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77 Comments
- lordmetroid, on 10/12/2007, -8/+22I would think printing of more money without reason causes it!
- kboyer, on 10/12/2007, -2/+15"I interpret this as a healthy correction," said Frank Schallenberger, market analyst at German state bank LBBW. "When the dollar gets a dizzy spell obviously everything to do with exports suffers, especially cars."
Reflex media at its best. The cyclical changes in the valuation of monies is ongoing. This is not unusual, nor is it anything to cause alarm. - drewpost, on 10/12/2007, -5/+17Let me tell you. As an American student going to school in Britain this has all kinds of huge implications including, but not limited to, increased costs on all items (food etc) and my student loan checks count for less and less....
- inactive, on 10/12/2007, -2/+13"what exactly caused it?"
Lot of reasons, and Lordmetroid hit on one of the biggies. Notice our government stopped publishing the M3 money supply numbers? It's quite possible they're printing more money to try and mask the true size of the budget deficit. We're somewhere around 9 trillion in the hole, NOT including expenses for the wars in Iraq and Asscrapistan. Letting the money supply float up is also a way to marginalize the trade deficit, the same way inflation can marginalize borrowed money.
The downside is the dollars we are paid with and trade for things like cars and consumer goods become worth less, fortunately not totally worthless...at least for the time being. It increases the relative cost of goods and services purchased overseas. It also puts pressure on the government to pay more interest on the money it borrows from overseas investors in the form of treasury bills. You as an individual investor can also loan money to the government if you like at www.treasurydirect.gov. There you can buy 4 and 12 week t-bills along with a host of other government backed securities. I loan Uncle Sam a lot of money. The last t-bill I purchased returned $4.07 per $1,000.00 on a 4 week t-bill. That's pretty darn good for a near zero risk cash dividend. It varies month to month with the discount rate, which increases on longer investments.
You can also bet against the dollar by purchasing money market funds based on overseas currencies and gold, or exchange traded funds tied to overseas markets. It depends on how much faith you have in the ink-on-paper the Treasury Dept. prints. Personally, I've bet heavily against the dollar and the Bush regime hasn't let me down yet. If someone competent is in the White House I might have to reconsider that position.
Sure we're mortgaging our children's future but if you have cash and play it right you can make a lot of money before the Big Bummer which is bound to come home to roost, probably right after Bush starts planning his library. Hey, what kind of financial management do you expect from someone who never worked a day job or balanced his own checkbook? - bobzibub, on 10/12/2007, -1/+10Three main reasons for falling currency:
1)Large fiscal deficits.
2)Large trade deficits.
3)Normal ebb and flow of economies.
Trade deficits mean that more non-US goods and services were purchased than US goods and services. So people took their money, exchanged it to Drachmas (or whatever) and bought their stuff. The net effect is that net, more US$ were sold for other currencies. Oil prices being what they are have a big influence but US trade deficits have been a long standing issue for a long time. The US complains that China artificially depresses their currency which causes their goods to be cheaper in US markets. They hold (as others have said) many US treasury bonds so the US can't actually do much. China could dump them and cause the dollar to go into a tizzy.
Fiscal deficits are where the government spends more than it owes and has to use the treasury markets to make up the difference. The US has huge deficits, in the ball park of Argentina before their currency collapse. For now, US treasury instruments are denominated in US currency. But with debt increasing, people get skittish and think: what if there is a shock like Argentina had and suddenly we are last ones in getting out of this type of debt? The danger is high because if the US threatens some sort of default or starts to print more money like the 70s, then, foreign holders of US T-Bonds face the double danger of dropping values of the bonds and dropping values of the currency they are denominated in. The chances are small but they are really bad for investors if they actually do happen. Increasing deficits and debt create a skittishness of holding US dollars vis Euros or gold. The US dollar has traditionally been a "store of value" and a "medium of exchange" for many international companies etc. Now that the fundamentals look like a drop of the value (about 20% devaluation against the Canadian dollar over the last five years, where they have a closely tied economy but they've had government and trade surpluses for a decade or so) it will no longer be as useful as the Euro, for instance. The economy is booming right now and the baby boomers haven't retired en-masse. If there ever is a time when the balance sheet should look good: this is it. Unfortunately, it not where it should be, so international investors are thinking that they might be wise to invest elsewhere right now while times are relatively good. So they dump the US$ and buy some other currency to invest in those markets.
And finally, markets have boom and busts. Money wants to be where the boom is. The US has experienced a boom and it probably on the tail end. Other countries are gearing up for a boom and money will naturally flow there to enjoy the party. - doodlebumm, on 10/12/2007, -1/+9Reverse the trade deficit! Plutonium for Oil!
- dfsiii, on 10/12/2007, -4/+12Think of how a country like China with almost a trillion dollars - yes, dollars - in reserves (used to peg their currency) feels. This, in time, won't seem as bad... a weaker dollar is actually somewhat good for exports coming from America. Shocks are what cause problems.
Or, we can just go back to the gold standard. Just because it was cool, you know? - mustafya, on 10/12/2007, -0/+7China owns LOTS of Treasury securities. Think of treasury securities as being interchangeable with actual dollars (in a monetary sense they pretty much are). Currently they hold about 306 billion dollars (http://www.treas.gov/tic/mfh.txt) in them. Now China buys them to counter the trade imbalances they have with the US. The securities are kept out of circulation mostly. If China dropped them all onto the security market at once it would have the effect of the US suddenly printing an extra 306 billion dollars. It would be pretty obvious this would cause massive devaluation of the dollar and massive inflation. Pretty much would wreck the US economy.
That being said China recognizes this and has started to diversify their position over time. China by the way would not want to drop them all at once because it would effectively wreck their economy (and most of the global economy). - fightfreedom, on 10/12/2007, -1/+8People have been warning about this for a couple of years. Buffett is "betting against the dollar" and has been moving billions of dollars into foreign currency investments. China has publicly announced its intention to diversify away from the dollar. Iran has moved out of the dollar (to punish the US for trying to bring UN sanctions against it), and is threatening to set up an oil bourse which will trade in Euros. Add to this the collapse of the US housing market (which will force the FED to lower rates, while other countries are raising theirs) and the dollar will see even more downward pressure.
It's not too late to buy gold. It's currently $639, predicted to rise to $725, or possibly even $850 over the next year. It can be purchased as stocks (ETFs), so there's no need to go through the hassle of handling physical gold, unless you think "the system" is going to collapse. I have put 1/5 of my money into gold (bought @ $590 in October).
The other thing you can do to protect yourself is pay down your debts. Stop using your credit card(s), and pay them off. If you have a mortgage, make additional payments if you can. Over the last five years I have payed down 93% of my debts. - kholburn, on 10/12/2007, -2/+9The yuan is pegged to the dollar so that won't explain what you want
- kokorhekkus, on 10/12/2007, -0/+6Another Reuters article says that "Investors are wary that China, which holds the world's biggest foreign-exchange reserves totaling above $1 trillion, might diversify out of dollar assets" [1] Investors ould be getting cold feet because the deputy governor of People's Bank of China suggested that holding dollars in reserve is not good. Just do a search on Google News on "china dollar people's bank"
[1] http://today.reuters.com/news/articleinvesting.aspx?type=bondsNews&storyID=2006-11-24T165928Z_01_N24357324_RTRIDST_0_MARKETS-BONDS-UPDATE-1.XML - wedderburn, on 10/12/2007, -0/+6thats never gonna happen, the whole point of having a strong economy compared to other countries, is so you can import cheap good for a fraction of the labour cost.
a flat economy would mean there is no trade advantage. - snorri, on 10/12/2007, -2/+8@ Hussainweb:
Yeah, this will make products exported from US cheaper, and products imported to US more expensive. - mustafya, on 10/12/2007, -3/+9Not really much to do with republican policy. More a result of us being the strongest consumer economy in the world and the way the Fed does their interest policies. Most of this change has been caused by the fact people expected the Fed to pause a bit on their interest rate changes. Instead it is looking like the Fed is going to have to reduce interest rates. That of course will cause the dollar to devalue. Moreso since it is something that until the most recent numbers came out noone expected would happen this soon.
- SanTe, on 10/12/2007, -0/+5http://americanapparel.net
- willistg, on 10/12/2007, -2/+7I learnt something today. :D
http://www.chicagofed.org/consumer_information/strong_dollar_weak_dollar.cfm
In summary, could be bad, could be good. We probably won't know until 10 years from now how bad(or good) we're *****.
My un-educated opinion is that the reason for this is probably the strengthening of the world economy, while the ***** in our government have been busy writing and enforcing legislation that is meant to defend old business models instead of helping the development of new ones.
just my .02(USD) which apparently isn't worth as much as it used to be. - shmuu102, on 10/12/2007, -0/+5wouldnt it make more sense to buy gold, and not pay down your debts.. assumming they are fixed interest rates, your debts are being devalued along with the dollar.
This assumes your income increases to match the dollar. - mustafya, on 10/12/2007, -3/+8Good point, it is not neccessarily a BAD thing per se. It is a reaction to our trade imbalances and impending interest rate policy. The bottom isn't going to fall out of the dollar anytime soon. Really the only two remote possibilities I can think of that would cause the dollar to really drop horrible would be:
1) China selling ALL of their treasuries in US Dollars. This won't happen though because they would also drive THEIR economy into the ground. They might sell off slowly (which they have) but that really won't do much.
2) The impending social services disaster. This is the 800-pound gorilla in the room that noone talks about. Social Security is completely unsustainable. I believe current numbers put it around 2015 that we will no longer be able to fund SS without one of a few things happening, drastic increase in taxes (I'm talking we make those Euro folk look downright lowtaxed), drastic cut in benefits (yeah right), or the US basically goes default on all the T-bonds currently held by the SS fund (which would be a big ass nuclear bomb to our economy. I'm personally voting for cutting the benefits and getting rid of the abomination that is the prescription drug plan. - numba1xclusive, on 10/12/2007, -2/+7what exactly caused it? The article didn't give any specifics really.
- fjc8, on 10/12/2007, -1/+5How exactly does one buy gold?
- inactive, on 10/12/2007, -0/+4The interesting part will be when China starts selling off those bonds they've been hoarding, and no longer buy new ones, thereby dealing a double blow to US finances.
- spindrift, on 10/12/2007, -0/+4Yes, the Canadian, Australian, New Zealand, Fijian, Singaporean, Liberian, Surinamean, Taiwanese, Zimbabwean and Jamaican dollars are doing just fine.
- crazynuj, on 10/12/2007, -4/+8@CiXeL
I don't know drewpost's status but most countries don't let people on student visas to hold jobs. So he would not be able to do as you say. - deut, on 10/12/2007, -0/+4@mustafya - Nice explanation.
If I had 300 odd billion in the bank I'd wanna spend it on something. Why don't they buy some dollar real assets (the odd American company or something) instead of holding all those bonds. Seems a bit risky to me (?) - inactive, on 10/12/2007, -1/+5You should be worried. I'm a Brit that moved to the US 11 years ago.
I visited the UK earlier this year. I normally go at least twice per year. I won't be going again though, it's too expensive in the UK, combine that with the exchange rate and Britain becomes a very unattractive place to visit, meaning tourist $ do not come your way.
Conversely many Brits (and other countryfolk) realize that they can get incredibly good deals to visit the US. US goods are cheap and their Euro (pound) goes much further than it would in their own country or within the EU. Hence, they hop a plane visit San Francisco and go home loaded with Levis 501's that cost 15 UKP. This is all very good for the US.
The US will also feel the pinch on imported goods. We will perceive goods coming in from other countries are more expensive now, meaning it gives US companies a chance to compete. This is except for the damn Chinese though who unfairly peg their currency against the US dollar and unfairly cheaply.
So, I'm happy with the dollar being weak, it will allow Americans to think inside the box for a change. Rather than buying that crap t-shirt from indonesia maybe they will buy one from the good ol' US of A. - Toast1185, on 10/12/2007, -0/+4You can't predict anything off of Friday's action. It was a trade shortened week, with a trade shortened day coming off of a national holiday. Come on people....
- arizonagroove, on 10/12/2007, -1/+4I have to admit all I thought when I read this was that buying things like t-shrts from threadless just became a little bit cheaper.
1 of our British sterling pounds is now worth about 1.93 of those US dollars according to www.xe.com/ucc
Maybe I'm narrow minded but the only thing I care about regarding the US dollar is how many I can get for a quid. - deut, on 10/12/2007, -1/+4The problem with your theory is that no-one makes tee-shirts in the USA anymore. They all went out of business due to cheap imports and the ones left shut up shop and out-sourced to China.
- mustafya, on 10/12/2007, -1/+4As intimated in the article it has to do with trade imbalances plus the prospect of lowering interest rates because of a slowing economy. The Fed will be much more likely to lower interest rates to boost the economy. This will cause the dollar to decrease in value relative to other currencies. It has to do with triangular arbritrage which you can look up but trust me it happens.
The other biggie is we have really bad trade imbalances. Remember: Imports GOOD, Exports BAD (for a developed consumer economy). Unless of course the imbalance gets so huge that it affects currency values. Which is what has happened here.
The end result will probably be that we lose purchasing power and our trade imbalance tightens up (we will import less and export more because our goods will be relatively cheaper than before). - inactive, on 10/12/2007, -13/+16This is bad, people.
- KiTchMe, on 10/12/2007, -3/+6@ CiXeL
It's a big deal when you exchange billions of dollars to european currencies in the money market and when countries pay back loans and whatnot, but losing about 8 bucks on a $1000 is hardly breaking. So, what is that part-time job in Europe going to do for your debt in the States? - dagonweb, on 10/12/2007, -0/+3"Long reason? Blah, blah, yada, yada"
Ritalin - lagrange, on 10/12/2007, -8/+11Psychotic republican policy is bankrupting the US. Should we really be surprised that its currency is in free fall?
- videoCT, on 10/12/2007, -0/+3maybe if US car makers could create a low cost hybrid car to sell to overseas markets, we can start to build back to dollar's value. The Government should subsidize this process as it can help the overall economy.
- Meesher, on 10/12/2007, -0/+3>How exactly does one buy gold?>
By buying ETFs, as fightfreedom suggested, or by purchasing stocks of gold mining companies, whose value is largely determined by their gold reserves. Gold coins are another option. - Petrov101, on 10/12/2007, -0/+3Kholburn said:
>The yuan is pegged to the dollar so that won't explain what you want
[feigned surprise] I think it explains a lot. - cliffzdude, on 10/12/2007, -3/+6"what exactly caused it?"
Long reason? Blah, blah, yada, yada (insert paragraph here).
The real reason? More sellers than buyers. - fuzzball963, on 10/12/2007, -0/+3With all the plunges in the dollar I have a question.
Would the US benefit from having a single currency such as the euro for all of North and South America?
I know that they're already removing all the trade barriers which seem to me to be the first step towards an EU style thing. Normally I dislike the EU but the one currency thing seems to make sense. Of course the British haven't adopted it partly because the pound is worth more the last time I checked.
Anyone want to explain the pro's and cons to me? Not trying to flame just asking for clarification - William01, on 10/12/2007, -2/+5Gimme a break. Social Security is actually pretty much the only thing in our government that IS self-sustaining right now and does not require borrowing to run. Nor will it for quite a while. 2015 is the absolute worst case scenario of zero population and economic growth.
Everything else is unsustainable RIGHT NOW. Not X number of years from now. If having to borrow money makes you panic, start pulling those soldiers home, slashing those defense contracts, and creating a national healthcare system before Medicare crushes us from soaring healthcare costs. - scriabinop23, on 10/12/2007, -0/+3I highly doubt China has sold much if any treasuries yet. If fact the treasury markets went up with the euro and jpy as well.
Of course, remember when a USD denominated asset is bought, the holder is effectively SELLING US dollars to hold it. When it is sold, the holder is BUYING US dollars to hold it. So if you buy stock or treasuries, you are actually going short the US Dollar.
Kind of neat to think of.
To buy another currency denominated asset with USD, you enter into two transactions. First you short the USD against the respective currency. Then you short the respective currency against the new asset. But asset prices usually do not fluxuate against the currency (unless they are highly currency sensitive, like a stock affected by commodity prices), so when you sell the asset you are essentially still keeping exposure to that currency.
So lets say you buy CCJ (a gold mining company) you get exposure to gold. If USD crashes and gold goes up, CCJ goes up too, so in an indirect way you are shorting USD against gold. Very interesting. - geronimo, on 10/12/2007, -3/+6If we had a surplus, we wouldn't be in this predicament. Instead we are forced to beg in the securities markets for foreign countries to finance our overspending. Except other countries like Japan are raising rates, puting pressure on the U.S. to raise rates but we cannot due to the housing market and persistently bad economy. SInce March consumer spending has been down. So the fed has no choice but to print money, and voila, the US has one of the highest inflation rates in the 1st world.
Without the pressure to come up with money for the ever-expanding government(and yes military spending = govt spending), we wouldn't have this problem. China, by the way, is no longer dependent on us - they export to europe as much as they export to the US.
I just get upset when people talk about this like there's no reason. - fightfreedom, on 10/12/2007, -0/+2Yes, I still have some debt (in the form of a fixed interest mortgage), but rather than paying it off completely, I bought gold. It's true that debts become devalued along with the dollar, but the devaluation is against other currencies. Your income won't increase to match the devaluation. So the practical effect of this will be that you won't be able to afford to travel overseas, and imports (other than from China) will increase in price - things will become more expensive. Also, if the housing collapse triggers a recession, you may not have a job to pay for that devalued debt. There are all kinds of scary scenarios (deflation, hyperinflation) on the other side of a dollar collapse, so the more gold you own, and the less debt you have, the better.
- Calculon64, on 10/12/2007, -0/+2If you are new to the Gold market please watch this video I uploaded to Google.
http://video.google.ca/videoplay?docid=250940352692595598&q=D1T1_Gold_Rush_21 - hotpepper, on 10/12/2007, -1/+3Oh good. Since the article didn't specify which dollar, I was worried the strong Canadian dollar had plummeted. Glad it wasn't the Canadian dollar.
- argoff, on 10/12/2007, -0/+2A better measure would be the dollar vs gold. Most countries will respond to a weak dollar by watering down their currencies (to make their exports more competitive) But gold (and silver) are the only currencies that can't be printed up out of thin air.
BTW, the US central bank loaned out way way way too much money at way too low of an interest rate over the last few years. Now the US is over saturated in debt, and China, the Sauds, Japan, and European central banks are over saturated in dollars that found their way out of the US. All it takes is one shift in forces to trigger an avalanche and throw the US into the worlds worst great depression and the worlds greatest hyperinflation all at the same time. - dagonweb, on 10/12/2007, -0/+2"The US will also feel the pinch on imported goods. "
So what will happen with US based infrastructure when oil suddenly costs twice as many $ in a year or so? The rest of the world will be able to afford oil, increase consumption, while the US will be fleeing the suburbs and living in small inner city sprawl apartments, 4 per room. Hmmm selfdefeating effect, whole inner cities jammed by traffic, pollution rampant increase in crime, hysteric government reactions, police crackdowns.
I smell brazil moving north. - mbondr, on 10/12/2007, -0/+2If it's only the Euro/Dollar exchange rate that changed and the Dollar is stable against all other currencies, as I see that it is, then it would seem to me that the Euro is rising - not the Dollar falling. I think she's spewing faulty analysis, perhaps an alarmist agenda. Most of the rest of you are venting. Basically, all this is bunk.
- dagonweb, on 10/12/2007, -0/+2I will greatly enjoy seeing americans having to pay some real taxes soon. There will be many gnashing of teeth in the US but over here in Europe will be shrugging.
- dagonweb, on 10/12/2007, -0/+2bye bye, we will miss you. We will send food aid from europe when y'all start starving.
- geronimo, on 10/12/2007, -3/+5Yes, let's look at the 5 year history:
http://finance.yahoo.com/q/bc?s=USDEUR=X&t=5y&l=on&z=m&q=l&c= -
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