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Thread: Weak Dollar boosting recovery

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    Default Weak Dollar boosting recovery

    Exports up for 6th straight month, boost recovery

    WASHINGTON – The economic recovery is likely to draw strength from exports such as farm products, autos, aircraft and industrial machinery — all of which helped lower the nation's trade deficit in October.

    Exports of U.S. goods rose for a sixth straight month. Further gains in exports should bolster manufacturers, who struggled during the recession. Heavy equipment maker Caterpillar Inc., for instance, has predicted that its sales will rise next year, reflecting in part greater demand from China and other Asian markets.

    Economists noted that much of the improvement in the trade gap reflected a fall in oil imports. But David Resler, chief economist at Nomura Securities, said U.S. exporters are benefiting from growing economies overseas and a weaker dollar. A weak dollar makes their goods cheaper in other countries.

    Resler boosted his forecast for growth in the current quarter to 3.2 percent, from 2.9 percent. The U.S. economy grew at a 2.8 percent pace in the July-September period after a record four straight quarterly declines.

    The trade deficit fell to $32.9 billion in October, 7.6 percent below a revised September deficit of $35.7 billion, the Commerce Department said Thursday. The improvement reflected a 2.5 percent jump in exports. Imports rose a smaller 0.4 percent, a gain that was held back by a big drop in oil imports.

    Through the first 10 months of this year, the deficit is running at an annual rate of $364.8 billion. That's about half the gap for all of 2008. The narrower trade deficit reflects the impact of the recession, which cut consumer demand for domestic and foreign goods.

    The stock market rose after the improved trade deficit was reported. In midday trading, the Dow Jones industrial average was up about 81 points, or 0.8 percent. Broader stock averages also rose.

    Meanwhile, the number of newly laid-off workers seeking jobless benefits rose more than expected last week, after falling for five straight weeks. Claims were partly inflated by a surge after the Thanksgiving holiday week, when many state unemployment offices are closed, a department analyst said. Seasonal layoffs in the construction industry also played a role.

    "The key point ... is that the underlying trend in claims is falling rapidly," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.

    Initial claims for unemployment insurance rose by 17,000 to a seasonally adjusted 474,000, the Labor Department said Thursday. That was above analysts' expectations of 460,000 new claims. Economists closely monitor initial claims, which reflect the pace of layoffs and companies' willingness to hire.

    The four-week average of claims, which smooths fluctuations, fell to 473,750, its 14th straight decline and the lowest level since September 2008.

    If current trends continue, Shepherdson said, claims will fall below the 400,000 mark by February, which would signal that the economy is actually generating jobs. Even more optimistic economists say that net job gains could come in January or this month.

    The number of people continuing to claim benefits fell by 303,000 to 5.16 million, the lowest level since February. The total unemployment benefit rolls have fallen in 11 of the past 12 weeks.

    The so-called continuing jobless claims figure doesn't include millions of people who have used up the regular 26 weeks of benefits typically provided by states and are receiving extended benefits for up to 73 additional weeks.

    About 4.6 million people were receiving extended benefits in the week ended Nov. 21, the latest data available. That's an increase of about 130,000 from the previous week and is partly due to an extension of benefits that Congress enacted last month.

    The economy grew at a 2.8 percent pace in the July-September quarter, and many analysts say it is likely growing at a similar pace in the current quarter. But that is much slower than the average 6 percent rate in previous economic recoveries.

    As a result, most economists expect the unemployment rate to rise in coming months and remain above 9 percent through the end of next year.

    President Barack Obama outlined a new jobs program Tuesday intended to bring down the unemployment rate, which is near a 26-year high. That effort includes tax breaks to encourage companies to hire new workers, increase bank lending to small businesses and a fresh round of infrastructure spending.

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    Default Re: Weak Dollar boosting recovery

    This is good news for dancers working in areas where major exporters such as Boeing or Caterpillar are large employers.

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    Default Re: Weak Dollar boosting recovery

    We will see. Melonie and I have explained the other side of the coin ad nauseum. You don't like it and don't want to hear it, so we'll see who benefits how much in the long run from current weak dollar policies.

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    Default Re: Weak Dollar boosting recovery

    speaking of the 'devil', here's a clear illustration of the 'flip side' of a weakened US dollar ...



    (snip)"Interest rates rose and stocks and commodities faltered a bit on the result of this ten year treasury auction which was weaker than this Bloomberg piece suggests.

    Metals declined as a reflexive reaction to 'higher interest rates.' The hit on the metals preceded the release of the results, in yet another bear raid by the Wall Street banks holding undeliverable short positions.

    Foreign central banks were noticeably light buyers, much preferring the shorter durations like the three year.

    Primary Dealers took a big chunk of the offering. Current trends suggest that Ben will take it off their hands through monetization. [ translation - big Wall St. banks bought treasuries to avoid a 'failed' auction, on the implied guarantee that the FED would repurchase these newly printed treasuries with even more newly printed dollars - sic ]

    The Fed will be under signficant pressure to buy the bonds as the bias to the short end of the curve creates imbalances that precipitate a funding crisis, and a possible currency crisis, at the Treasury in 2010 if this trend continues. It is unlikely that they will raise rates when monetization is a viable, if not preferred, option. [ translation - interest rates will rise in the same manner as the result of the auctions, but the FED will avoid having to take the blame as they would otherwise have to do if an official FED funds rate increase were put into effect - sic ]

    Geithner looks likely to be replaced in 2010 by a Treasury Secretary who is more 'seasoned' and who will guide the US multinational banking industry through what could be later known as the currency wars, analagous to the trade wars that occurred in the Great Depression. One might even say that they are already underway."(snip)


    ... and a clear illustration that foreign investors are preparing to 'pick up their marbles and go elsewhere' in an effort to avoid future US dollar exchange rate losses




    (snip)"While pinning solid figures on any of the sovereign wealth funds in the middle east is a speculative effort at best, it is difficult to come up with figures much smaller than $150-200 billion for KIA's [ Kuwait Investment Authority - sic ] assets under management, at least assuming no major losses in the last 24 months- potentially a generous modeling gift. Moreover, the KIA, residing as it does within the borders of a "close friend" of the United States, has often enjoyed direct and indirect encouragement therefrom. Further, a demonstrated willingness to invest in Western European concerns (e.g., Daimler) and American enterprises (e.g. Citigroup), particularly in times of distress, has cemented bonds between the United States and these petrolpowers. The honeymoon might be over. To wit:

    The Kuwait Investment Authority has held internal discussions about scaling back its banking relationship with Citigroup in a move that could include transferring funds currently deposited with the US bank, people familiar with the matter say.

    A withdrawal of KIA funds from Citi would mark another setback for the bank as it seeks to recover from the financial crisis and pay back government bail-out funds.


    Indeed. In one fell swoop KIA might undo the Herculean YouTubeian pleadings by Federal Deposit Insurance Corporation Chairwoman Shelia Bair begging Americans to please, really, seriously, please just stop taking money out of absolutely, totally safe and solvent banks. Oh, and paying off TARP is pretty much right out if Citi faces this kind of capital flight.

    Well, how bad could it be exactly? Again, the Financial Times:

    According to KIA officials, most of Kuwait’s oil revenues are deposited at Citi – a decades-long relationship."(snip)

    (snip)Pointing out that a large bit of capital flight would be a blow to Citi is an act of profound understatement. Pointing out that this sort of thing has rather serious strategic implications for the United States should cause colleagues to credit you with a mastery of the obvious. In fact, the United States has worried about this sort of quasi economic warfare for some years"(snip)

    (snip)"In the event of a continued deterioration of the Arab/Israeli situation, Arab oil producing states would be increasingly motivated to use their control over oil resources, and possibly such economic power as might be available in the use of their finance assets, to place a range of pressures on the United States and the industrial world to achieve political ends in the Middle East (snip)

    (snip)"As one reviews the mindset of a then-alerted and highly nervous apparatus of national security it is difficult not to read between the lines of analysis and realize something very stark and, in the present environment, worrying. Almost every single response available to policy makers in the event of economic warfare of this kind depended on the dollar's status as the reserve currency of choice, its strength, and the absence of other options. (The Swiss Franc and the German Mark were generally expected to see the petrodollar inflows). Since this buffer is now gone it doesn't take much creativity to notice that, today, the United States is in an intensely vulnerable position to actions of this kind."(snip)


    the 'smart money' is betting on a transition by sovereign wealth funds out of US dollars and into Swiss Francs. But, hey, the union workers at Caterpillar and Boeing and GE should benefit from increased US exports ! And the fact that all Americans will wind up paying higher interest rates, paying higher prices for global commodities like food and energy, paying higher prices for anything containing global commodities like steel, copper, oil based plastic etc. will undoubtedly be glossed over or 'blamed' on other reasons.

    ~
    Last edited by Melonie; 12-10-2009 at 02:07 PM.

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    Default Re: Weak Dollar boosting recovery

    ^^^ Aw, you beat me to it.

    Just filling in a few blanks: The 10 yr. Treasury and 30 Yr. bond are now paying 3.5 and 4.5 %
    respectively. Both have been going up and the last auction took two days and saw sharply higher yields.

    Import prices are UP 1.7 %. A full % point HIGHER than predicted.
    Gasoline is up 6 %.

    Gold is down and the dollar has stabilized. For now. Stocks are up. For the short term.

    I just sold half of my gold stocks and 20 % of my coins but I'm hanging on the rest. Since I started buying when gold was still in the 400's I have a long way to go and plenty of room to take profits.

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    Default Re: Weak Dollar boosting recovery

    ^^^ not wanting to take this thread off-topic, but for a fact the international hedge funds / sovereign wealth funds etc. are now having an increasing impact on the US dollar exchange rate due to a shift in the 'carry trade' from Yen to Dollars. But this 'carry trade' ( i.e. borrowing money in one currency at very low interest rates, and investing the borrowed money in assets denominated in a different currency which pay a higher interest rate) could self-destruct in a matter of days if the interest rate which must be paid on the borrowed currency rises significantly and/or if the valuation of the borrowed currency . This week's anemic ( the 'gold foil hat' crowd would say 'rigged' ) treasury bond auction with significantly higher resulting interest rates could indeed be a harbinger of doom in that regard.

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    Default Re: Weak Dollar boosting recovery

    Quote Originally Posted by Melonie View Post
    ^^^ not wanting to take this thread off-topic, but for a fact the international hedge funds / sovereign wealth funds etc. are now having an increasing impact on the US dollar exchange rate due to a shift in the 'carry trade' from Yen to Dollars. But this 'carry trade' ( i.e. borrowing money in one currency at very low interest rates, and investing the borrowed money in assets denominated in a different currency which pay a higher interest rate) could self-destruct in a matter of days if the interest rate which must be paid on the borrowed currency rises significantly and/or if the valuation of the borrowed currency . This week's anemic ( the 'gold foil hat' crowd would say 'rigged' ) treasury bond auction with significantly higher resulting interest rates could indeed be a harbinger of doom in that regard.
    Yeah but we've got a lot of banks and outfits like Goldman masquerading as banks taking advantage of a record upward slope in the current yield curve i.e. they can borrow from the Fed at effectively zero and get guaranteed returns on T-Bills and the long bond. What they are NOT doing is lending to small business.

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    Default Re: Weak Dollar boosting recovery

    ^^^ absolutely true ... and actually worse. What Goldman et al are doing is investing a large chunk of their near zero interest rate money 'borrowed' from the FED into the stock markets i.e. their own 'proprietary' trading desks. This churns and runs up the stock markets creating the 'appearance' of a recovery. This also creates stock trading profits. But as you point out, none of this money seems to be finding its way into small business / commercial / consumer loans ( at anything approaching an 'affordable' interest rate )

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    Default Re: Weak Dollar boosting recovery

    ^^ This is partly what Obama was yelling at the companies for this last week. This is what happens when "free markets" become free: they do what is only good for them, not for the general economy, even though a strong economy would help them (and the rest of us) more in the long run. What we need is to find an incentive to help them help us, perhaps a special temporary tax (of a progressive kind and directed at their non-loan investment) upon the largest in that industry to help pay for the extra additional policing they apparently require from the Fed.

    Anyhow seems to me that a market-based dollar would be better in the long run for the US. It certainly would keep the number of macroeconomic arguments here down to a manageable number and length.
    Last edited by threlayer; 12-18-2009 at 11:22 PM.
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    Default Re: Weak Dollar boosting recovery

    seems to me that a market-based dollar would be better in the long run for the US.
    Probably true in theory. However, the needed market devaluation of the US dollar to bring the $8 an hour pay rate of US unskilled workers on global par with China, to bring the $80k per year pay rate of US professionals on global par with India etc. would also mean $7 per gallon gasoline, $3000 gold, and the cheapest new car costing $30,000 !

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    Default Re: Weak Dollar boosting recovery

    As always, your statement is based on ideology, rather than what happens in the real world. There's a reason why workers in China and India are paid less than workers in the US. The reason is because they need to charge less for labor to get business to locate there and hire workers there. If workers in China and India were paid the same wage as workers in the US, nobody would hire them.

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    Default Re: Weak Dollar boosting recovery

    ^^^ that's the same point I am making ... but inverted. As long as unskilled US workers must be paid 3 times as much as unskilled workers in China and India, nobody is going to hire THEM either ( unless they have absolutely no other choice i.e. tied to geography).

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    Default Re: Weak Dollar boosting recovery

    Yes they will. There are still many businesses willing to pay Americans much higher wages than Chinese workers. There are many factors involved in determining where to locate a facility besides cost of labor and electricity.

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    Default Re: Weak Dollar boosting recovery

    First of all, the dollar is getting stronger vs. the Euro. The Euro is dropping because of the possible collapse of Ireland, Spain and the U.K. and the almost certain default by Greece on its excessive debt. Dubai is almost certain to default on $80 billion of debt. Gold is dropping to its lowest point since early November. For now. Housing starts were way down last month and the 3.5% growth in the Third Quarter continues to shrink. First it went down to an adjusted 2.7% and its been adjusted down again to 2.2%. Take out "Cash for Clunkers" and there is almost NOTHING there.

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    Default Re: Weak Dollar boosting recovery

    Quote Originally Posted by eagle2 View Post
    Yes they will. There are still many businesses willing to pay Americans much higher wages than Chinese workers. There are many factors involved in determining where to locate a facility besides cost of labor and electricity.
    I think you and Melonie are both half-right. Labor costs are just one part of the equation. Other factors are education and skill of the workforce, energy costs, land costs, SHIPPING costs and the two biggies : taxes and costs of regulation.

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    Default Re: Weak Dollar boosting recovery

    ^^ And yet corporations need to be taxed and regulated in return for the huge tax advantages they receive versus the individual.

    About the price of gold -- gold is not essential to life and most people don't care much if it goes up or down in price or availability. As with any artificially valued quantity, really only the investors/speculators care about it (and to a limited extent specific industries). Further autos are still manufacured in the US and it would not do Americans any harm to buy them instead of price-adjusted foreign makes.

    Our society has accelerated globalization to the point where it is irreparably hurting us. Globalization is certainly at the point where its conservative proponents are doing radical things and they don't even realize it. I believe it is because they have pushed for an artificially strong dollar. Globalization has done one good thing -- it has awakened American industries again to realize that value and quality do matter. But too much is just too much, and in our ignorance we have done it to ourselves.
    Last edited by threlayer; 01-06-2010 at 02:42 PM.
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    NOTE: anything I post here, outside of a direct quote, is my opinion only, which I am entitled to. Take it for what you estimate it is worth.

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