thoughts?

[RonPaul_SantaMonica]

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahDiVVyeilGY&refer=home

 

[driller80545]

Time will tell

 

[RonPaul_SantaMonica]

mundell fleming predicts a rally if the us economy grows, if not all bets are off. Not sure what is going to happen, but I wonder if the FED can really muscle through this.

Items against:
a. housing woes
b. budget deficit
c. current a/c deficit
d. bad war
e. possiblitity of democrats, universal health care, yadi yada
f. iran

If I had to guess, we may have some turbulence in the future, so I would bet on a weaker dollar.

 

[driller80545]

This is what concerns me: we are spending more money than we have, Bush's new budget is the largest in history and not even counting the war, the democrats are going to get elected and they want to spend even more money with larger government.
At some point in the near future, we the people are going to be working solely to support government spending. I heard today Hillary says we should garnish wages of people without health insurance.
However it comes down, it will be left to us to pay for.

 

[AceNZ]

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahDiVVyeilGY&refer=home

More market cheerleading, pure and simple.

The US has severe structural problems that will take a long time to fix -- probably decades.

Interest rates are being artificially held low by the Fed. Eventually the Fed will either give in to the market and rates will rise, or they will inflate the currency so badly that it will totally destroy the dollar. Either scenario dooms the predictions in the article.

 

[RonPaul_SantaMonica]

More market cheerleading, pure and simple.

The US has severe structural problems that will take a long time to fix -- probably decades.

Interest rates are being artificially held low by the Fed. Eventually the Fed will either give in to the market and rates will rise, or they will inflate the currency so badly that it will totally destroy the dollar. Either scenario dooms the predictions in the article.

Won't raising interest rates save the dollar? Or would high interest rates result in futher GDP contraction, resulting in an even larger depreciation in the dollar?

 

[AceNZ]

Won't raising interest rates save the dollar? Or would high interest rates result in futher GDP contraction, resulting in an even larger depreciation in the dollar?

The article was suggesting that the dollar decline would be halted because of increased prospects for "relative growth". The problem is that high interest rates (which are actually very much needed at this point) will cause a significant contraction (also very much needed), which means the economy isn't growing; it's shrinking. So if dollar traders are focused on growth rather than relative yield, then higher rates and the resulting contraction will hurt the dollar in the short term.

Of course things aren't quite so simple. Higher rates might help the dollar temporarily, before the depth of the contraction is really felt. And of course the dollar's strength is measured against other currencies, all of which are also being inflated.

 

[Pauls' Revere]

Won't raising interest rates save the dollar? Or would high interest rates result in futher GDP contraction, resulting in an even larger depreciation in the dollar?

STOP PRINTING MONEY !!!

 

[RonPaul_SantaMonica]

STOP PRINTING MONEY !!!

Wouldn;t raising interest rates do that?

 

[kyleAF]

Wouldn;t raising interest rates do that?

In a way, yes. The central bank would essentially suck up some of the excess dollars.

We're in a lot of really bad financial straits right now. The debt-backed economy is on the ropes, and that could potentially amount to a 9 times world GDP net loss in the worst case scenario.

That's roughly 500 Trillion dollars going "poof". That's about the worst thing that could happen to our species right now, as food wouldn't even be available to most of the world as a result. [this is the doomsday prediction right now, and may not be too likely]...

...That's assuming a lot of really bad things start happening:

1. Accelerated mortgage defaults (60 minutes has ENCOURAGED people to walk away). These are already here.
2. A continued credit crunch, as banks won't lend the money the Fed is giving them, because they're just using it to build back the capital that they've already written off...which is growing as more people walk away.
3. A resulting massive slow-down in the economy (more so than we're already seeing). As people realize the credit crunch is here and start saving everything they can.
4. A transfer of the loan defaults to other loan types: e.g. credit cards, auto loans, etc. This is already beginning.
5. A "calling out" of the bonds insurers by the industry raters as its seen that their assets are backed solely by increasingly defaulted loans. That means they're next to worthless houses and cars and consumer "junk" that is completely non-liquid, and way too over-supplied for the shrinking consumer base during the recession phase.
6. The resulting collapse of the "house of cards" economies around the world as the markets go under.

The bulk of financial assets are incredibly non-liquid right now, and the first domino to go (well, not really the first...) has been over-priced housing.

Unfortunately, the homes have been the source of income for too many families who kept refinancing. Now that's going bye-bye. So here comes the recession which may spur this whole shebang.

But I'm no expert. This is just from reading between the lines. The Fed knows all of this risk, and has cut rates as a last resort to try to stave off the credit crunch and run-to-savings. They were not (IMO) just trying to pander to Wall Street. This is the big deal of the century.

Edit: so my point is, sucking up the dollars will further exacerbate the non-liquidity problem. The Fed is stuck between the veritable "rock and hard place".

 

[jkm1864]

The majority of US dollars is held by the rest of the world. This Iranian oil trade could spell the end of the US dollar. If other opec countries follow suite the rest of the world will dump the dollar meaning lots of them in circulation and You could possibly see the dollar in You're pocket go down to 10 cents. That is the reason we have been going to war with IRAQ & IRAN & possibly Chavez.