Time to face the truth

[einheit 13]

Dollar Decline Still Threatening in 2006

By Stephen Clayson
02 Jan 2006 at 04:07 PM EST

LONDON (ResourceInvestor.com) -- The US dollar closed 2005 having gained ground on other major currencies more or less throughout the year, in defiance of fundamentals that should form a millstone around its neck.

The primary bear point for the dollar is the fact that the imports of the US economy continue to significantly outweigh its exports in terms of aggregate value; the balance of trade deficit. The balance of trade is usually the most significant determinant of a free floating currency’s level of parity with other currencies, which generally speaking should adjust to foster something approximating to longer term equilibrium.
Resource Investor House Add 2

Yet, the US trade deficit persists, and the dollar holds a higher valuation than should be the case on the basis of the US economy’s trading position. There is of course an explanation for this; a conglomerate of factors not directly related to the US balance of trade is currently supporting the dollar, leaving the currency’s longer term position unresolved.

As your correspondent has previously expounded at some length, this monumental discrepancy in the global economic system is probably the main factor that has been propelling the price of gold upwards, by virtue of the metal’s widely perceived status as a safe haven when the values of other asset classes, including major currencies and in particular the dollar, are uncertain.

The dollar has played the role of the world’s main reserve currency since shortly after the Second World War, but can no longer be considered eminently suitable for this role due to its obvious overvaluation from a longer term perspective. The precarious position of the dollar puts the valuation of mineral commodities other than gold in jeopardy, as a shock to general US demand brought on by the decline of the dollar and its consequent impact on the international purchasing power of US economic agents could potentially induce a temporary global economic downturn, which could depress the prices of such commodities for its duration.

In fact, it is the fear of this downturn that is impelling the dollar’s two major sources of support: the central banks of East Asia, namely those of China, South Korea and Japan, and the Federal Reserve Bank of the US. Both have an interest in delaying and ameliorating the impact of the eventual downward settlement of the dollar’s parity, in order to safeguard the interests of their respective economies.

The East Asian central banks are all acutely aware of the significant role played in their economies by exports to the US, plus to the rest of the Anglosphere and to continental Europe, the economies of both of which groups could be damaged by a downturn in the economy of the US.

Therefore, the East Asian central banks are supporting the valuation of the dollar by pouring much of the accumulated proceeds of their economies’ trade surpluses into the purchase of US treasuries, not out of enthusiasm for US government debt, but in the knowledge that these purchases shore up the value of the dollar by creating a demand for the currency on the open market.

This shoring up protects US economic agents from the reduction in their global purchasing power that is inextricably accompanied by any decline in the parity of the dollar, and as a result helps maintain their demand for the exports of the East Asian economies.

The Fed’s recent policy of rate tightening, though ostensibly motivated by a zeal to combat inflation, may also be motivated by a desire to maintain the value of the dollar, or at least ease its downward adjustment. This task can be seen as currently central to the Fed’s broader mission of encouraging economic growth and stability in the US economy.

A secondary factor supporting the dollar is the flow of funds from Petrostates, largely those in the Middle East, into US assets. Much of this flow is channeled through London, partly to take advantage of the financial expertise of the City and partly to conceal the origins of the flow.

It is unclear whether the direction of Middle Eastern oil revenues into US assets is being motivated by the simple desire for profit, given the comparative absence of attractive investment opportunities in the Middle East itself, or by an impulse similar, though not totally analogous, to that of the East Asian central banks; to maintain US, East Asian and European demand for Middle Eastern oil and perpetuate the windfall currently being enjoyed by the region as global demand for oil grows and revenues accrue to the Middle East out of all proportion to the region’s otherwise almost nonexistent economic output.

It is however somewhat questionable whether the governments of the Middle East would be likely to formulate such a sophisticated policy as to deliberately engineer support for the dollar, meaning that the seeking of profit may be the main motive behind flows of Middle Eastern funds to the US. In any case, with regard to the dollar, the activities of the East Asian central banks and of the Fed are clearly and intrinsically of greater importance than the flow of Middle Eastern oil revenues, although the latter is still worth noting.

Masking the issue of the dollar’s overvaluation is the misconception that the real issue is an undervaluation of the Chinese yuan. Although the yuan may be undervalued to a degree, this is almost certainly less significant than the overvaluation of the dollar. It is instructive to remember that the US does not only run a trade deficit with China but with the world as a whole, trade with China accounting for only part of this. Furthermore, some appreciation of the yuan has already been allowed by the Chinese authorities, with no noticeable effect on the US balance of trade.

For a long time, the dollar has enjoyed a valuation premium as the US was perceived as the world’s leader economy, the roots of which situation date back more than half a century to the ravages of the Second World War, which the US was alone among the natural first rank economies in escaping.

But now that the status of leader economy is no longer deemed to be merited, the dollar is due a decline. Although this has already begun to occur, in spite of the mild resurgence that has characterized 2005, the factors here adumbrated that are supporting the dollar at its current level can be seen as indicating strongly that in all likelihood, there is more depreciation to come.

Assuming that this is the case, two pertinent questions arise: when will this further depreciation occur, and how economically benign will the process of adjustment be? The best scenario would be for the Federal Reserve and the East Asian central banks, whether by cooperating or simply through their independent targeting of the same objective, to manage the dollar’s decline in a manner that minimizes or eliminates the potentially consequent damage to the global economy. Hopefully, this will be the scenario that prevails, for the alternatives may not be pleasant.

[one-eyed-fatman]

Originally Posted by mgeoffriau

The booming economy
What is it on?

Dec 8th 2005 | NEW YORK
From The Economist print edition

It just keeps on confounding the pessimists

ECONOMISTS have long warned that America's fast-growing economy has shaky underpinnings: the jobs market has lagged the recovery; America's current-account deficit has swollen to record levels; consumer spending is increasingly tied to prices in the frothy housing market (see article); oil prices are at their highest level in real terms since the early 1980s; and much, much more. But someone plainly forgot to tell the economy that it was supposed to be in trouble.

Figures released by the Department of Commerce on November 30th show that the American economy grew at an annualised rate of 4.3% in the third quarter, revised upward from a preliminary estimate of 3.8% issued in November. That is despite the ravages wrought by hurricanes in August and September, which not only destroyed a major port city but closed down a big chunk of the energy industry.

Better still, the following week, the Department of Labour reported that over the same period, productivity had grown by 4.7%. Meanwhile, payrolls, which barely grew at all in September and October, had finally posted a respectable 215,000 new jobs in November. Little surprise, then, that George Bush is once again talking up the economic data, and seeking to claim some of the credit for his policies, particularly tax cuts.

Sadly for Mr Bush, it appears someone also forgot to tell the voters that the economy is doing well. Polls show approval ratings for the economy on a par with the rest of his dismal numbers. Employment has generally lagged behind the economy. Payroll employment troughed in May 2003, 18 months after the recession ended. Since then, the economy has added 4.5m jobs, as Mr Bush pointed out this week—and unemployment currently hovers around 5%. But wage growth has been sluggish, implying a soft jobs market.

The economy is also posing some difficult questions for the Federal Reserve, whose monetary committee meets next week. It has steadily raised interest rates to fight off inflation (see chart). But where does it want to stop? The minutes of the November meeting suggested that the Fed might stop raising rates quite soon. The debt markets quickly decided that 4.5% might be a more likely final target for interest rates than previous estimates of 4.75-5%. Now the new numbers are making everybody reconsider that—especially as Ben Bernanke, Alan Greenspan's replacement, may be looking for an excuse to prove he is tough on inflation when he takes office in January.

Higher oil prices may not have translated into slower economic growth yet, but they are creating inflation. It ran well above 4% in September and October. On the other hand, core inflation, which excludes volatile energy and food prices, is still relatively modest. With gasoline dropping back to $2.15 a gallon from nearly $3 in September, this eases fears that high oil prices will feed through into the broader price index. And the stellar productivity figures increase the pace at which the economy can grow without causing inflation. So Mr Bernanke will not want to be too tough. For now the Fed, like the economy, defies easy prediction.

I pick this one.

Figures released by the Department of Commerce

Better still, the following week, the Department of Labour reported that over the same period, productivity had grown by 4.7%.

Am I just suppose to believe this crap? These people do their numbers just like big business does. Gray area manure. Give me a place where I can hear the real honest to God truth. Here's a hint, it won't come from any government source. Probably won't come from the media either. Ain't going to find it on this forum. I know, I'll dig in my garden and see if I can find one of them time capsules people bury underground. Maybe, just maybe somebody put some truth in one of those time capsules. Guys gotta hope there's some truth around somewhere. Getting kinda hard to find it these days.

Side note:
mgeoffriau download ieSpell. It's a great spell checker.

[Mark S.]

"An economist's guess is liable to be as good as anybody else's."

Will Rogers (1879 - 1935)

The major problem with our economy is that even though it has been growing at a fairly steady pace over the past few years, the benefits have not helped the ordinary working man or woman. More and more hard-working folks are finding that they no longer have health insurance or a reasonably secure retirement.

That's not to say that there aren't some folks who have benefitted greatly from our economy. There certainly are. However in the past when the economy grew, more of the benefits trickled down to the average working man or woman. That led to the development of a strong, stable middle class in this country. Now too many people who used to have good paying jobs in manufacturing, are now finding that there is work out there in the service sector. But, the pay and benefits are not nearly as good.

[NewXD40fun]

Originally Posted by one-eyed-fatman

Let's resolve to lift up the faltering American Dream
American economy losing ground to foreign innovation

By HOLLY SKLAR

The American Dream doesn't need to go on a diet in the new year. It's been shrinking for years.

We are becoming a nation of Scrooge-Marts and outsourcers — with an increasingly low-wage work force instead of a growing middle class. Even two-paycheck households are struggling to afford a house, college, health care and retirement.

The American Dream is becoming the American Pipe Dream.

"The vast majority of American workers (70 percent) think the American Dream has been or will be harder for them to financially achieve than it was for their parents' generation," according to the Principal Financial Well-Being Index.

We are living the American Dream in reverse.

The hourly wages of average workers are 11 percent lower than they were back in 1973, adjusted for inflation, despite rising worker productivity. CEO pay, by contrast, has skyrocketed — up a median 30 percent in 2004 alone in the Corporate Library survey of 2,000 large companies.

Median household income has fallen an unprecedented five years in a row. It would be even lower, if not for increased household work hours. Americans work more than 200 hours more a year on average than workers in other rich, industrialized nations.

We are breaking records we don't want to break. Record numbers of Americans have no health insurance. The share of national income going to wages and salaries is the lowest since 1929. Middle-class households are a medical crisis, outsourced job or busted pension away from bankruptcy.

The congressional majority voted the biggest cut in history to the student loan program at a time when college is more important, and more expensive, than ever. Public college tuition has risen even faster than private tuition, jumping 54 percent over the last decade, adjusted for inflation.

Our shortsighted government, beholden to powerful campaign contributors and lobbyists, is cutting rungs from the ladders of upward mobility while cutting taxes for the superwealthy.

That's not the American Dream.

Contrary to myth, the United States is not becoming more competitive in the global economy by taking the low road. We are in growing hock to other countries. We have a huge trade deficit, hollowed-out manufacturing base and deteriorating research and development. The infrastructure built by earlier generations has eroded greatly, undermining the economy as well as public health and safety.

Households have propped themselves up in the face of falling real wages by maxing out work hours, credit cards and home equity loans. This is not a sustainable course. The low road is like a "shortcut" that leads to a cliff.

We will not prosper in the 21st century global economy by relying on 1920s' corporate greed, 1950s' tax revenues, pre-1970s' wages and global-warming energy policies.

We will not prosper relying on disinvestment in place of reinvestment. We can't succeed that way any more than farmers can "compete" by eating their seed corn.

As BusinessWeek put it in a special issue on China and India, "China's competitive edge is shifting from low-cost workers to state-of-the-art manufacturing. India is creating world-class innovation hubs, and its companies are far better performers than China's."

The United States will not succeed by shifting increasingly from state-of-the art manufacturing and world-class innovation hubs to low-cost workers.

Contrary to myth, many European countries are better positioned for the future than the United States, with healthier economies and longer healthy life expectancies, greater math and science literacy, free or affordable education from preschool through college, universal health care, less poverty and more corporations combining social responsibility and world-class innovation.

Among the world's 100 largest corporations in 2005, just 33 are U.S. companies, while 48 are European. In 2002, 38 were U.S. companies and 36 were European. CEO-worker pay gaps are much narrower at European companies than American.

The United States dropped from No. 1 to No. 5 in the global information technology ranking by the World Economic Forum, whose members represent the world's 1,000 leading companies, among others. The top four spots are held by Singapore, Iceland, Finland and Denmark, with Sweden No. 6.

Instead of pretending the problem is overpaid workers and accelerating offshoring, we need to shore up our economy from below and invest in smart economic development. Let's make that our New Year's resolution for the American Dream.

Are we just supposed to believe this crap?

No references, just the same old whiney liberal propaganda it seems to me.



Tom

[one-eyed-fatman]

Originally Posted by NewXD40fun

Are we just supposed to believe this crap?

No references, just the same old whiney liberal propaganda it seems to me.



Tom

You'd be one hell of a man... If only you could think for yourself... Do you need a reference for that?

[einheit 13]

Originally Posted by Mark S.

"An economist's guess is liable to be as good as anybody else's."

Will Rogers (1879 - 1935)

The major problem with our economy is that even though it has been growing at a fairly steady pace over the past few years, the benefits have not helped the ordinary working man or woman. More and more hard-working folks are finding that they no longer have health insurance or a reasonably secure retirement.

That's not to say that there aren't some folks who have benefitted greatly from our economy. There certainly are. However in the past when the economy grew, more of the benefits trickled down to the average working man or woman. That led to the development of a strong, stable middle class in this country. Now too many people who used to have good paying jobs in manufacturing, are now finding that there is work out there in the service sector. But, the pay and benefits are not nearly as good.

Hallyloooya brother, lay your hand on the radio.....the dollar isn't worth what it use to be. It isn't gaining any value, but hasn't lost that much.
I like this one though:



Insourcing - Pleading with other countries for jobs while further destroying US domestic industries

A report recently released by the US Dept of Commerce cites “insourcing” (foreign owned producers operating in the US) as now responsible for 1 in 9 manufacturing jobs in the US. What is wrong with this:

- These foreign companies wield tremendous leverage over our government through the employment “hammer”

- We provide massive subsidies to foreign producers at great expense to American taxpayer and great benefit to the foreign producer

- These companies compete and devastate our domestic industries (e.g. auto industry)

- They ship profits back to their parent companies and countries. They retain the high-tech, high-skill jobs in their home countries and give us low-end assembly positions

Insourcing invites foreign countries to disarm and dismantle our domestic industries with American subsidies. We must concentrate on protecting and rebuilding our own American industries.


http://www.economyincrisis.org/article_66.html

[mgeoffriau]

Originally Posted by one-eyed-fatman

Am I just suppose to believe this crap? These people do their numbers just like big business does. Gray area manure. Give me a place where I can hear the real honest to God truth. Here's a hint, it won't come from any government source. Probably won't come from the media either. Ain't going to find it on this forum. I know, I'll dig in my garden and see if I can find one of them time capsules people bury underground. Maybe, just maybe somebody put some truth in one of those time capsules. Guys gotta hope there's some truth around somewhere. Getting kinda hard to find it these days.

So first you ask for where good news can be found, and then when it is supplied, you tell us that it doesn't matter where it comes from, it can't be true?

Originally Posted by one-eyed-fatman

Side note:
mgeoffriau download ieSpell. It's a great spell checker.

You are correct that in America it is labor, and not labour. However, as The Economist is a British newspaper, the original author might be forgiven for mistakenly using the proper British spelling. Telling me will do no good - I quoted the article in its original format.

Even if it had been my error, ieSpell wouldn't help me -- I use Opera.

[einheit 13]

See funnygun, I can "cut and paste" too......

[one-eyed-fatman]

HURRAY! Mark S and einheit 13. See there funnygun, a little truth never hurt anyone. You should try it sometime.

[one-eyed-fatman]

Originally Posted by mgeoffriau

So first you ask for where good news can be found, and then when it is supplied, you tell us that it doesn't matter where it comes from, it can't be true?

You are correct that in America it is labor, and not labour. However, as The Economist is a British newspaper, the original author might be forgiven for mistakenly using the proper British spelling. Telling me will do no good - I quoted the article in its original format.

Even if it had been my error, ieSpell wouldn't help me -- I use Opera.

So first you ask for where good news can be found, and then when it is supplied

You supplied nothing but the usual government manure.

You are correct that in America it is labor, and not labour. However, as The Economist is a British newspaper, the original author might be forgiven for mistakenly using the proper British spelling.

Your cut and pasting from a British newspaper? Somebody get a rope. To funny.