Decline of the dollar: How long term and whassit mean?

[Backatcha Bandit]

Good spot. Cheers HackneyE9.

That's a rather *weird* article.

Iran has been pressing the group to look at the option of pricing Opec's oil with reference to a basket of currencies, rather than the dollar. Such a move would not necessarily drive the dollar down. Iran notionally prices most of the oil it sells in euros, but in practice receives a dollar price in world markets.

Erm... As I understood it, Iran 'in practice' receives dollars for only 15% of it's oil sales (20% Yen and 65% Euros).

How the fuck could an OPEC switch away from US$ 'not necessarily drive the dollar down'?

 

[HackneyE9]

I think they're trying a bit of 'don't worry your pretty little head about it' fudge there.

There was another quote in that or an accompanying FT piece saying something about "Western analysts agree but don't like to talk about it!" - I suspect next week's Economist will have some 'don't frighten the horses' take on it.

 

[A Dashing Blade]

There was another quote in that or an accompanying FT piece saying something about "Western analysts agree but don't like to talk about it!" - I suspect next week's Economist will have some 'don't frighten the horses' take on it.

As that weekly is of essentially free-market libertarian leanings, I'd be very surprised. Same goes for the FT come to think of it (ie surprise factor 10 if that was said at editorial meetings).

 

[ymu]

Thanks for that article HackneyE9.

I think they're trying a bit of 'don't worry your pretty little head about it' fudge there.

There was another quote in that or an accompanying FT piece saying something about "Western analysts agree but don't like to talk about it!" - I suspect next week's Economist will have some 'don't frighten the horses' take on it.

Aye - there seems to be a concerted effort to talk the dollar up in the financial press, which I'd guess is designed to slow the crash rather than from any realistic expectation that it won't crash. As far as I can see/have read, it has to crash if the US has any real chance of reducing the debt and rediscovering its export markets.

 

[david dissadent]

Nothing really startalling or original in this peace other than to confirm fears of an inflation and recession double whammy are being found on the front pages of the most respectable of bussiness publications.

http://www.economist.com/opinion/displaystory.cfm?story_id=10134118

The vigour of emerging economies is good news for the world economy: for its growth, it has much less need of a strong America. The bad news for America is that this, in turn, may mean that the world also has less need of the dollar.

However I would strongly queary why they do not analys the effects of a US slowdown on emerging markets and the possibility of a nasty trade war as nations overproduce unwanted tat then try to dump it on the market.... I dont really think emerging markets have internalised enough growth to be free of a US slow down. But especialy with China: God alone knows.

 

[nosos]

What effect does a collapsing dollar have on the US's capacity to pay off its national debt (particularly to china)?

 

[david dissadent]

What effect does a collapsing dollar have on the US's capacity to pay off its national debt (particularly to china)?

Most of its debt is still owed internally, but China, Japan and Saudi amoung others have significant US debt bonds. China has about $300-400 billion in US government debt bonds. The weakening US economy means it has a smaller tax base from which to raise revenue and fund itself including debt repayments while less employment will increase its expenditure on social security again meaning it will have less money available.

On the otherhand if a weakening dollar leads to inflation then the amount it owes is effectively cut, especialy if inflation exceeds the interest rates the debt was bought at.

The exchange rate will not directly affect it debt repayments however as they are dollar dollar transactions.

It is a very touchy and controversial subject though.

 

[david dissadent]

What effect does a collapsing dollar have on the US's capacity to pay off its national debt (particularly to china)?

Most of its debt is still owed internally, but China, Japan and Saudi amoung others have significant US debt bonds. China has about $300-400 billion in US government debt bonds. The weakening US economy means it has a smaller tax base from which to raise revenue and fund itself including debt repayments while less employment will increase its expenditure on social security again meaning it will have less money available.

On the otherhand if a weakening dollar leads to inflation then the amount it owes is effectively cut, especialy if inflation exceeds the interest rates the debt was bought at.

The exchange rate will not directly affect it debt repayments however as they are dollar dollar transactions.

It is a very touchy and controversial subject though.

 

[Dr Jon]

What effect does a collapsing dollar have on the US's capacity to pay off its national debt (particularly to china)?

Given that the government cannot get out of debt, and is collateralizing more and more land to avoid foreclosure, the day is not long off when the people of the United States will one day wake up and discover they are no longer citizens, but tenants

From here

 

[skyscraper101]

Its currently hovering around $2.05/$2.06 to the pound. I haven't seen it return to $2.10 for a couple of weeks. I just hope it doesn't gain any strength until I'm back from shopping over there in three weeks

 

[david dissadent]

I hate youtube posts, but Im gonna do one.



A US commodities experts absolutely pwns the dollar....

 

[nosos]

chairman of the federal reserve gets pwned

 

[david dissadent]

chairman of the federal reserve gets pwned

Helicoper Ben is widely derided from almost all sides on this.

 

[david dissadent]

http://www.ft.com/cms/s/0/20c2db90-c292-11dc-801e-0000779fd2ac.html?nclick_check=1

There are rather strong rumours of an emergency cut in US interest rates that is spooking the dollar now. A sence of panic is begining to stalk the worlds central banks. This credit crisis is spreading, the economy is faltering. Well we will have to see where all of this lands. Certainly the big injections of capital from the soveirien wealth funds will help, but then again they bring there own problems.

 

[A Dashing Blade]

http://www.ft.com/cms/s/0/20c2db90-c292-11dc-801e-0000779fd2ac.html?nclick_check=1

There are rather strong rumours of an emergency cut in US interest rates that is spooking the dollar now. A sence of panic is begining to stalk the worlds central banks. This credit crisis is spreading, the economy is faltering. Well we will have to see where all of this lands. Certainly the big injections of capital from the soveirien wealth funds will help, but then again they bring there own problems.

Markets expect a 50bp cut on the Jan 29/30 Fed meeting, analysts are saying a cut before then is unlikely.

 

[hipipol]

The markets have already factored this in, greenback weak against all currencies, though strengthened against GBP today, 195.84 just a few mins ago.
The US has relied on a debt financed budget for years, had to happen at some point.
However, this morning StanChart became the 4th biggest UK bank with market cap above 50b GBP, hehe, cos they make most of their money from Asia and ME. The power is shifting, with for example Asian and ME Sovreign Funds now being the biggest shareholders in the five biggest Wall St firms.
Oh my, best get ready for oil priced in Yuan!!!! hahahaha

 

[newharper]

Fed cuts by 75 basis points.

Desperate stuff.

 

[taffboy gwyrdd]

Fed cuts by 75 basis points.

Desperate stuff.

innit. Its supposed to give some bounce to the market, but is such an act of desperation that in the mid term it is just confirmation of the situation that will probably drop confidence.

 

[gosub]

It's about the only thing they can do, but I think given the nature of the problem, the Fed's concentrating on growth rather than BoE focus on inflation makes most sense. The problem being the lack of liquidity, caused by lenders being at the limit of what lending they can get insurance on.

That said inflation is a problem, not just from rising food and oil prices as main stream media are reporting but from printing money (touched on this before) markets slightly corrected but there was a period last week when the numbers didn't add up (if you keep an interest rate the same but print loads of money, currency value should fall)

Its not over yet

 

[david dissadent]

http://www.ft.com/cms/s/0/68165a58-cf6c-11dc-854a-0000779fd2ac.html

Qatar is reviewing its currency policy and could revalue or drop the dollar peg as the booming Gulf state struggles to tame inflation while the US reduces interest rates to head off a recession.

Mr Ibrahim, who heads a government body that charts econ­omic development, said other inflation-taming measures were under consideration. He said Doha will issue bonds to soak up liquidity and give the central bank more control over monetary policy, and is considering reducing government spending and placing lending caps on banks.

small beer as no one in this is planning a big dollar dump, but as the dollar goes down, so does there currency with relation to everything non dollar pegged. The cost of everything goes up. Pegging to a basket of currencies will help tame this inflationary pressure.

 

[david dissadent]

15% inflation, if you think about the $90 a barrel oil suddenly does not look like its making all that much richer if your having that price rise chewed up by inflation of 1970s proportions. Oil for Euros is a tad less axis of evil and more common sence these days. That and a free floating currency backed by a basket of currencies in reserve.

Berneke and his policies may not be the toast of the ME.

 

[david dissadent]

The dollar hits 1.50 against the Euro. 5 years ago it was near enough 1 to 1. Thats a 1/3 reduction in value in 5 years. Gold is headed for $1000 a gram ($963 atm).

All those people living in countries with currencies pegged to the dollar will have an even harder job paying for food and oil now.

 

[A Dashing Blade]

Sure you mean gram?
Why would peeps whose currencies are pegged to the USD have an even harder job paying for oil?

 

[disownedspirit]

Sure you mean gram?

ounce innit?

 

[david dissadent]

Sure you mean gram?
Why would peeps whose currencies are pegged to the USD have an even harder job paying for oil?

ounce innit?

My mistake.

 

[disownedspirit]

if it was a $1000 a gram then that would be NEWS

 

[david dissadent]

Why would peeps whose currencies are pegged to the USD have an even harder job paying for oil?

Because there purchasing power will fall with that of the dollar, if they were free floating or peged to the Euro the increase in costs of oil would be set off against there rise against the dollar. (provided the free floating one's do, but I think almost most of the major free floating currencies have been rising steadily against the doolar)

 

[david dissadent]

Alan Greenspan to Gulf states, drop dollar peg and float free to reduce inflation.

http://www.reuters.com/article/ousivMolt/idUSL2515874520080225

"In the short term free floating ... will not fully dissipate inflationary pressure, although it would significantly do so," Greenspan told an investment conference in Jeddah, Saudi Arabia's second-largest city.

Saudi and UAE central bank chiefs spoke in favor on Monday of retaining dollar pegs, while Qatar's prime minister advocated regional currency reform to avert possible unilateral revaluations designed to curb inflation.

"The economies of the Gulf and the United States are completely out of sync and that is exposing the shortcomings of the dollar peg," said Simon Williams, Middle East economist at HSBC Holdings Plc in Dubai.

It would not cause the petrodollar warfare that some predict. If oil is still priced in dollars and is the traded currency then the Ryal and other currencies can at least not face depreciation against every other major currency and massively rising prices of just about everything.

 

[david dissadent]

The dollar has had a bad bad week, taking a caining down to $1.53 on closing on Friday. It seems to be in a fair old tail spin with Europe choosing to fight inflation and keep interest rates up while the Fed pumps another $200 billion into the banks and cut interest rates. There may be a very real risk of a dollar carry trade developing with people borrowing dollars to invest in Europe, Asia and other places that will further depress the value of the dollar.

Ofcourse for the US economy as a whole the the zombie like lurching of the monoline insurers seems to hang over its financial sector like the sword of damoclese. Once the monolines lose there AAA rating (and possibly there investment grade ratings) the banks will have to take all of the investment instruments that they insure back onto there books. They can only hold these things off balance sheet so long as they have a AAA rated insurance*. Few private investors want to get into the market when this kind of uncertainty hangs over it. The only people investing seem to be the soverign wealth funds. So the dollar is hurting because people are no longer investing into the US.

And then there is oil. Oil has gone from $60 per barrel to $100 in a year, so the Americans are paying 100s of billions of dollars to buy oil. This again will cause the dollar to fall, however the Euro and the Yen will also feel pressure from the major increase in the price of oil. Russia is quite likely to start taking Euros for Roubles and pricing its oil in Roubles in the near future. As Russia has a large population and would be quite keen on European luxuary items it is possible that this trade will go some way to becoming a healthier trade balance than that of the US. This would only happen if the Russians started investing in there own national infrastructure and not just buying US banks.

Momentous times, if distinctly uncomfortable ones.


*This is based on my understanding of this

If the monoline insurers collapse, then investment banks will be in even deeper trouble than they are today. Many investment banks have bought protection from the monolines so that they can hedge structured credit exposure on their own balance sheets in order to insulate themselves from making losses. But if the monolines go bust, then the investment banks are left with a worthless insurance contract, and a whole lot more exposure to structured credit and sub-prime.

 

[david dissadent]

The dollar is at $1.58 to the Euro. But it will probibly start to gain soon. I read that the ECB and BOE are planning to drop moniterism (that the control of money supply through interest rates is the key to fighting inflation) and move to a position closer to the Feds. They will start being more aggresive with interest rates and accepting MBS and CDO dross in exchange for giving loans to financial institutions. It will be interesting to see how Parliment reacts to that.... But such moves will weaken the Euro and the Pound vs the Dollar.

http://www.bloomberg.com/apps/news?pid=20601109&sid=auiN1nCBZano&refer=home

This article explains the dilemma the Gulf states are in. They are experiancing 10% inflation and a very bad bussiness enviroment when they should be cleaning up with the high oil prices and people looking for safe investments. The article predicts a huge drop in the dollar if the gulf drops the peg to the dollar.

I guess that big army the yanks have out there does have some value after all.