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Nicodemus

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Dollar in Decline [Sep. 20th, 2007|03:23 pm]
Nicodemus
The US dollar continues to weaken. It passed $1.4/Euro and reached parity with the Canadian dollar for the first time in over thirty years. Saudi Arabia and a number of mideast countries that value their currency relative to the dollar may unpeg their currencies rather than be drawn into an inflationary cycle.

China's fixed currency valuation has long been a sore point for the US. It's made small adjustments but the yuan is still tightly controlled rather than floating in response to the market.

This creates an artificially favorable market for Chinese goods, resulting in ever-increasing imports to the US. Domestic manufacturers cannot compete and the production sector of our economy has effectively moved overseas. This results in increasing national debt, even when measured as a percentage of GDP.

This debt will eventually become unsustainable, not because the US cannot repay it but because other countries will not want to extend new loans to us, thereby ending our economic cruise. Our national debt just passed nine trillion dollars, a number so large that it's difficult to intuitively grasp.

If we can get to the point where we can export with a good exchange rate, it'll help. It would also help if Americans were able to break their lowest-price-is-the-only-thing-that-matters obsession. (WalMart purchasing accounts for something like 10% of the trade deficit.) But it'll be rough, however it happens.



Thanks to qatar for some links and inspiration to read up on this again.
LinkReply

Comments:
[User Picture]From: kuddlepup
2007-09-20 11:15 pm (UTC)
There are other factors that are exacerbating the problem as well. The US has an abysmally low savings rate. Credit has been unbelievably easy to get, and folks have a tendency to think of credit as an extension of their income and spending power.

If the US consumer wasn't so debt ridden and actually had banked savings, a lot of economic problems would be minimized and the economy would be far more stable.

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[User Picture]From: jedd_marten
2007-09-20 11:49 pm (UTC)
If this plays out like 30 years ago, get set for an inflationary rollercoaster ride. :P
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[User Picture]From: fjmccloud
2007-09-22 06:54 am (UTC)
Quick way to encourage savings? Deflation.
This will never happen as long as we have a Federal Reserve system.

Inflation is 100% guaranteed under our economic system (which is effectively worldwide between the Fed and the World Bank), which is designed to float elastic currency to "prop up" banks and countries in debt to us at the expense of inflating the money supply.

End result? Whenever a bank makes bad loans (*cough* subprime!) and risks going into default, it is propped up by the Fed/FDIC, and thus ulimately by the people in the form of inflation/taxes. It's not like the feds have tens of billions of dollars just sitting around to float out as "loan guarantees" after all!
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[User Picture]From: northing
2007-09-21 12:10 am (UTC)
I don't often watch TV (i don't have cable) but last night I was watching the Daily Show with Jon Stewart while visiting thump in Portland. Stewart inteviewed former Fed Chairman Alan Greenspan. Stewart in his usual style asked some very well thought questions, along with some humorous ones, and Greenspan was sharp and game for a laugh too. I was disapointed though that Greenspan didn't speak much on the weak dollar and why it's being kept that way.

Perhaps I need to reed his new book.
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[User Picture]From: minnieme4rl
2007-09-21 12:48 am (UTC)
Europe is getting more and more expensive. Got another trip to Paris in October and one to Greece in April.
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[User Picture]From: junkvist
2007-09-21 09:25 am (UTC)
I had no idea of the amount of national debt that US has. Before some news came on the TV here about the US citizens loans and bank matters, i noticed that something needs to be done =|
I personally try to avoid any loans as much as possible. Motto: Save beforehand and then buy it. I have a house loan and i pay two more years for my car, otherwise i'm clean and try to sustain my expenses.

I know people who take many small loans for even basic stuff like furniture, TV, clothes etc, in a long run that is not good. It seems it's pretty common in US?

Some finnish companies are pretty worried about the export difficulties to US on their goods due to the exchange rate.

Quite a lot of production has gone to abroad from finnish companies due to cheap labor in China and other asian countries, also Poland is pretty effective.
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[User Picture]From: fjmccloud
2007-09-22 07:10 am (UTC)
There's a school of thought (most economics classes) that say debt and inflation grows an economy. Mostly on the assumption that it encourages money to be invested.

Problem is the U.S. debt situation is completely out of control, and it clearly isn't growing the economy anymore!
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[User Picture]From: junkvist
2007-09-22 11:03 am (UTC)
There was a big economical crash in Finland late 80's and early 90's when the bank loans were given too easily and people simply couldn't pay them. Half of the finnish banks finished to exist in the aftermath.
Sounds similar, but i'm no expert on the matter, all i know what's my income and how i spent it to live ~.O
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[User Picture]From: ladycrim
2007-09-21 06:03 pm (UTC)
I have a feeling the dollar will be worth about 50 cents Canadian when I go to Toronto in 2 weeks ...
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[User Picture]From: darkfang
2007-09-22 12:55 am (UTC)
N-n-n-nine trillion?!? Holy crap. We need to build the damn haunt ASAP so we can make money on something NON-tangible, like entertainment :P Historicly when the market tanks, movies, booze, tobacco, and porno sales tend to go up. Hopefully getting the pants scared off you falls in the same catagory.
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[User Picture]From: fjmccloud
2007-09-22 07:00 am (UTC)
Just imagine what will happen to the dollar as the baby boomers start to retire!

The cries of tens of _trillions_ of dollars of stocks/bonds/401ks will cry out across the galaxy. Flooding the market with that much stuff would utterly destroy the U.S. economy, no question. After all, who, in the U.S., can afford to buy it? Certainly no one in MY generation!

Sad to say the only answer is the final selloff of the entire U.S. to foreign powers.
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