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Roy
Quasi-Infallible Egocentric Tyrant
| Joined: | Mon Apr 4th, 2005 |
| Location: | Washington USA |
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Posted: Thu Sep 24th, 2009 09:18 pm |
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We who follow this sort of economic news see a continuing stream of such stories.
Yesterday, I watched as Larry Kudlow of CNBC, a cable business channel, got irate. What caused his ire?
A guest, a responsible business journalist, had said that the dollar had to go down to allow us to manufacture and address our trade imbalance.
Kudlow's response was that allowing the dollar to do down was part of a "commandand control economy", implying that it was somehow socialist to stop attempting to prop up the dollar and let it reach its real value.
Let us say the ire was the needed accompaniment, the correct affect to denote when a "sore spot" had been reached. Someone had just thrown mud on a Wall Street Financial Icon, and the High Priest would not let that insult pass unchallenged. (I cannot find the video of this.)
The real sore spot is that Wall Street would cease to be one of the two great financial centers of the world (London is the other). The power of Wall Street is denominated in dollars. Dollars worth less? Wall Street and its operations will be worth less.
And, all those rich guys would take a hit in the religious rite of the Culture of Narcissism Financial Version: they would all be poorer and have to take a cut in their lifestyle.
Almost makes me want to cheer against the dollar, but I won't go there. 
The reality is that we have these problems because Asian exporters, Japan, China, South Korea and others, don't exchange their dollars for their local currency. Their governments discourage this and make it easy to deposit their dollars as dollars in their banks.
By avoiding the exchange, the local currency is held down to a fixed rate. This allows the exporter to have a known rate of exchange on which to base his own financial operations and lets him continue to export while importing from the US continues to be expensive.
Sometimes the exporter is Asian, and sometimes it is an American company such as Nike.
The problem is that the US cannot keep exporting its dollars without creating an over-supply in the world, debasing its value. Further, we cannot sell to the Asian exporters if they cannot buy from the US because our goods cost too much.
Often you will hear the high price of our goods blamed on labor unions. Demagogic lie. Labor is only 25% of manufacturing's cost. Germany has strong unions and is one of the top exporters in the world.
Basically, what Wall Street wants to do is extend its dominion, the territory it controls, by having us compete with impossibly low-cost manufacturing environments such as China. Then, they can threaten us, the working people of the US, with will come after that "giant sucking sound" that H. Ross Perot referred to as our jobs left us for Mexico, China or some place even farther away.
Wall Street financiers also want a fixed currency to make their predictions easier to make, and once a profitable way to operate has been set up, they seek to protect it, even at the expense of our society's capacity to produce the wealth necessary to feed, clothe, shelter ourselves and pay for our huge standing army, our retirement benefits and infrastructure of "res publica", things of the people, such as roads, bridges and the rest.
I say that Kudlow is the "command and control" egomaniac, Wall Street-style. He wants the dollar jacked up artificially.
This is done by raising interest rates. But, if we raise interest rates, the economy slows and the dollar is worth less once again.
In fact, he is against jacking up interest rates. He want money, lots of money, fresh off the Federal Reserve's electronic printing press to pump liquidity into the economy, restore the situation to what it was like before the collapse, not understanding that collapse came out of just that.
There is simply no way out. We are going through the Financial Version of "No Exit", and it really is "Theater of the Absurd" to watch Kudlow's irrationality, one totally typical of Wall Street, the ones who primarily got us into this mess.
So, given that it is increasingly impossible to finesse our way out of this situation, as Pim of Spain argued today in his piece, the question is only when, not if, the dollar will drop through the floor, and just how bad the resultant inflation will be as energy prices rise.
Beside that, there will be international chaos as well. The Japanese, Chinese and Koreans will no longer be able to export to us. Financiers and industrialists will not be able to repay all the money they borrowed to build all those plants to sell the US goods.
That will be the third major crisis after the next one, the commercial real estate bust
From the UK press: HSABC Bids Farewll to Dollar Supremacy
HSBC bids farewell to dollar supremacy
The sun is setting on the US dollar as the ultra-loose monetary policy of the US Federal Reserve forces China and the vibrant economies of the emerging world to forge a new global currency order, according to a new report by HSBC.
"The dollar looks awfully like sterling after the First World War," said David Bloom, the bank's currency chief.
"The whole picture of risk-reward for emerging market currencies has changed. It is not so much that they have risen to our standards, it is that we have fallen to theirs. It used to be that sovereign risk was mainly an emerging market issue but the events of the last year have shown that this is no longer the case. Look at the UK – debt is racing up to 100pc of GDP," he said
Crucially, China and rising Asia have reached the point where they can no longer keep holding down their currencies to boost exports because this is causing mayhem to their own economies, stoking asset bubbles. Asia's "mercantilist mindset" of recent decades is about to be broken by the spectre of an inflation spiral.
The policy headache was already becoming clear in the final phase of the global credit boom but the financial crisis temporarily masked the effect. The pressures will return with a vengeance as these countries roar back to life, leaving the US and other laggards of the old world far behind.
A monetary policy of near zero rates – further juiced by quantitative easing – is completely incompatible with circumstances in most of Asia, the Middle East, Latin America, and Africa. Divorce is inevitable. The US is expected to hold rates near zero through 2010 to tackle its own crisis.
What is occurring is an epochal loss in the relative wealth and economic power of the old G10 bloc of rich countries compared to rising regions of the world. The euro, yen, sterling, Swiss franc and other mature currencies will be relegated along with the dollar in this great process of rebalancing, but the Greenback will bear the brunt.
The Fed's super-loose policy is turning the dollar into the key funding currency for the next phase of the global "carry trade", taking over the role of Japan during its period of emergency stimulus.
Mr Bloom said regional currencies would emerge as the anchor for their smaller trading partners, with China, Brazil, or South Africa substituting the role of the US. Australia is already linking its fortunes to China through commodity ties.
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"The force and degree of a man's inner benevolence evokes in others a proportionate degree of ill-will" - Gurdjieff
"In a time of universal deceit, telling the truth is a revolutionary act." — George Orwell
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*Phil*
Opinionated Interventionist
| Joined: | Thu Apr 21st, 2005 |
| Location: | North Carolina USA |
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Posted: Fri Sep 25th, 2009 04:02 am |
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We saw this purposeful propping up of the dollar today. Whenever the Fed, Obama, or the G20 are scheduled to make major economic speeches the Dollar always goes up. Today the FOMC, G20, and economic news was all very dollar negative. Lo and behold the dollar pops up and gold drops. This is our Treasury department intervening in the markets to paint a rosy bullish price action picture and kick the can farther down the street. They intentionally manipulate the prices so the "market opinion" of their speech is favorable to them. Happens every time. In a day or two reality sets back in.
If and when the world moves to an international reserve currency the benefit that accrues to us ordinary citizens will be zilch, zero. It's purpose is for the fun and convenience of the Central Banks and major institutions being separate from the highly politically manipulated and unstable national fiat currencies. You and I will be stuck with dollars.
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Pecca fortiter, sed fortius fide et gaude in Christo!
Galactic Signature: Blue Self-Existing Monkey
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