consequence of the Devalued dollar

[msparks]

It's commonly known that a lot of foreign countries invest in the USA in the Form of US Tresuries.

What will happen when those foreign governments want that money back becuase it is now not worth as much as it was when the dollar was higher. Could that really put a wrench in our economic growth??

I have read several articles and I"m starting to freak. I'm even thinking of putting stop limits on all of my holdings!!! Also thinking of getting into gold.

Anyone else read into this like I have??

 

[DockHoliday]

Reagan devalued the dollar way back when, and it had very positive affects.

In a nutshell, the devalued dollars makes US goods cheaper, which will attract foreign investment (same investment costs less $). This should also assist with exports.

It also makes foreign products more expensive, so it gives US companies a helping hand when competing with foreign competition. I hope it helps the steel industry!

Also, it is not that the dollar is devalued, it is that it was over valued before. China has manipulated their currency to be low so that they are more comptetitive (on top of the slave wages).

In Summary: THIS IS A GOOD THING!

 

[Al]

quote:

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Originally posted by DockHoliday:
In a nutshell, the devalued dollars makes US goods cheaper, which will attract foreign investment (same investment costs less $). This should also assist with exports.

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In another nutshell this isn't the 80's anymore. We are a total importer now. We dond't export a whole lot anymore. The paradigm has totally changed. This is a very very serious problem. Bush will keep interest rates down by using milllions of thumbs to plug the holes in the dikes until election. Greenspud is a aold broken down inept yes-man. He should go home and try to keep Andrea satisfied

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These low interest rates. Are driving the dollar lower. The poop will hit the fan bf election. Hang onto your azz.

 

[giant_robo]

quote:

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In Summary: THIS IS A GOOD THING!

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--Unless you're not in a hole of debt and were planning on using your savings to retire or spend 10 years down the road. IMHO the middle and upper middle class is being raped. These 1/2 trillion dollar defecits will hit us sooner or later.

 

[Gary Allan]

quote:

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We are a total importer now. We don't export a whole lot anymore.

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I beg to differ. We ARE THE LARGEST EXPORTER ON THE PLANET. We export SO MUCH that the ENTIRE export effort of the ENTIRE PLANET is just a little in excess of our exports. That is, we export 1.4 TRILLION $$$ of goods. We import 1.7 TRILLION $$$$ of goods. This 300 billion is the total exports from China. That is, the entire GLOBAL output of the world has NO MARKET EXCEPT OURS for which to peddle their goods. You don't see a substantial Japanese car market in Europe. Nor do you see a large Euro auto market in Japan ..or Korea ...or anywhere else. These exporting nations sell the VAST MAJORITY of their goods to the USA. THEY ARE SLAVES TO OUR DOLLAR. Without it ...they can not feed, cloth, house, and employ their people.

Who cares if we have a dollar at half its current value? If this happens ..the FOREIGN NATION SUFFERS ..not us. If we can not afford their SONYs ...they don't work. They have to layoff, cutback, downsize, reduce wages ...etc........unless they PUT IT BACK by buying US goods.

We are at the economic throne of the world gentlemen. An integrated organ that pumps the life blood of EVERY vital economy on the planet ..if we get cut ....the world bleeds.

Most of you view us as the Titanic with a slow leak...surely heading to the waterline to doom. The magic of this nation, however, is that as part of our ship sinks into the dark depths of death .....the part above the waterline is being extended.

[ January 30, 2004, 07:14 PM: Message edited by: Gary Allan ]

 

[Drew99GT]

The Defecits and the decrease in the dollar haven't yet increased long term interest rates, and inflation is very low. I wouldn't worry till inflation starts reacting to the defecits and consequently, long term rates.

Under current conditions, the devaluing of the dollar is a good thing, like someone else pointed out. It raises import prices, and lowers export prices. So it helps ease the current account defecit (trade defecit), but will bring in more outside investment because other currencies get more investment purchase power when buying financial assets in dollars.

 

[Al]

quote:

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Originally posted by Gary Allan:

quote:

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We are a total importer now. We don't export a whole lot anymore.

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I beg to differ. We ARE THE LARGEST EXPORTER ON THE PLANET. We export SO MUCH that the ENTIRE export effort of the ENTIRE PLANET is just a little in excess of our exports. That is, we export 1.4 TRILLION $$$ of goods. We import 1.7 TRILLION $$$$ of goods. This 300 billion is the total exports from China.

Most of you view us as the Titanic with a slow leak

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I beg to differ: Imports for 2003 were approx 1.52 Trillion and exports were 1.03 Trillion with a net difference of about 490 Billion.

I would hang on to my Titanic Life preserver and start boarding the lifeboats.

 

[GROUCHO MARX]

Gary is right, I believe, that we are the world largest exporter.

We are also the world's largest market. Wealth and jobs will keep us there, not one or the other.

 

[Matt89]

I think our "trade imbalance" is more of a reflection of the amazing demand for goods we have here in the US. Think about how much of the crap that we import is either unnecessary or readily available here, but at a slightly higher cost.

We have the organic capability to provide for ourselves what we really NEED here in the US. As twisted as it sounds, I think it would be an absolute disaster for the world economy if Americans suddenly became frugal.

 

[DockHoliday]

While I agree that we are importing too much these days (er, China, Taiwan, etc..), I have am starting to not trust the US trade deficit numbers. Why? Because every year of my life I have heard on the news that we are running a huge trade deficit. If this were true for so long, our economy would be lousy. Perhaps there is more to the equation, such as US Ownership of foreign companies or services.

The fed uses interest rates to speed up and slow down the economy. In general, they want the most economic growth possible while keeping inflation under 4% . Also, the Fed uses a lot more than just interest rates to manipulate the economy and interest rates. The "Monetorist" theories, as implemented by Paul Volker back in the 80s, use the money supply (AKA "M1") to influence a large number of variables. The money multiplier concept is a large part of this equation, along with the "demand" for money. The demand for money is a neat concept. When demand for money is high, people, businesses, and banks don't want to part with their money, and interest rates rise, and the economy shrinks. When demand for money is low, people, businesses, and banks will part with their dollars, and interest rates decrease, and the economy grows.

Thus, it is all about the money supply. The devalued dollar is a sign of low demand for the green back, which is a stimulus for economic growth.

 

[Drew99GT]

True, the Fed can change the money multiplier by changing the reserve requirement that banks must keep deposited with Federal Reserve Banks, but they rarely change the reserve requirement; only in drastic circumstances. The main weapon they have for changing the money supply, is buy either buying or selling treasury notes to banks, which increases or decreases the money supply availablle to be loaned out, which in turn changes the fed funds rate, and hopefully longer term rates as well, and in turn, inflation.

 

[Drew99GT]

quote:

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Originally posted by Matt89:
I think our "trade imbalance" is more of a reflection of the amazing demand for goods we have here in the US. Think about how much of the crap that we import is either unnecessary or readily available here, but at a slightly higher cost.

We have the organic capability to provide for ourselves what we really NEED here in the US. As twisted as it sounds, I think it would be an absolute disaster for the world economy if Americans suddenly became frugal.

---

That's exactly why Japan's economy collapsed; their main market was the US in the 80s and 90s, along with other overseas markets, and when those markets dried up from recesions, they didn't have a strong enough internal market to sustain their economy and demand for all the products they produced during that time period.

 

[Shannow]

http://www.nationmaster.com/graph-T/eco_imp
http://www.nationmaster.com/graph-T/eco_exp

 

[jsharp]

I believe Dockholiday is correct when he says the dollar was overvalued. For instance I'm certain I remember a time when 1 British pound = 2.75 USD. It's now 1.81 USD...

 

[Gary Allan]

quote:

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That's exactly why Japan's economy collapsed; their main market was the US in the 80s and 90s, along with other overseas markets, and when those markets dried up from recesions, they didn't have a strong enough internal market to sustain their economy and demand for all the products they produced during that time period.

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Yes, they were a "money machine" ...they found out, all too late, that trade with the USA can not be a "one way street". As they attempted to manipulate the $$$ (buying and selling it to keep it stable for their products prices) ..they did it for the entire rest of the planet. Sooner or later they ran out of steam and had far too many $$$ that they did not need. Meanwhile Tiawan, Hong Kong, Malasia, Indonesia, Korea, etc. took full advantage of a devaluated $$$ and made great inroads into our markets. The Japanese fought a valiant battle ....but could never even think of winning the war of economic supremecy. There is no other market to soak up their industrial output.

We are the biggest debtor nation on the planet ...and will stay that way. If I owe you $100 ..I need you as a lendor. If I owe you 10 trillion $$$ ...you need me to keep up my payments or you are out of business.

We are EVERY NATIONS BIGGEST customer. If your economy depends on ONE CUSTOMER for success ....you don't have a customer ....you have a PARTNER.

quote:

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I would hang on to my Titanic Life preserver and start boarding the lifeboats.

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This is the way I felt as Ronnie Reagan allowed our manufacturing jobs to exit the country on a fast track to Japan. That was, btw, the SINGLE HIGHEST transfer of wealth from our nation to another. I could not conceive of a viable domestic economy without a manufacturing base.

Well ....20 years has gone by and the "technical correction" of the Reagan administration has gone through several cycles of realignment ....and we are still here and we are still calling the shots in the world economy.


Look at it this way. The entire world is willing to slave away to provide us affordable goods for a few slips of green paper.

Let them do it 'til they get their fill

If we ever actually reach the water line ...those jobs will come back because they will be "economically viable" at that time ......which I believe will never happen.

[ January 31, 2004, 11:15 AM: Message edited by: Gary Allan ]

 

[Al]

quote:

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Originally posted by Gary Allan:

quote:

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I would hang on to my Titanic Life preserver and start boarding the lifeboats.

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This is the way I felt as Ronnie Reagan allowed our manufacturing jobs to exit the country on a fast track to Japan. That was, btw, the SINGLE HIGHEST transfer of wealth from our nation to another. I could not conceive of a viable domestic economy without a manufacturing base.

Well ....20 years has gone by and the "technical correction" of the Reagan administration has gone through several cycles of realignment ....and we are still here and we are still calling the shots in the world economy.


Look at it this way. The entire world is willing to slave away to provide us affordable goods for a few slips of green paper.

Let them do it 'til they get their fill

If we ever actually reach the water line ...those jobs will come back because they will be "economically viable" at that time ......which I believe will never happen.

---

I appreciate your insightful information

Unfortunately I don't understand all the technical aspects of the overall big picture.

Still, my gut feeling tells me there are problems that may not be so straight forward and some information that is poo-pooed by our empty headed politicians and the economists that they hire to give only good news to keep their jobs. I understand what you are talking about with the nations that we owe money to. But as China becomes the king of exports and Russian oil and their emerging industry becomes a factor again. The time may come that the dollar is trashed in favor of other currancies. And that will start the stampede to the fire exits.

Remember that the Soviet Union's collapse was not entirely due to debt. It was due mainly in part that the Rubble had no value.

Again a lot of what I think may not be true-but I think that eventually there are no more rabbits that the politicians can putt out of a hat. When you have a 25% deficit mismatch between receipts and spending- its obvious (to my distorted thinking) that that 500 Billion goes into the economy to keep it afloat. And that money is [/qb]borrowed [/qb]. I just think that bad things are gonna happpen

Thanks for your information.

 

[Gary Allan]

quote:

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But as China becomes the king of exports and Russian oil and their emerging industry becomes a factor again.

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And who are they going to sell to? The USA, that's who. You do not see unthrottled trade from the Euros. Take Holland, Switzerland, Norway, Sweden ..these nations have a VERY stable domestic economy. They balance their trade ...everyone has housing, employment, health care, education (curtailed to the nations needs), and virtually NO POVERTY. The price they pay is NO ECONOMIC GROWTH. These are happy and well cared for people.

It is somewhat similar for Japan ..except that they don't have the problems of balancing their trade due to deficeits. They have employment problems do to lack of demand ...because their goods now have to compete with the Koreans, Malasians, Indonesians, Tiawanese, etc. The rest of the world either can't afford them ...or don't let their products in without excessive tarrifs.


I don't know if you understand the principles of steam ..but it doesn't matter how much pressure you can produce out of your boiler ....without being able to condense it ..absorb that power ...it just sits there. You've got to soak it up or it performs NO WORK. It's the same with industrial output. China can produce widgits til the cows come home and do it cheaper and in such vast numbers that they can make your head spin and put us all out of work (if we were widgit makers).....

....and who would they sell them to? Themselves?

Aside from domestic auto manufacturing we have NEVER been able to afford our own consumerism. You may not be old enough to remember what a domestically manufactured stereo cost when the "Fair Trade" laws were in place (1973 ..I think). The equivalent cost today for a homegrown stereo starts out at around $5000-7000 and goes up from there. They have always been that out of reach for the masses. That is, before the abolition of the Fair Trade laws ..there was no such thing as a domestic consumer market ...at least nothing compared to the magnitude of the one that we have today.

What I'm saying is that if and when the day comes when the dollar is in the can ...then it will deserve to be there. It will then be "economically viable" to produce our own steel, electronics, auto parts, etc. ...and we will then do it. Until then there is still are very large world that is "under developed" that will always build something "for a few $$$ less" to get our hard currency to fund their further development. These developing nations will undercut the developed nations that depend on our currency as the priciple fuel for their economies ...which in turn will cause them to realign their economics and domestic manufacturing to comensate ......

...and on and on it goes...and at any point in time we will be ahead of the curve on whatever evolution is in store for the rest of the planet.


Just consider it "global administration" for a better tomorrow

 

[Shannow]

quote:

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Originally posted by Gary Allan:
I don't know if you understand the principles of steam ..but it doesn't matter how much pressure you can produce out of your boiler ....without being able to condense it ..absorb that power ...it just sits there.

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I understand the pricipals of steam, and nowhere do you need to condense it to get work out of it.

(I know what your point is and agree, however)

 

[Gary Allan]

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and nowhere do you need to condense it to get work out of it.

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Oh really? Even if you vent it to the atmosphere (like in a locomotive or an aircraft catapult) instead of returning it to the source (closed system) ....if you can see it ..it is condensing.

(all in fun)

[ February 01, 2004, 04:25 AM: Message edited by: Gary Allan ]

 

[Shannow]

Gary,
in the power industry, we don't let it condense but for the last stage or two. It exits the high pressure turbine at 725psi, and 610 degrees.

We've got 150MW, out of it, and no condensation. If we were wasteful enough, and had a half tonne per second demin plant, we could do that continuously.

(Picking at hairs here, I know)