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The Dollar is Rolling Over
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Strange Famous Forum > Social stuff. Political stuff. KNOWMORE

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Joshua Kane



Joined: 14 Jul 2008
Posts: 670
Location: Carlsbad, CA
The Dollar is Rolling Over  Reply with quote  

The dollar is rolling over...

http://www.marketwatch.com/story/euro-approaches-140-on-us-bond-selling

or

http://thesystemisblinkingred.blogspot.com/

;)

Regardless, if the dollar continues to decline, inflation will brown whatever economic 'green shoots' that have appeared. And if it declines quickly, well, that would be momentous, albeit highly foreseeable...
Post Fri May 22, 2009 1:50 pm
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mzehe916



Joined: 04 Aug 2006
Posts: 4542
Location: Switzerland
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How is this going to effect the Euro?
Post Fri May 22, 2009 2:46 pm
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Captiv8



Joined: 25 Aug 2006
Posts: 8423
Location: Third Coast
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Break it down for the non-economic heads on here Mr. Kane.
Post Fri May 22, 2009 2:47 pm
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Majawala



Joined: 14 Oct 2005
Posts: 1806
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its been the huge worry. currency works just like most products. as supply goes up demand goes down. printing money increases supply.
Post Fri May 22, 2009 2:50 pm
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Captiv8



Joined: 25 Aug 2006
Posts: 8423
Location: Third Coast
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Majawala wrote:
its been the huge worry. currency works just like most products. as supply goes up demand goes down. printing money increases supply.


So more money is printed to try to stabilize the dollar, or is the opposite true?
Post Fri May 22, 2009 2:52 pm
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Majawala



Joined: 14 Oct 2005
Posts: 1806
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well the government uses all the printed money to fund the bailouts, wars, etc. some of it is borrowed from other countries but i think alot of it is printed.
Post Fri May 22, 2009 2:58 pm
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Majawala



Joined: 14 Oct 2005
Posts: 1806
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and its fine to print if demand increases to lower the value and stimulate exports but right now, people have been losing faith in the dollar so its demand is decreasing.
Post Fri May 22, 2009 3:01 pm
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Joshua Kane



Joined: 14 Jul 2008
Posts: 670
Location: Carlsbad, CA
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Money is being printed to fund the bailouts, and this in turn is adding supply of dollars onto the market, just as demand for dollars is decreasing owing to credit markets unfreezing - when credit markets froze last year, everybody jumped for Treasuries and dollars as they were seen as liquid and safe, now that process is unwinding.

That might sound like good news, but it won't be good news for long. Because of the incredible amount of wealth destruction that has occurred over the past year, the Fed has been forced to print massive amounts of money in order to keep the banks whole and the bailouts funded. The process, briefly, works like this:

All money the Treasury is spending is borrowed from somewhere. Over the past forty years or so the US has increasingly relied on borrowing from foreign nations and citizens in order to fund treasury expenditures (rather than its own citizens). However, last year the borrowing needs of the US government grew so large that the Treasury was forced to 'borrow' money from the Fed. Meaning that the Fed expanded its balance sheet by purchasing US Treasuries. In order to purchase these Treasuries the Fed printed up money, plain and simple.

If the Fed were not out there expanding its balance sheet through purchases of US Treasuries, then interest rates would rise as the US borrowed more. Interest rises inverse to the price of US debt, so if there is more supply of US debt interest rates should rise. With its purchases, the Fed is forcing interest rates to unnaturally low levels. And while this will help the economy repair, it also vastly increases the supply of dollars in the system at a time when economic growth in the US is still receding, thus leaving the dollar terribly vulnerable to a rapid decline.

Should that rapid decline occur, the Fed has really only one effective tool to abate the decline. That tool is raising interest rates. But keeping interest rates down in order to allow the economy to heal is the entire reason that the dollar is vulnerable in the first place.

That friends is what Heller fans like to call a classic Catch .22. Either the recovery is squashed by rising interest rates or rising inflation. Or a renewed deflationary wave, or an attack on Iran, or a terrorist event, or a pandemic, but I digress...
Post Fri May 22, 2009 3:22 pm
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R. Kamidees



Joined: 15 Sep 2003
Posts: 4830
Location: where the wild things are
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I just shit my pants, and I only understood half of that.
Post Fri May 22, 2009 3:45 pm
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Jascha



Joined: 31 Mar 2005
Posts: 3936
Location: Seoul, SK
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up down up down up down?

Seems like it isn't as low as it used to be.

My roommate def. chose a good month for a holiday in cali though.
Fuck that guy and his moneys.


Also Joshua: what about the Yen?
The Yen is dropping like a brick as well, afaik. Isn't that even a bigger problem for the USA, considering the enormogantuous amount of US treasury securities the Japanese have in their vaults?


Last edited by Jascha on Fri May 22, 2009 4:28 pm; edited 1 time in total
Post Fri May 22, 2009 4:25 pm
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Al



Joined: 01 Aug 2002
Posts: 315
Location: Seattle, WA
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Global hyperinflationary depression.


What exactly is the future of America?


We have no manufacturing base, no industry to pull us out of this coming depression like we did back in the 30's. This is a catastrophe the likes of which the world has never seen before
Post Fri May 22, 2009 4:28 pm
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Dr Sagacious



Joined: 01 Mar 2009
Posts: 1843
Location: Redford
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The Fed = Bad News Bears
Post Fri May 22, 2009 4:41 pm
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neveragainlikesheep



Joined: 22 May 2008
Posts: 2536
Location: TKO from Tokyo
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Dr Sagacious wrote:
The Fed = Bad News Bears


Let me guess: Ron Paul to the rescue?
Post Fri May 22, 2009 4:45 pm
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Joshua Kane



Joined: 14 Jul 2008
Posts: 670
Location: Carlsbad, CA
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Jascha wrote:

Also Joshua: what about the Yen?
The Yen is dropping like a brick as well, afaik. Isn't that even a bigger problem for the USA, considering the enormogantuous amount of US treasury securities the Japanese have in their vaults?


Actually a weaker Yen boosts Japanese exports. Given that Japan is predominantly an export economy, a weaker yen should provide the Japanese government with expanded tax revenue thus helping them to continue purchasing US debt (thereby floating the dollar, as they say). By what mechanisms would a weaker yen hurt the American debt situation (other than making Japanese exports more competitive thereby exacerbating the American economic downturn)?
Post Fri May 22, 2009 5:31 pm
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Joshua Kane



Joined: 14 Jul 2008
Posts: 670
Location: Carlsbad, CA
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neveragainlikesheep wrote:
Dr Sagacious wrote:
The Fed = Bad News Bears


Let me guess: Ron Paul to the rescue?


Now, I have many problems with Tiny Tim Geithner, but I do think he means well. Here is Geithner talking about real Federal Reserve reform, before lobbyists and bankers have manipulated the message and machinated the outcome:
http://www.marketwatch.com/story/fed-could-be-completely-retooled-geithner-says

Many of the points Geithner makes are eminently more reasonable, sound, and plausible than anything Paul and his ilk claim about the Federal Reserve and its need for complete abolishment. Here is a post from a different thread that segued into a discussion of Paul's views on the Federal Reserve:

T-Wrex wrote:
What do you make of this essay?

http://www.house.gov/paul/congrec/congrec2006/cr021506.htm


Oh boy, trying to bait me into a Ron Paul debate are ya? Well, ok, despite my better judgment, I’ll bite. Before I get into this a bit, allow me to say that I have libertarian leanings, but I do not think that Ron Paul is the right face for the libertarian movement.

To his essay: Normally I don’t criticize writers for condensing thousands of years of history into a paragraph (sometimes this is necessary). But when writers do so in order to make a clearly polemical point seem simply true, I bristle. Towards the beginning of Paul’s speech, he talks of ‘moral decline’ as always causal for the fall of empires – I completely disagree. What Paul would view from today’s world as ‘moral decline’ was simply culture back then. To poorly summarize thousands of years of history in order to take a moralistic stance is, in my book, sadly silly.

For example, let’s take this sentence: “When gold was used, and the rules protected honest commerce, productive nations thrived. Whenever wealthy nations-- those with powerful armies and gold-- strived only for empire and easy fortunes to support welfare at home, those nations failed.” Oh really? What nations are we talking about here? Clearly the sentence is making a point about the US, but the point is made as if history is littered with nations that have had welfare programs of any sort. This is simply disingenuous; in fact it’s absolutely ahistorical and ridiculous.

I would tend to agree with Paul that the Hegemon, i.e. the nation with the most military and economic might, is inevitably going to determine the rules of the global financial system. But then he slips right back into that moralistic pejorative tone with: “The one problem, however, is that such a system destroys the character of the counterfeiting nation’s people.” Gimme a break Grandpa.

Of course, Paul and I are in agreement that political pressure to inflate currency is too strong to bear for a nation not on a gold standard. I also agree with Paul’s general descriptions of the Post WWII financial system, the role played by oil and currency in recent wars, and that the ultimate consequences of ever greater American indebtedness will ultimately be hyperinflation, more war, and an eventual return to some sort of gold standard.

However, Paul and I are in complete disagreement regarding what sort of gold standard system would best anchor today’s incredibly complex and dynamic informational global economy. Paul believes a strict gold standard would work; I believe such inflexibility would greatly limit innovation and dynamism in today’s world. I would argue that only a flexible gold standard, managed by central banks, and composed of regularly agreed upon exchange trading bands (as described above) would allow dynamic economic growth to continue while at the same time providing a regulatory stick. We need Bretton Woods II, not some idealized system of total private exchange governed by no state-related entities; a system, I might add, which has never truly existed, will never exist, and indeed cannot exist.

Last night I saw Paul on Bill Mahr and he was spouting about central banks being responsible for the business cycle. I think Paul often misreads history to make his anti-governmental moralistic points. When one closely studies capitalism’s development, one finds that in the nations that first spontaneously generated the system, central banks, capitalism, and business cycles developed synchronously. One cannot separate central banks, modern markets, and business cycles; together, they are and always have been what the foundation of capitalism is.

Any nation that has practiced capitalism without a central bank (the US for example at times during the 19th century) has always had the central bank of the Hegemon (the Dutch in the 16-17th centuries, Britain in the 17th-19th centuries) to rely upon to regulate currency and money supply in global trade. There has never been a capitalistic world financial system not anchored by the central bank of a Hegemon. If one looks domestically at the periods when the US did not have a central bank, those periods were ones of extreme and extremely rapid boom bust cycles. Indeed, as is usually the case, once the US adopted a sound central banking system, business cycles became more regular.

The problem with central banks is that they become victims of their own success. They begin to believe, like the citizens of the economically successful nation, that business cycles are coming to an end, that unending prosperity has arisen, that old economic laws can now be thrown out the window. Thus after a long period of moderate business cycle fluctuations, there develops a huge boom where sound banking principles are thrown out the window. Then comes the bust. Hence the Great Depression and our current Inflationary Depression. But the answer is not to do away with central banks, that’s moving backwards instead of forwards. We might as well just return to barter.

The answer is to create a better global central banking system, flexibly anchored to gold, and based upon time-tested sound banking principles; similar to the financial system that allowed the British economy, overseen by the Bank of England, to industrialize, export industrialization to the world, and grow without severe disruption from c.1780-c.1880. Similar to the Bretton Woods system that enabled a period of global growth and exponential technological development theretofore unforeseen. But slightly novel, thus incorporating IT based financial instruments and technologies. Can I outline for you now what that system might ultimately look like. Probably not. Am I going to try? Not today, of that, I am certain.
Post Fri May 22, 2009 5:40 pm
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