Posted: Tue Oct 17, 2006 2:26 pm Post subject: The Last Days of the Dollar?
One of the earliest lessons I learned at sea was about currency exchange rates. Even though currency valuation was not a subject taught at the Merchant Marine academy, my ship constantly traveled from one country to the next, so my education in what is today called FX -- or foreign exchange -- began.
Back then, the formal exchange rate in the banks was 360 Japanese yen to one U.S. dollar. On the black market in Hong Kong, I could get 366 yen to the dollar.
Posted: Tue Oct 17, 2006 3:22 pm Post subject: Re: The Last Days of the Dollar?
[In overly simplistic terms, China and many countries in the world today lend us billions of dollars to buy their goods. They send us products like computers, televisions, cars, candies, and wines, and we send them funny money in return.]
No wonder this guy got away with publications extolling the real estate market - he was drinking chinese wine!
Joined: Oct 18, 2004 Posts: 1730 Location: kiwibush
Posted: Tue Oct 17, 2006 3:53 pm Post subject: Re: The Last Days of the Dollar?
scienceteacher wrote:
[In overly simplistic terms, China and many countries in the world today lend us billions of dollars to buy their goods. They send us products like computers, televisions, cars, candies, and wines, and we send them funny money in return.]
No wonder this guy got away with publications extolling the real estate market - he was drinking chinese wine!
Perhaps you could enlighten us on the source of the widening deficit. _________________ Bugger me, I hear oil's runnin out mate!
Joined: May 17, 2004 Posts: 140 Location: sydney, australia
Posted: Tue Oct 17, 2006 4:35 pm Post subject: Re: The Last Days of the Dollar?
americandream wrote:
Perhaps you could enlighten us on the source of the widening deficit.
the US exports less than it imports. The only reason that the dollar isnt toast is because foreigners then buy US assets (mostly treasuries) with those dollars.
Posted: Tue Oct 17, 2006 5:28 pm Post subject: Re: The Last Days of the Dollar?
basketballjones wrote:
americandream wrote:
Perhaps you could enlighten us on the source of the widening deficit.
the US exports less than it imports. The only reason that the dollar isnt toast is because foreigners then buy US assets (mostly treasuries) with those dollars.
Yes, and what is a t-bill but a fancy piece of paper that says "I.O.U."? _________________ The whole of human history is a refutation by experiment of the concept of "moral world order". - Friedrich Nietzsche
Joined: Sep 25, 2004 Posts: 4419 Location: Boston, MA
Posted: Tue Oct 17, 2006 5:36 pm Post subject: Re: The Last Days of the Dollar?
Dreamtwister wrote:
basketballjones wrote:
americandream wrote:
Perhaps you could enlighten us on the source of the widening deficit.
the US exports less than it imports. The only reason that the dollar isnt toast is because foreigners then buy US assets (mostly treasuries) with those dollars.
Yes, and what is a t-bill but a fancy piece of paper that says "I.O.U."?
Well, I can get 4.75% on a 2-year government bond.
If I live in Japan, the 2-year note's yield is much lower. So I would be more than willing to invest in a US bond to get a better return on investment.
So if the Dollar/Yen exchange rate stays flat, I will come out ahead.
If you look at a 2-year chart of the US dollar against most of the world's major currencies, we aren't doing that bad.
We've lost ground since 2002, but the 2004-2006 period wasn't too painful.
It is only when the Dollar/Euro or Dollar/Yen or Dollar/X rate starts to increase dramatically will US assets become a poor investment choice. But for now, it's not a worthless IOU. _________________ "www.peakoil.com is the Myspace of the Apocalypse."
Posted: Tue Oct 17, 2006 6:14 pm Post subject: Re: The Last Days of the Dollar?
Tyler_JC wrote:
Dreamtwister wrote:
basketballjones wrote:
americandream wrote:
Perhaps you could enlighten us on the source of the widening deficit.
the US exports less than it imports. The only reason that the dollar isnt toast is because foreigners then buy US assets (mostly treasuries) with those dollars.
Yes, and what is a t-bill but a fancy piece of paper that says "I.O.U."?
Well, I can get 4.75% on a 2-year government bond.
If I live in Japan, the 2-year note's yield is much lower. So I would be more than willing to invest in a US bond to get a better return on investment.
So if the Dollar/Yen exchange rate stays flat, I will come out ahead.
If you look at a 2-year chart of the US dollar against most of the world's major currencies, we aren't doing that bad.
We've lost ground since 2002, but the 2004-2006 period wasn't too painful.
It is only when the Dollar/Euro or Dollar/Yen or Dollar/X rate starts to increase dramatically will US assets become a poor investment choice. But for now, it's not a worthless IOU.
You'll notice I did not say "worthless IOU", I said "IOU". _________________ The whole of human history is a refutation by experiment of the concept of "moral world order". - Friedrich Nietzsche
Joined: Oct 23, 2004 Posts: 5500 Location: New Jersey
Posted: Tue Oct 17, 2006 6:33 pm Post subject: Re: The Last Days of the Dollar?
Luckily, China won't use its $1 trillion in reserves to directly buy oil as an investment to deploy spare dollars (but they do plan on buying 1 billion barrels for a SPR).
Depsite the fact that it appears that China has saved the day, the central banks of the world not only are not stopping inflation - but are actually in the process of accelerating inflation.
China buys its US$ reserves mostly (but not entirely) by issuing new fiat money (it does also borrow from the savings of the Chinese people). The US also issues fiat money (essentially Federal Reserve notes are fiat money backed up with a small amount of gold). As China, Japan, etc., issue fiat money to buy US fiat money, more and more fiat money is created. For the most part, Japan has refrained from issuing new fiat the last year or two after splrging in 2002 and 2003 to stop the dollar from losing value.
This money game will only stop when someone like China says 'game over'. So far they still want to play this game.
Meanwhile the dollar will continue to lose value until finally all the central banks just give up - and then the 'fun' begins.
BEIJING, Oct. 17 -- China won't use its foreign exchange reserves to buy energy products, including oil, the official Securities Times reported a senior official at the central bank as saying.
People's Bank of China Vice Governor Wu Xiaoling said the central bank isn't allowed to directly use foreign exchange reserves to buy energy assets, said the report Monday.
Any parties that want to use China's foreign exchange reserves should use their yuan to buy foreign exchange funds from the central bank, Wu was cited as saying.
China's foreign exchange reserves totaled 769 billion U.S. dollars at the end of September, up 50 percent from the same month a year earlier.
The strong growth of the reserves, largely boosted by the country's surging trade surplus, has created excess liquidity and added upward pressure on the yuan.
Posted: Tue Oct 17, 2006 7:14 pm Post subject: Re: The Last Days of the Dollar?
http://mwhodges.home.att.net/nat-debt/debt-nat.htm _________________ Gravity is not a force, it is a boundary layer.
Everything is coincident.
Love: the state of suspended anticipation.
To get any appreciable distance from the Earth in
a sensible amount of time, you must lie.
Posted: Wed Oct 18, 2006 12:38 am Post subject: Re: The Last Days of the Dollar?
americandream wrote:
scienceteacher wrote:
[In overly simplistic terms, China and many countries in the world today lend us billions of dollars to buy their goods. They send us products like computers, televisions, cars, candies, and wines, and we send them funny money in return.]
No wonder this guy got away with publications extolling the real estate market - he was drinking chinese wine!
Perhaps you could enlighten us on the source of the widening deficit.
I think In overly simplistic terms was the key phrase to his overly simplistic analysis! ; - )
And they are perfectly within their rights NOT to export to the USA or to demand another foreign currency in payment. They can produce for domestic consumption or find alternative markets. And they can develop their own capital markets so that their export earnings are repatriated to their home market. The dollar is a freely traded currency. Anyone, any country, can buy or sell dollars against another freely convertable currency and invest their savings elsewhere. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
RdSnt, can you add some text or comments to your links, so that we know it is not just spamming? It is nice to know your thoughts on the links you are posting as well. Thanks. _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
Joined: Dec 06, 2005 Posts: 833 Location: Stopped at the border.
Posted: Wed Oct 18, 2006 2:05 am Post subject: Re: The Last Days of the Dollar?
Right now I think the danger for the dollar lies in the trend around the rest of the world to raise interest rates. If the Bank of England and the European Central Bank along with the Chinese raise rates by more than a quarter point in the near term the Federal Reserve will be forced to raise US rates in order to offer a competing investment. Ordinarily this wouldn't hurt the US economy, but as it happens housing is hanging by a thread. Another rate adjustment upward and the US could look like Britain under Nigel Lawson.
Joined: Jun 15, 2006 Posts: 106 Location: Gothenburg, Sweden
Posted: Wed Oct 18, 2006 5:51 am Post subject: Re: The Last Days of the Dollar?
MrBill wrote:
The dollar is a freely traded currency. Anyone, any country, can buy or sell dollars against another freely convertable currency and invest their savings elsewhere.
A little obfuscating isnt it? The reason it´s not happening is the allusion to the Emperors new clothes and I belive few understands that better than you here Mr Bill!
Posted: Wed Oct 18, 2006 7:31 am Post subject: Re: The Last Days of the Dollar?
Scactha wrote:
MrBill wrote:
The dollar is a freely traded currency. Anyone, any country, can buy or sell dollars against another freely convertable currency and invest their savings elsewhere.
A little obfuscating isnt it? The reason it´s not happening is the allusion to the Emperors new clothes and I belive few understands that better than you here Mr Bill!
Obfuscating is a big word for me? All I am saying is in the article this guy says these countries send the USA real stuff in exchange for nothing more than paper IOUs. I think that is a fair summary?
Why? Why do they export to the USA? Why do they accept US dollars in payment? Why do they re-invest their dollars in the USA? Why do they not re-invest those export receipts at home or somewhere else?
They export to the USA because they would sooner have more rather than less exports.
They accept US dollars in payment because that is what US importers are willing to pay.
They re-invest their savings in the USA because the USA has deep, liquid capital markets compared with other countries and/or interest rates are attractive.
They do not re-invest those savings at home because their own capital markets are not developed and/or they fear real appreciation of their own currencies making exports less competitive and/or they fear corruption and theft of asssets invested in their home market.
They do invest in other markets as well, but the sums involved mean they need to seek out large markets and/or other markets either have worse fundamentals and/or lower interest rates than the USA.
But they do not have to. It is their choice. Their choice to export. Their choice to accept dollars. Their choice to re-invest those dollars in the USA. It is their choice to accept both the credit risk and the interest rate risk of US dollars. They can also choose to repatriate those export earnings home or to invest them domestically to develop their own local economies and/or increase demand at home.
But they do not. It is a symbiotic relationship between exporter and importer. So long as they are mature adults, and no one gets buggared without their consent, I do not see a problem? Except perhaps with the size of the imbalances, which I will admit cause me sleepless nights looking for safe haven investments or at least avoiding the distortions such imbalances invite? _________________ The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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