Results 1 to 15 of 15

Thread: more reason to worry about US$ becoming toast

  1. #1
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default more reason to worry about US$ becoming toast

    (snip)"Call me silly, but has anyone noticed that the Fed's last report of M3 just happens to be the week prior to the first day of trade on the IOB? You see, if countries like Japan and China [and other Asian countries] with their trillions of U.S. dollars no longer need them [or require a great deal less of them] to buy oil - does anyone suppose they might begin a wholesale liquidation of their U.S. Bonds [the primary instrument where foreigners 'store' their U.S. dollars]?

    Well, count me in coach - because [barring an accidental war or invasion of Iran] the demand for Petroeuros [and subsequent liquidation of dollars] could have - in Greenspan parlance - highly undesirable effects on foreigner's willingness to hold vast sums of U.S. debt obligations.

    If [and I'm afraid when] foreigners begin wholesale liquidation of U.S. debt obligations, there is no doubt in my mind that the Fed will print the dollars necessary to redeem them - this would necessarily imply a an absolutely enormous [can you say hyperinflation] bloating of the money supply - which would undoubtedly be captured statistically in M3 or its related reporting."(snip)

  2. #2
    God/dess greenidlady1's Avatar
    Joined
    Jul 2005
    Location
    North Carolina
    Posts
    4,183
    Thanks
    0
    Thanked 14 Times in 12 Posts

    Default Re: more reason to worry about US$ becoming toast

    Melonie, I don't watch the news or keep up with things as I should and you seem very educated on pretty much anything financial or economy related. Do you think the economy has gone down hill a little bit since Thanksgiving? Gas went down to almost 2 bucks per gallon and now it's back up to 2.25 plus I am noticing that folks just seem "cheaper" in general. Could it be the season expenses or is it getting worse?

  3. #3
    God/dess montythegeek's Avatar
    Joined
    Oct 2003
    Posts
    2,103
    Thanks
    0
    Thanked 9 Times in 5 Posts

    Default Re: more reason to worry about US$ becoming toast

    Melonie,
    As an economist I can assure you that no one looks at M3. M3 is not volatile (At all relative to M2). The ratio of m3/m2 does rise cyclically for international liquidity reasons.

    The biggest 5-year increase in m3/m2 in the last 30 years was in the 5 years ending the 1990s--the era of falling inflation and the era of NAFTA and widening international trade. In the last 5 years (loooking at quarterly data) this ratio has risen a whopping 4.8% or less than 1 percent per year.

    There is no relationship between petrodollars to any change in the ratio of m3 to m2--in fact m3/m2 growth rates fell during the 1974-1979 period. Thus, m3 adds no information of any substance.

    Data is still going to exist on a quarterly basis, the sole reason is to avoid banks having to do worthless paperwork to no end. No conspiracy, no manipulation, not worth cyber-ink to speculate about. Some bozo just wanted to complain about something, by some gold bugs as well who see disaster looming at all fronts and the unravelling of Western civilization.

  4. #4
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: more reason to worry about US$ becoming toast

    Monty believe it or not I agree with you that M3 in and of itself is fairly unimportant. However as you point out the ratio of M3:M2 has been a very handy indicator of international money flows. Perhaps the timing of the opening of an Iranian Oil Bourse which will sell oil priced in Euros instead of US dollars, versus the timing of the cancellation of new M3 statistics is pure coincidence. However, IMHO America's economy / inflation rates / standard of living are all contingent on a willingness of foreign companies and govt's (particularly Asia/China) to continue accepting huge amounts of US dollars (= US Treasuries) in the present rate of exchange and interest rate ballpark.

    One of the major reasons that foreign companies and especially govt's are willing to accept huge inflows of US dollars is that they NEED US dollars to buy oil and other commodities priced in US dollars. As of next March, these countries will have the option of paying for Iranian oil in Euros instead of US dollars. With a PetroEuro option available, continuing to hold huge amounts of US dollar denominated central bank assets represents an unnecessary risk for Asian/Chinese gov't in the minds of many experts. If foreign companies and govt's become less eager to accept US dollar payment for their goods, and if their appetite for holding more and more US Treasuries lessens, and particularly if they start liquidating a portion of the US Treasuries they are already holding to lessen their currency risk, there will be a whole lot of US dollars floating around the forex markets that nobody is eager to pick up. This in turn should lead to a significant devaluation of the US dollar, as well as to significantly higher US inflation rates as the fed will be forced to do what's necessary to continue selling enough new Treasuries to cover America's foreign trade deficit.

  5. #5
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: more reason to worry about US$ becoming toast

    hmmm, the greenback did some serious tanking today.

    This is also the first 'international' business day since last year's one-time-only US corporate tax exemption on repatriated foreign earned profits came to an end.

  6. #6
    God/dess montythegeek's Avatar
    Joined
    Oct 2003
    Posts
    2,103
    Thanks
    0
    Thanked 9 Times in 5 Posts

    Default Re: more reason to worry about US$ becoming toast

    Oh WOW, the dollar sank to a 2-WEEK low.

    http://www.bloomberg.com/news/markets/currencies.html

    I am going to wet my pants in terror.

    All this goes to prove is that one risks exposure to swings in price if you trade the last 10 days of the year because people are on vacation and volume is light. For the same reason stocks dropped Friday and rebounded when people came back to work and 3 news items came out. The minutes of the Fed meeting merely proved to have no landmines buried in it.

  7. #7
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: more reason to worry about US$ becoming toast

    here's an 'offshore opinion' (from the Asia Times)

    "ECONOMIC FORECAST, 2006
    Upswings and downfalls
    By Jephraim P Gundzik

    Despite rising inflation in the United States, more accommodative monetary policy in the early months of 2006 will accelerate US economic growth. This stronger growth will push international oil prices toward US$100 per barrel by mid-year, causing much higher global inflation and foreign capital flight from the US.

    With its credibility diminishing, the US Federal Reserve will be forced to tighten monetary policy dramatically, leading to an abrupt slowdown in global economic growth in the second half of 2006.

    The financial media and the Fed have trumpeted the ability of the US economy to withstand rapidly rising energy prices. The Fed's preferred inflation measure, the core personal consumption expenditure deflator, which excludes food and energy price changes, remained virtually stable throughout 2005 as did other measures of core inflation.

    However, broader measures of inflation such as the all-items consumer price index and the producer price index for finished goods are on track to reach 4.3% and 6.2% in 2005 from 2.7% and 4.4%, respectively, in 2004. Consumer price inflation in the US has not been above 4% since 1991 while producer price inflation has not been above 6% since 1980.

    After raising interest rates in early December, governors of the US Federal Reserve Board indicated that the pace of US interest-rate hikes would soon slow or stop. According to the Fed, the change is justified by the stability of core inflation measures throughout 2005. One more quarter-point tightening of official interest rates may come this month.

    Shortly thereafter, Fed chairman Alan Greenspan will retire in favor of Ben Bernanke. That the change in the Fed's policy stance will correspond with the change in chairmanship is no coincidence. Nor is it a coincidence that these very significant changes at the Fed will occur nine months ahead of what could be crucial mid-term elections in the US.

    In these elections, all 435 seats in the House of Representatives, 36 governorships and one-third of the seats in the Senate are up for renewal. Public support for the administration of President George W Bush and his Republican Party is quickly fading as a result of the many improprieties and failures associated with the "war on terror".

    It is likely the Fed, under the leadership of Bernanke, a Bush appointee, will suspend its efforts to tighten monetary policy during the first half of 2006 to ensure that US economic growth remains robust, improving the electoral chances of the Republican Party in the mid-term elections.

    The result of more accommodative monetary policy will be accelerating US economic growth in the first half of 2006. Accelerating growth is expected to increase US demand for oil. The US is by far the world's largest oil consumer, using more than 20 million barrels of oil per day. By comparison, the entire European Union consumes about 12 million barrels per day. As US oil demand increases, global oil-supply growth is expected to remain weak. The ratio of oil-producing countries likely to experience continued natural production declines to countries expected to increase oil output in 2006 is about 6:1.

    Rising oil-demand growth in the US should propel international oil prices toward $100 per barrel in the first half of 2006. Much higher oil prices will rapidly translate into accelerating US and global non-core inflation. Though core inflation in the US may remain stable, much higher non-core inflation will eventually trigger the flight of foreign capital from US bonds.

    As of mid-2005, foreign investors, including foreign central banks, held an estimated $6.6 trillion worth of US bonds and equities, up from less than $4 trillion in mid-2002. About 60% of this money is parked in long-term US Treasury, agency and corporate bonds. The rapid and sustained increase of international oil prices is the main factor behind the growth in foreign holdings of US securities and the external supply of dollars used to purchase these securities.

    The risk is high that foreign investors will increasingly question the credibility of the US Federal Reserve as monetary policy becomes more accommodative in the face of rising inflation. The strong advance in gold prices in recent months indicates that the Fed's credibility is already under scrutiny. By the second quarter of 2006, foreign sales of long-term US bonds and the sliding value of the dollar could push market interest rates sharply higher.

    Ironically, the Fed's obsession with core inflation will push oil prices up and up. A decline in international oil prices will only come with a sharp reduction in oil demand. This will come when foreign capital flight forces the Fed to aggressively raise official short-term US interest rates, reducing US economic growth to less than 2% in the second half of 2006.

    Unfortunately, falling international oil prices could be much more problematic for the US economy than rising prices. A sharp decline of international oil prices will deflate the external supply of dollars that has fed foreign investment in US bonds. Oil exporters will have fewer dollars to invest in US bonds. More important, oil importers will need fewer dollars to finance oil purchases, adding to upward pressure on long-term US interest rates and downward pressure on the dollar. The probability that global economic growth will decline sharply is much greater than the probability that it will accelerate in 2006.

    Jephraim P Gundzik is president of Condor Advisers, Inc. Condor Advisers provides country risk analysis to individuals and institutions globally "

  8. #8
    God/dess montythegeek's Avatar
    Joined
    Oct 2003
    Posts
    2,103
    Thanks
    0
    Thanked 9 Times in 5 Posts

    Default Re: more reason to worry about US$ becoming toast

    Mr. Gundzik does not have too great a track record as evidenced by his definitive statements about Brazil form November 2004 in this TV interview with a Reno station. http://www.krnv.com/Global/story.asp?S=2628743

    Contrast his predict of a weaker real with what happened according to this Reuters article. http://yahoo.reuters.com/financeQuot...5234399_newsml

    Note he said the real was going much weaker and Brazil had to intervene when the real set a 4 1/2 year high. A US $ would buy you 2.7 real in December 2004, It ended 2005 only getting you 2.28, That is being wrong by 20%, by a guy who is supposed to be an emerging markets specialist.

    PS: He also sells his work cheap-$149 for 10 country reports. The real pros charge more than 10 times as much for one country, or 100 times his price.

    PPS The guy is not "offshore", he is a laid-off banker who lives in the boonies in California. The newspaper that reprinted his web page sample is just an Asian paper. http://www.condoradvisers.com/

  9. #9
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: more reason to worry about US$ becoming toast

    well, the chart doesn't lie ...



    I might also add that this drop below 89 is in spite of the fact that the South Korean central bank has begun a concerted effort to buy US dollars in an attempt to tank the Korean Won for the benefit of Korean exporting companies
    ~.
    Last edited by Melonie; 01-06-2006 at 09:43 AM.

  10. #10
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: more reason to worry about US$ becoming toast

    and the hits just keep on coming



    Yup, there's no US 'core' inflation to speak of ... meaning that price increases in gasoline, oil/natgas, food, medical, taxes etc. don't count ! But if you're shopping for a new SUV or a new computer or new hi-tech toys, prices aren't rising at all. The point that the gov't statistics seem to be missing, but which the international currency markets understand perfectly, is that 80+% of Americans spend the majority of their paychecks on gasoline, oil/natgas, food, medical, taxes etc. and the first things to get 'thrown overboard' when their economic boat starts leaking are new SUV's and new computers and new hi-tech toys !

  11. #11
    God/dess montythegeek's Avatar
    Joined
    Oct 2003
    Posts
    2,103
    Thanks
    0
    Thanked 9 Times in 5 Posts

    Default Re: more reason to worry about US$ becoming toast

    Quote Originally Posted by Melonie
    and the hits just keep on coming

    http://biz.yahoo.com/ap/060113/economy.html?.v=14

    Yup, there's no US 'core' inflation to speak of ... meaning that price increases in gasoline, oil/natgas, food, medical, taxes etc. don't count ! But if you're shopping for a new SUV or a new computer or new hi-tech toys, prices aren't rising at all. The point that the gov't statistics seem to be missing, but which the international currency markets understand perfectly, is that 80+% of Americans spend the majority of their paychecks on gasoline, oil/natgas, food, medical, taxes etc. and the first things to get 'thrown overboard' when their economic boat starts leaking are new SUV's and new computers and new hi-tech toys !
    Melonie, the news release he was writting about was the Producer price index, bot the consumer price index which comes out next week. It is all goods, and for that reason for 5 years straight it rose less than the CPI. Medical care is not in the PPI, never was and never will be, since there is no intermediate market. The expression "core" which you object so much to is a literary convention because the phrase "excluding food and energy" gets boring if repeated 6 times in two paragaphs. The same conditional comparison is applied to other economic data to rebove volatile components such as retail sales excluding motor vehicles and parts, durable goods orders ex transportation, and manufacturing industrial production excluding autos and high technology goods. It is not to demean anything but just to examine the impact excluding volatile components which bounce like yo-yos. The simple fact is that outside of energy and food, prices have been very tame for the past 6 months. Taxes are an entirely separate issue. The choices of a democracy between public and private spending is independent of the measurement of prices for goods and services.

  12. #12
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: more reason to worry about US$ becoming toast

    ah yes, but it is today's producer prices which determine tomorrows consumer prices, as manufacturers must raise prices to cover their increased costs of production, which is clearly inflationary in terms of US dollar purchasing power. Either that, or manufacturers will not be able to raise prices to cover their increased production costs, causing corporate profits to suffer, causing a decline in stock prices, causing a decline in business investment, and causing a slowdown in the US economy in general.

    Either way it's bad for the US dollar, given that some 40% of US stocks are owned by foreign interests, who face a 'double whammy' of declining US stock prices in US$ terms on top of a decline in the US$ exchange rate vs their home currency.

  13. #13
    God/dess montythegeek's Avatar
    Joined
    Oct 2003
    Posts
    2,103
    Thanks
    0
    Thanked 9 Times in 5 Posts

    Default Re: more reason to worry about US$ becoming toast

    ANNNNNNGH!
    Sorry Melonie, but foriegners own around 20% of US stocks based on the midyear 2005 numbers--and we own more of theirs than they own of ours as of the last official data. The US also owns more producing companies than others own here.
    http://www.bea.doc.gov/bea/newsrel/i...ewsrelease.htm

  14. #14
    Banned Melonie's Avatar
    Joined
    Jul 2002
    Location
    way south of the border
    Posts
    25,932
    Thanks
    612
    Thanked 10,563 Times in 4,646 Posts
    Blog Entries
    3
    My Mood
    Cynical

    Default Re: more reason to worry about US$ becoming toast

    Monty, I'm beginning to suspect that you actually believe US gov't stats and official data ! However, if you compare the official reports of the US gov't versus collective 'real world' data, a huge amount of 'dark matter' foreign investment dollars seem to be drifting around in a financial twilight zone ...



    {snip}"Dark matter, as defined by Hausmann and Sturzenegger, is the gap between the assets implied by the fact that the US receives more on its international investments than it pays on its external debt (the investment income line in the balance of payments is positive, or at least was) and the United States' formal debt position.

    In 2004, according to Hausmann and Sturzenegger, the US got $30 billion more on its overseas investments than it paid on its external debts, which implies $600 billion of assets (with a 5% return). Yet formally the US had $2.5 trillion in (net) external debt, which implies (with a 5% return) net payments of $125 billion. Voila. $3.1 trillion in dark matter.

    Actually, the revised data on investment income suggests the gap was a bit bigger - more like $35 billion. Hausmann and Sturzenegger may have underestimated the stock of dark matter ever so slightly. No matter.

    In 2005, the income line will probably be slightly negative, at least if I am right about the fourth quarter. But in the grand scheme of things, it will remain pretty close to zero. The net investment position of the US also will deteriorate, to north of $3 trillion. Let's say $3.2 trillion. I am assuming about $100 billion in capital gains on US equities abroad. That implies the US should have an income deficit of $160 billion. It didn't. Or in Hausmann and Sturzenegger's terms, the amount of dark matter on the US balance sheet rose slightly, to $3.2 trillion."(snip)

    You may recall a famous quote from former senator Everett McKinley Dirksen ... "a billion here, a billion there, and pretty soon you're talking about REAL money !" In this case it would appear that 3,200 billions of 'dark matter' dollars seem to have appeared out of nowhere on the US balance sheet ! In the 'real world' either somebody is lying or a whole lot of foreign investment is not being officially accounted for.

    the details of the 'dark matter' unaccounted dollar theory are elucidated at

    {snip}"There is a large difference between our view of the US as a net creditor with assets of about 600 billion US dollars and BEA’s view of the US as a net debtor with total net debt of 2.5 trillion. We call the difference between these two equally arbitrary estimates dark matter, because it corresponds to assets that we know exist, since they generate revenue but cannot be seen (or, better said, cannot be properly measured). The name is taken from a term used in physics to account for the fact that the world is more stable than you would think if it were held together only by the gravity emanating from visible matter. In our measure the US owns about 3.1 trillion of unaccounted net foreign assets. This is big. Before analyzing where this comes from, we may point out that no methodological minutiae will reconcile the facts with the statistics. We can discuss the numbers but we cannot contest the existence of dark matter."{snip}
    ~
    Last edited by Melonie; 01-14-2006 at 03:50 PM.

  15. #15
    God/dess montythegeek's Avatar
    Joined
    Oct 2003
    Posts
    2,103
    Thanks
    0
    Thanked 9 Times in 5 Posts

    Default Re: more reason to worry about US$ becoming toast

    Mel,
    Government data is the best available unbiased estimate. The same technocrats are there in democratic and Republican administrations alike. Since I know some of them, I know they do the best they can with the resources available. Saying that I would believe them over a wild ass, back of the envelope calculation based on a single assumption.

    The author did not even look at where the assets are held. That mix issue explains the lower return by foreigners, plus foreigners suck at running plants in the US on direct investment. (VW in Pa in the 70s, Rockefeller Center in Ny inthe 80s, plus golf courses in Hawaii etc.). Europeans in particular are very bad at running US faclities. European mangers suck and do not react quickly (plus are sexist) so they fail to get resultsin the US. Germans are the worst (and I am half German), being a generation behind Americans in equal opportunity for women. They make "The Ugly American" image look like a wimp.

Similar Threads

  1. Replies: 35
    Last Post: 12-12-2008, 05:41 PM
  2. New Year's Toast to you all.....
    By Sinder in forum The Lounge
    Replies: 2
    Last Post: 12-31-2007, 05:21 PM
  3. Cheers! Slainte! Salut! What's your favorite toast?
    By RoseWhite in forum The Lounge
    Replies: 18
    Last Post: 12-07-2007, 07:14 PM
  4. French Toast
    By Mastridonicus in forum The Lounge
    Replies: 27
    Last Post: 05-07-2007, 05:28 PM
  5. weekend commentary ... US$ soon to be toast ?
    By Melonie in forum Dollar Den
    Replies: 23
    Last Post: 12-14-2005, 05:48 PM

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •