exporter would have to 'settle' with the country that was a net importer by the actual transfer of gold, and in so doing limit the net amount of exports / imports to a level that the importing country could actually afford. The shift to 'fiat' currencies removed that limit via replacing a finite amount of gold with an infinite amount of gov't debt.

Today, as long as the exporting country is willing to 'buy and hold' ever larger mountains of gov't debt of the importing country, they can artificially increase the value of the importing country's currency and artifically decrease the value of their own currency. Similarly, by directly buying the currency of importing countries on the international open market the exporting country can achieve the same result without the need to sell additional export goods.

But all of the above create an unnatural imbalance. Right now China and the USA both enjoy huge benefits from this imbalance. China boosts their growth due to their ability to undersell international competitors ( largely based on an internationally undervalued Yuan ), and America enjoys an artificially high standard of living ( largely based on an internationally overvalued US dollar). But this unnatural imbalance places a ton of risk on China i.e. when they finally go to 'collect' on their mountain of US dollar denominated gov't and other debt they are holding, the US dollar might not be worth very much !

As to oil price moves over the last year, this is a function of US dollar exchange rate but also the result of huge reductions in overall energy demand by scaled back businesses and industries. Natural gas is 'down' even more.

Who says the dollar is "overvalued" ? My understanding is that we have a WEAK dollar. Unlike Reagan and Clinton and like G.W. Bush, Obama and Geithner have NOT defended the dollar and are pursuing weak dollar policies.

Unless you are relating the current "value" of the dollar to it's absolute or "real" value ? I think that can only exist with a convertible currency i.e. one that can be redeemed for it's equivalent value in gold.

Melonie
08-21-2009, 03:05 AM
Who says the dollar is "overvalued" ? My understanding is that we have a WEAK dollar

Yes the US dollar is 'weak' compared to where it was a couple of years ago. However, based on global valuations, the dollar would be weaker still if it weren't for the Chinese and Middle Eastern buyers of US treasury bonds. Without their continuing willingness to sink their trade surplus earnings into ever high piles of US taxpayer debt, arguably the US dollar would sink like a stone.

Melonie
08-21-2009, 03:53 AM
in fact, a Canadian analyst just offered a very good piece on this very subject ...

(snip)It’s time to comment on the current state of the Grand Economic Experiment being run by the various apprentices of sundry sorcerors.

Worldwide debt monetization has succeeded in reflating many stock and commodity markets and the effort to bail out the powerful and connected has been surprisingly effective. It is true that all the efforts of central banks cannot replace the wealth factor destroyed by asset losses, but in the real world, that is not viewed as necessary. The broad masses will have to be happy with various Peanuts for Peons programs masquerading as stimuli. In any case, surviving major banks and pension funds are being shored up for the time being.(snip)

(snip)The Chinese have been very successful in offloading dollar risk. The major mechanism is bilateral deals for commodities. A recent example is a $41 billion dollar deal with Exxon for Australian natural gas, but there have been many others. $30 billion to Russia for deliveries of oil over thirty years, $10 billion plus for the Kazakhs, $34 billion for Venezuela, $15 billion for Brazil to keep deep drilling going, and a few billion for Ecuador just yesterday and so on. The beauty of this is that the cash gets distributed over time and the price of the commodities are fixed going forward. Thus, the other party assumes the long-term currency risk while the Chinese slowly dole out the cash. I would imagine that much of the trade is in U.S. debt instruments in any case. There is consequently little immediate impact on Chinese holdings of U.S. denominated debt and panic and visible dollar devaluation is staved off.

Of course, they continue to make other deals as well, buying commodities outright, and interests in producers and other hard assets. The bilateral deals are the big dollar items, though. Enough of them have happened since 2008 to lead me to believe that the Chinese are near to having hedged their U.S. dollar risk. We can probably now say that the Chinese are becoming agnostic about the long-term purchasing power of Uncle Buck and will continue in the future to deftly avoid exposure to any potential crisis. They will probably neither attack nor defend the Dollar to any great degree and will let others play that rather expensive game.(snip)

(snip)Outside of the index currencies, the various commodity producers and developing industrial powers will manipulate their money for whatever purposes they choose. It will be very difficult to perceive real value by simply comparing forms of paper money. Opportunities to take advantage of distortions will abound.

Meanwhile, the U.S. nearing a decision point. They are close to the end of being able to fund vast federal deficits by borrowing from others and outright monetization is only speeding up that process. The lesser tiers of government, such as California, are in real deep doodoo and will ultimately have to be bailed out well before the 2010 Congressional elections, as mass layoffs by states and cities and large cuts in services are likely to anger the little people, endangering all incumbents. Said congresscritters are not particularly worried about threats of a second Revolution or loud townhalls but they are concerned by the rapid advance in the polls of None of the Above.

Contributing substantially to the developing fiscal crisis is a rapid drop in the revenues of all levels of governemnt. I’ll bet that a goodly part of this is a simple failure to file and/or pay, which is very likely to become the most popular form of rebellion against the Current World Order.

In a very real sense, discussions of inflation versus deflation are too simplistic. For U.S. inhabitants, we are likely to see:

- Deflation in real estate.

- Inflation in equities.

- Deflation in electronic toys and cars.

- Inflation in taxes and fees.

- Deflation in wages for the powerless.

- Inflation in energy and food.

- Deflation in the political power of the unconnected.

- Inflation in governmental distortion of statistics to manipulate public opinion.(snip)

from

threlayer
08-21-2009, 07:33 AM
Our whole system of evaluation is unstable. In fact it only works when people think it is working and have the confidence to back it up with their agreements to take risks. When they are risk-adverse, this instability shows its face.

threlayer
08-21-2009, 07:37 AM
...
Which explains why oil prices have fallen from over $140 per bbl a year ago to $69.80 as of the close of the market today?

Z

No. That was proven to be the oil speculation I was talking about back a year ago and which idea the conservatives on this forum flatly rejected, believing it to be consumptive market forces.

Melonie
08-22-2009, 03:55 PM
^^^ if you do some fact checking, you will find that worldwide oil consumption has declined significantly over the past year ... as the direct result of decreasing industrial and business activity. However, the investors and speculators are now looking at a stabilization in worldwide oil consumption. More importantly, they are also looking at a decline in the exchange rate / 'purchasing power' of the US dollar ...

(snip)"NEW YORK (Reuters) - Oil rose nearly $1 toward $74 a barrel to settle at a 10-month high on Friday as data in the United States promised economic recovery and a potential revival in energy demand.

U.S. crude for October delivery settled up 98 cents at $73.89 per barrel, the highest settle since October 20. London Brent crude for October settled up 86 cents at $74.19.

Crude rose $6.38 over the week, nearly 10 percent, from the $67.51 settle on August 14.

"The primary source of support again tended to be spill over from the financial space that included a weakening dollar and associated strengthening in the stock indexes," said Jim Ritterbusch, president of Ritterbusch & Associates in Galena, Illinois.

The dollar was down against the euro, helping to support commodity prices, with investors showing some appetite for risk."(snip)

Eric Stoner
08-24-2009, 10:50 AM
In several of his N.Y. Times columns, Paul Krugman shrieked that the Federal stimulus program was not large enough. He also scolded France and Germany, among other major economies, for having stimulus packages that were too small. The U.S. spent 2 % of GDP. Germany spent 1.5% and their export driven economy was hit a lot harder than ours. France spent even less. Even allowing for European social safety nets, their spending was much lower than ours.

Not only has EVERYONE avoided the Depression that Krugman predicted but both Germany and France have had unexpected growth and are out of recession. So are China, Hong Kong, South Korea, Singapore and Japan.