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Your Bottom Dollar
October 30, 2007 5:06 AM   Subscribe

The pound has hit its highest level against the dollar in 26 years.
posted by chuckdarwin (75 comments total) 4 users marked this as a favorite

 
1 CAD = 1.046 USD
1 AUD = 0.917 USD
1 EUR = 1.438 USD

1 USD = 0.003 ASS
posted by eriko at 5:14 AM on October 30, 2007


Thanks for reminding me that my pending holiday in the UK is costing me more an more :)
posted by terrapin at 5:17 AM on October 30, 2007


At what point do India and China start outsourcing jobs to the U.S.?
posted by three blind mice at 5:24 AM on October 30, 2007 [1 favorite]


Buy! Buy! Buy!

I mean Sell!

Arghhhhhh.
posted by seanyboy at 5:29 AM on October 30, 2007


Georgie, you're doing a heck of a job!

Not that its really fair, or accurate to blame it *all* on Bush, but you've got to admit, spending close to half a trillion dollars (and counting) by going ever deeper into debt isn't helping the economy in the slightest. And that's ignoring all of his other financial disasters.
posted by sotonohito at 5:30 AM on October 30, 2007


Flannel-lined everything. Free shipping. That LL Bean motherfucker is regretting that shit now, baby.
posted by jimmythefish at 5:32 AM on October 30, 2007


seanyboy,

I'll give you 150% of your house price at 3% if we just don't think about the future and you keep working at 7-11.

Georgie is dumb as a sack of hammers but hasn't done it all...

James.
posted by jimmythefish at 5:35 AM on October 30, 2007


sotonohito, read up on The Great Iraq Swindle.
posted by chuckdarwin at 5:37 AM on October 30, 2007


Another day another dollar worth less against the pound.
posted by flapjax at midnite at 5:38 AM on October 30, 2007


I'll betcha dollars to donuts that donut's worth more than that dollar's worth!
posted by flapjax at midnite at 5:40 AM on October 30, 2007 [2 favorites]


Does this mean a pound cake is gonna be more expensive?
posted by flapjax at midnite at 5:40 AM on October 30, 2007


Man, we're taking a pounding here!
posted by flapjax at midnite at 5:41 AM on October 30, 2007


Shit.

(I live in the UK. I write for a living. I sell books to the USA. I have cheques to the value of about three months' income for work I've done over the past two years sitting on my desk, waiting to go to the bank. Guess what currency they're in? If they were going in at the exchange rate that prevailed when I signed the contract they'd be good for about four months' income.)

Bitter? I'm not bitter: just pissed off.

Anyone know any decent Chinese SF publishers?
posted by cstross at 5:43 AM on October 30, 2007 [1 favorite]


Never, three blind mice; India and China's currencies are tied to the value of the USD, so they fluctuate with it. China's renminbi is officially pegged to the USD, while India's is just actively traded with USD by the RBI to minimize volatility. All three countries are wise to the fact that their economies are extremely interdependent, and major fluctuations in the relative values of their currencies could be...unpleasant.

A major devaluation of the USD is in many ways good for the USA as it decreases the value of their (massive) debt, and increases demand for exports. It's not great, but it's better than economic collapse. Here's a prescient editorial from January, written by some kook. At this point the dollar devaluation is certainly planned and may be as extreme as he suggests; let's just hope it doesn't go into a free-fall.

I need a donut.
posted by mek at 5:43 AM on October 30, 2007


I'll betcha dollars to donuts that donut's worth more than that dollar's worth!

I'll bet dollars to donut holes...
posted by i_cola at 5:46 AM on October 30, 2007


I don't know jack about economics, but "weak dollar" sounds bad to me and the comments here seem to bear that out. And yet on NPR this morning they said many (most?) economics say a weak dollar is the silver lining in an otherwise bad economy because it means exports will go up, especially to China, which has a strong economy.

I'm sure, SURE, the economists aren't talking out of their asses. I mean, what could possibly go wrong?
posted by DU at 5:47 AM on October 30, 2007


Sign this petition to protest the falling dollar (among other US financial disasters [pdf]) and it will automatically be faxed to your representatives, free of charge.
posted by fatllama at 5:49 AM on October 30, 2007


mek, China's currency was unpegged from the USD a little while ago. They still do make efforts to keep it stable, though.
posted by Space Coyote at 5:49 AM on October 30, 2007


Space Coyote is correct, the Renminbi is now pegged to a basket of currencies including the Dollar, Euro and Yen (amongst others) and is allowed to fluctuate within a small band, I think it's about 0.3 or 0.4% daily.
posted by knapah at 5:54 AM on October 30, 2007


It's certainly not good to have a weak dollar when we depend so much on foreign imports. It means we will spend a lot more for pretty much everything we buy. Currently it seems a lot of imports are actually quite subsidized -- that is, why hasn't the cost of a Toyota gone up 20% in 2007? (That's almost the amount of value the dollar has lost since Jan 1.)

I don't think foreign goods will stay affordable much longer. There are ups and downs for that, obviously. It means American cars (among other things) will suddenly be competitive with imports.

India and China's currencies are tied to the value of the USD, so they fluctuate with it.

China stopped pegging its yuan to the US dollar back in 2005. As the dollar's value declines, it will buy less Chinese goods. The real cost to Americans of virtually everything will increase proportionally. And for some reason, I suspect our wages won't.
posted by knave at 5:55 AM on October 30, 2007


No time for a long comment, but the Fed has strongly declared their intentions: to try to prop up house pricing, they're willing to destroy the dollar.

The fundamental problem is that we owe, in every level of the economy, far more than we can pay, and that debt is denominated in dollars. We can either have a deflationary debt collapse, or, eventually, a hyperinflationary collapse. The second approach causes much more total damage over a much longer period, but in any given month, it looks less painful, so that's what we'll opt for.

The real answer, of course, was not to have a Fed that encouraged derivatives and speculation via money printing, injecting large sums of cash anytime the economy signaled pain. Couple that with responsible government fiscal policy, and we'd have been sweating and struggling to compete with the cheap Chinese labor, but we'd have been okay. Unhappy, but okay. As is, we're floating along in a morphinecash-induced euphoria, but hmm, that's odd, our heartbeat is a little irregular....

This is a slow-motion disaster, and you can thank, in order, Greenspan, Clinton, and Bush.
posted by Malor at 5:55 AM on October 30, 2007 [4 favorites]


It means American cars...will suddenly be competitive with imports.

In price maybe.
posted by DU at 5:56 AM on October 30, 2007 [1 favorite]


Oh, and now, Bernanke. He'll probably get most of the blame, but he has few options. Greenspan backed him into a corner.
posted by Malor at 5:57 AM on October 30, 2007


Here's a depressing chart (no pun intended).
posted by knave at 6:08 AM on October 30, 2007


there are actually really great economists on this board that I have learned a lot from in the last couple months of the dollar´s steep decline. I live and work in brazil and I find myself discussing the weak dollar quite frequently. My general speal is this.

The weak dollar isn´t the result of the war in the middle east, it is the result of years and years of strong dollar philosophy from allen greenspan tied in with the low interest rates, and sub prime loans. It started pretty much befor george bush took office and no one can really put the blame solely on the current administration. Where you can put blame is the fact that the war in iraq took huge amounts of money from the federal reserve thus in this time of crisis when it would be possible to reinvigorate the economy for example massive public sector spending (WITHIN THE COUNTRY!!!) there is nothing to spend.

I would love someone to help with my speech to foreigners because I live in a city where I´m a one of the only american representatives.

thanks,

lou
posted by LouieLoco at 6:13 AM on October 30, 2007


When the Canadian dollar was trading at less than seventy cents to the American dollar, that was, we were told, bad for the Canadian economy. Not that it's trading at par or better, we're being told that it's bad for the Canadian economy.
posted by The Card Cheat at 6:13 AM on October 30, 2007


Thanks for the corrections knave, you are of course correct. It is in China and India's best interests to very slowly wean their currencies off the USD value, though; any sudden changes and businesses will collapse as demands for their products vanish. It will be good for them in the long run, though, as they become less export-dependent. That will, of course, eventually equate to major cost-of-living increases in the USA, which will obviously hurt the low and middle classes the most. But how long did you expect the Wal-Mart lifestyle to last?
posted by mek at 6:14 AM on October 30, 2007


Toyotas/Hondas/etc are often assembled in the US, which helps keep their price stable. There was an engine plant near my old house. Japanese cars tend to be very expensive here (the UK) because they are actual imports.
posted by chuckdarwin at 6:18 AM on October 30, 2007


Sorry Charlie :)

Loved Halting State though!
posted by i_am_a_Jedi at 6:19 AM on October 30, 2007


"It's bad for the economy" inevitably means "it's bad for the short-term economy" which translates to "it's bad for the status quo." Logging is the typical economic-apocalypse story for Canadians; oh noes, the Americans won't buy our wood! Frankly, the sooner we wean ourselves off unsustainable resource markets the better: that's only "bad for the economy" in the most myopic of visions. The devaluation of the dollar is "good for the economy" in a similar sense.

The exploding American housing market has left my province with a lot of scars; every time I drive to the interior I get to see new clearcuts.
posted by mek at 6:20 AM on October 30, 2007 [3 favorites]


I think there's a linguistic bias against 'weakness' in currencies*. It makes people think that there's automatically something wrong. Although there are big structural problems in the US economy, there are advantages for exporters and others in having a currency declining from historically high levels.

Anyone for "Reagan proved that deficits don't matter"?

* Haw haw, dollarite weenies. Here's 50 pence to buy an apartment.
posted by athenian at 6:31 AM on October 30, 2007


What goods does America export?
posted by chuckdarwin at 6:53 AM on October 30, 2007


Is Freedom a good?
posted by The Card Cheat at 7:01 AM on October 30, 2007 [4 favorites]


Airplanes and blockbuster movies.
posted by kuujjuarapik at 7:01 AM on October 30, 2007


athenian, it's as simple as looking at how many people in the US will benefit from better-performing exports vs. how many will suffer badly from reduced buying power. My prediction: the numbers will be heavily biased toward the latter.

Note that the devalued dollar is only one problem confronting poor and middle-class Americans right now. The rising cost of oil is partially because it's dollar-denominated, and partially because it really is getting harder to produce. It's already affecting a lot: commuters, transportation (and therefore cost) of goods, manufacturing costs, food production costs (food competing with biofuels, agriculture powered by petroleum at a rate of 10 calories in for every 1 out). These are only going to get worse, as oil gets harder and harder to extract.

And that's only a slice of the bad economic news for the US. The negative savings rate (for a couple years now) means we consistently spend more than we earn. The nebulous thing known as the "economy" is fueled by this kind of self-destructive behavior. The house-as-ATM thing is over now, with the subprime fallout still raining on us, but that hasn't slowed spending much. Now the debt is being shifted to even worse deals, like credit cards, with interest rates from 18 to 33%. The breaking point for consumer defecit-spending is very near, at which point, we might stop buying HDTVs and SUVs, which frightens a lot of people. The holders of the credit card debt will be pretty happy, since it's a lot harder to get out of debt via bankruptcy now, but everyone else will suffer.

And this is totally ignoring the government war spending, underfunding of social services and mounting debt. I don't see any of this ending well.
posted by knave at 7:02 AM on October 30, 2007 [2 favorites]


What goods does America export?

Too easy.
posted by DU at 7:02 AM on October 30, 2007


Not that its really fair, or accurate to blame it *all* on Bush, but you've got to admit, spending close to half a trillion dollars (and counting) by going ever deeper into debt isn't helping the economy in the slightest. And that's ignoring all of his other financial disasters.
posted by sotonohito at 8:30 AM on October 30


Hit the brakes, folks. The weak dollar benefits the one part of the economy that is actually working, heavy equipment manufacturers, like John Deere, Ingersoll Rand, etc. In other words, all those companies that no one pays any attention to are making record profits. The weak dollar won't help car exports because no one ever wants to buy American cars, but they do want to buy harvesters, cranes, front end loaders etc. If a 3-yr boy likes to pay with it, it's probably doing well.

So the problem isn't that the currency is weak, the problem is that the fed can't raise interest rates to attract foreign capital. In fact, it's the cutting of interest rates to stabilize the domestic economy (based on housing) that's driving the dollar down further.

So for us individuals the situation sucks, but from a global perspective we should have seen it coming. You don't bring 2.6 billion people into the developed world without slowing the U.S. economy.
posted by Pastabagel at 7:03 AM on October 30, 2007 [3 favorites]


Should have been "play with it" up there, obviously. I exported my "l" to another comment.
posted by Pastabagel at 7:04 AM on October 30, 2007


What goods does America export?

Too easy.


What, America exports ease?
posted by chuckdarwin at 7:14 AM on October 30, 2007


Since I posted my comment, I read that Agco (AG, maker of agricultural equipment and replacemenzzzzzzzzzz) is up 10% on way better than expected earnings.

Basically, as commodity prices rise, the earnings of companies that help harvest or mine those commodities will rise too. It appears that this is the case for all of these kinds of companies with the exception of Caterpillar, who appears to be tied too closely to housing and its attendant slump. MY personal favorite here is Deere (DE), only because it is tied so closely to corn and the insane rise in that commodity, but IANA financial advisor, past performance is not indicative of future results, bridge freezes before road surface, etc.
posted by Pastabagel at 7:16 AM on October 30, 2007


Bitter? I'm not bitter: just pissed off.

Just check in with the lobsters in a few years. Look out for stray kettenkrads, you wouldn't want to land in the wrong novel.
posted by b1tr0t at 7:25 AM on October 30, 2007


Oh, a couple last things then I will shut up:

1. The dollars situation is about to get a lot worse when (okay, "if", but come on) the Fed cuts rates by a quarter point on Wednesday.

2. The thing to notice here is the "highest in 26 years". Guess what else is at a nearly 26 year high? Oil. That graph ends in 2007, but the price of oil today is around $93. Too bad the axis of that graph doesn't go that high.

3. You know what else started becoming unsettlingly large 26-years ago? The federal deficit.
posted by Pastabagel at 7:30 AM on October 30, 2007 [2 favorites]


That deficit graph is hilarious. Party of fiscal responsibility indeed.
posted by DU at 7:38 AM on October 30, 2007


Oh, whatever. It was all worth it for all the cheap oil we have now.
posted by XQUZYPHYR at 7:44 AM on October 30, 2007


Also, completely unrelated- would anyone like to buy my car?
posted by XQUZYPHYR at 7:44 AM on October 30, 2007 [1 favorite]


Guess what else is at a nearly 26 year high? Oil. That graph ends in 2007, but the price of oil today is around $93. Too bad the axis of that graph doesn't go that high.

I'm not sure exactly what point you were making, but the point I like to make (because I'm sadistic) is that, yup, the US dollar really doesn't buy much of anything anymore.

Also if you plot the S&P 500, and the other major indices, which are confusingly quite up year-to-date, divided by USDX, a weighted average value of the USD vs major world currencies, they're all actually down, in USD buying power. Which doesn't necessarily mean anything in domestic terms ("hey, this number and that number if I do weird math equal something going down!") but I don't think it's a sign of a healthy economy or anything.

It's really getting to the point where all the "America is fucked" stories are kind of sad. I feel like I shouldn't discuss it anymore because it's kind of like telling a homeless guy that he's homeless. Either he knows, so, shut the fuck up, or he doesn't, and man, I wish I could be that blissfully unaware of my surroundings in that kind of situation.
posted by blacklite at 8:18 AM on October 30, 2007 [1 favorite]


Where you can put blame is the fact that the war in iraq took huge amounts of money from the federal reserve thus in this time of crisis when it would be possible to reinvigorate the economy for example massive public sector spending (WITHIN THE COUNTRY!!!) there is nothing to spend.

Who is getting most the Iraq Trillion anyway? Between operating an army (of Americans), paying expensive private contractors (e.g. Blackwater: American), buying military hardware (e.g. Boeing, Lockheed Martin: American), reconstruction (e.g. Halliburton: American) and bribes and kickbacks (e.g. US govt. cronies: American), the Iraq war loot seems to be staying in America.

What goods does America export?

Music, movies and microcode? I'm sure there's a fourth one too...
posted by hoverboards don't work on water at 8:32 AM on October 30, 2007


Jim Rogers. Larry Summers.

What goods does America export?

Airplanes. Software. Semiconductors. Other stuff.

The dollars situation is about to get a lot worse when (okay, "if", but come on) the Fed cuts rates by a quarter point on Wednesday.

You may be right, but that's a pretty strong indictment of the EMH, no?
posted by Kwantsar at 9:13 AM on October 30, 2007


knave writes "It's certainly not good to have a weak dollar when we depend so much on foreign imports. It means we will spend a lot more for pretty much everything we buy. Currently it seems a lot of imports are actually quite subsidized -- that is, why hasn't the cost of a Toyota gone up 20% in 2007? (That's almost the amount of value the dollar has lost since Jan 1.)"

This is big in Canada. Goods manufactured here are cheaper in the US than they are here and people are agitatedly demanding some moves towards parity. The propaganda in book stores is especially hilarious.

knave writes "Here's a depressing chart (no pun intended)"

It's amazing yet not surprising. Anyone who was paying attention knew parity was coming.
posted by Mitheral at 9:16 AM on October 30, 2007


There's an old war movie named Memphis Belle where a B-17 Bomber engine caught fire and in order to put it out the pilot had to put the plane into a near vertical dive in a last ditch effort to put it out. It worked and Matthew Modine's character saved the lives of his crew with this dangerous/suicidal maneuver. Whenever I think about the fall in the dollar I think of this scene and then I wish that George Bush actually was a pilot during the war instead of playing one on tv...
posted by any major dude at 10:30 AM on October 30, 2007


So, wait, I should sell my house and buy a houseboat? Which islands are UK colonies, again?

argh.
posted by Unicorn on the cob at 10:38 AM on October 30, 2007


At what point do India and China start outsourcing jobs to the U.S.?

Wipro, a large Indian outsourcing firm, is opening software engineering facilities in the southern US, so I guess it's already started.
posted by cmonkey at 10:55 AM on October 30, 2007


Malor: Greenspan, Clinton, and Bush.

Your argument is interest rates have been too low (Greenspan) and too much debt (Bush, but not Reagan?). Where does Bill come into this?
posted by rakish_yet_centered at 11:20 AM on October 30, 2007


What goods does America export?

Weapons, wheat, tobacco, software, music, movies and debt.
posted by Avenger at 11:37 AM on October 30, 2007


I live in the UK. I write for a living. I sell books to the USA. I have cheques to the value of about three months' income for work I've done over the past two years sitting on my desk, waiting to go to the bank. Guess what currency they're in? If they were going in at the exchange rate that prevailed when I signed the contract they'd be good for about four months' income.

I feel your pain.

Shit, all of my billing for the translating work I've done is sitting in a Japanese bank account right now. I have to go to Japan in person to set up some way of accessing it. The rising Canadian dollar is steadily eating up my profits.
posted by KokuRyu at 12:07 PM on October 30, 2007


It now almost makes sense for me to fly to NY to go to either B&H or Adorama and buy the lenses I want for my Zeiss Ikon (a 40th birthday present to myself).

It'd be cheaper than buying them in the UK as long as the customs people don't find them in my luggage and ream me for the import duty.
posted by hardcode at 12:09 PM on October 30, 2007


hardcode, I've got a US Treasury cheque in my wallet, but it's worth fuck-all now.
posted by chuckdarwin at 12:32 PM on October 30, 2007


This may be a dumb question, but I never took any economics courses and I'm not exactly savvy on personal financial planning: what steps should we American MeFites take to insulate ourselves from all this impending doom? How do we beat the system?
posted by Riki tiki at 12:45 PM on October 30, 2007


I am just looking for a used car...what is all this?

Oh, hang on...what model is it, XQUZYPHYR?
posted by UbuRoivas at 12:58 PM on October 30, 2007


Bought oil Futures in 1999.
Converted all investments to Euro based in 2000.
Sold house in 2004.

Betting against George W. Bush was the smart bet.
posted by tkchrist at 1:31 PM on October 30, 2007


No one hates GWB more than I, but he has nothing to do with this. The dollar's "strength" is a measure of the relative demand for dollars vs other currencies. Which, in a rational market, should be a measure of the relative demand for US goods vs the goods from the rest of the world. This has been seriously out of whack for a long time. The dollar should have been declining along with the demand for US goods. When you're running deficits of 6% of GDP, it's only a matter of time before your currency will start to decline. That trade deficit means that, at current exchange rates, the rest of the word doesn't want dollars as much as the US wants Euros/Yen/etc. Eventually, these things need to balance out. It's OK for a developing country to run deficits, since that is just another way to say that they are importing capital - using that money to develop their economy so they can product more goods and eventually pay off that debt. A developed country like the US should be *exporting* capital.

But demand for the dollar has been maintained, despite the lack of demand for things that dollars can buy, due largely (but not solely) to the Chinese. The dollar peg was essentially a subsidy for Chinese manufacturing - instead of giving money directly to Chinese manufacturers, they gave it to the US so the US could by Chinese goods at a lower price than the market would charge.

The "Tigers" (and other manufacturers) had to follow suit, or be priced out of the market by China - compounding the problem. Also, after 1987, developing countries all poured money into the dollar to have enough reserves to avoid future currency runs. This, again, is not how a "rational" market would do things. Excess capital should flow to where it would earn the greatest return, which ought to be capital-poor countries, like China, not capital-rich countries like the US.

Low interest rates have nothing to do with the dollar's strength. If you want a strong currency, you should offer *high* interest rates. You want to attract foreign investment. (Although, the fact that the US's debt is denominated in dollars makes this largely moot. )

In theory, the Chimp's war sucked up foreign investment that could have been invested in ways that would have increased our productivity, but I don't think anyone ever expected the US to grow it's way out of our massive trade deficit. Besides, the alternative preferred place for foreign investors to park their money was the housing market - which increases our productive capacity not one bit.

In the short run, this is bad for the US. Essentially, the rest of the world was subsidizing the US to the tune of 6% of GDP, and never really expecting to get that money back. That's a hell of a gift. And any sudden change is bad news. But in the long run, having a currency that actually reflects the relative value of your goods and services is probably a good thing. The US has been moving resources out of sectors in which we almost certainly had a comparative advantage - manufacturing and IT. The fact that the world has been replacing white-jumpsuited, Demming-quoting, robot tending workers with Chinese peasant women is most likely a net loss for human productivity.
posted by bonecrusher at 1:32 PM on October 30, 2007 [1 favorite]


No one hates GWB more than I, but he has nothing to do with this.

Nonsense. The reason for the strong dollar? The US was clearly trying to keep debt under control in the 1990s. This shows that that the people behind the dollar presses were being responsible.

Shrub gets elected, and the first thing he wants is tax cuts, and the second thing he wants is spending increases. He gets both. 9/11 happens, and he gets both in spades.

The US deficit skyrockets. The US debt has nearly doubled since he took office. He has vetoed exactly one spending bill in his term -- a $50 million dollar increase in SCHIP.

The world sees this. They see the dollar presses rolling. They see a president and a congress who are more than willing to print dollars rather than being fiscally responsible. Thus, they refuse to pay the old prices for the dollar.

The world isn't betting on the US dollar inflating. The world has accepted that the US dollar has inflated, and they're discounting the value because of it.

GWB and the GOP Congress did this. They cut the taxes. They wrote and approved the budget crushing spending bills. They burned trillions in Iraq.

Not Clinton. Bush.
posted by eriko at 1:50 PM on October 30, 2007 [3 favorites]


I think it might be time for an Internet shopping spree.
posted by cholly at 2:18 PM on October 30, 2007


Neither Bush nor Congress control "the dollar presses". That's controlled by the Federal Reserve (which, for the entirety of Clinton's tenure and most of Bush's, was headed by the same guy). The dollar, like all major modern currencies, is deliberately kept away from the political process. Congress cannot "print dollars" to fund federal expenditures.
posted by bonecrusher at 2:27 PM on October 30, 2007


No one hates GWB more than I, but he has nothing to do with this. The dollar's "strength" is a measure of the relative demand for dollars vs other currencies.

When you're running deficits of 6% of GDP, it's only a matter of time before your currency will start to decline.

Who did you think was running those deficits?
posted by mek at 2:30 PM on October 30, 2007


Who did you think was running those deficits?

That's the current account deficit, not the federal budget deficit, so the answer is "all of us." The question is, why did the rest of the world lend us the money to do it? The answer is almost certainly not, "because they're expecting future growth in American export industries will mean that in the future, the US will have exports that they want". The answer appears to be, "because it will keep the Renminbi low enough that Chinese exports will be very competitive and allow for rapid industrialization."
posted by bonecrusher at 2:36 PM on October 30, 2007 [1 favorite]


it means exports will go up, especially to China

The USA has lost over 3 million manufacturing jobs since 2001 and 223,000 manufacturing jobs in the last year alone.

The old standby of "a low dollar results in increased exports" doesn't work in a country that has already exported its manufacturing sector and is running out of natural resources.

You'll be fine as long as China plays along, which they sort of have to, but if they can find other people to buy their products (perhaps if the US dollar gets even more low) then you'll have to spend even more of your money rebuilding and retraining your manufacturing sector before you can even start to make an impact.

Here's hoping that American ingenuity finds a way to squeeze wine out of its collective mind-grapes, and not wrath.
posted by furtive at 2:53 PM on October 30, 2007


The UK has lost masses of jobs in manufacturing too and it's doing fine.

There was a very interesting article in the Economist a while back where they showed how much manufacturing employment had declined globally. There is a reference to it here
.

There are even suggestions that China has actually reduced employment in manufacturing because hideously inefficient centrally-planned state run industries are closing.
posted by sien at 3:27 PM on October 30, 2007


The Fed Rez publishes the amount of dollars added into circulation by way fo printing press. Its called "M3"
Oh hai, wait, nevermind.
They decided to stop publishing the M3 figure in the spring of 2006. No explanation given for the discontinuation.
Merely a coincedence in terms of the current "situation" (at leeast thats what Castro called it when the Soviets turned off Cuba's subsidies)

For those not yet feeling the inflation, ask someone who works with supply chains... Big price increases are already working their way up the chains.
The US economy is about to get eaten alive by inflation.

If we're lucky the dollar-slide will be controlled enough that the US$ gets to be the new currency at the cheap end of the carry trades.


Nice try including Clinton in the blame for this mess. Those are also reeally nice houses Cheney and Rumsfeld bought themselves last year.
posted by Fupped Duck at 5:20 PM on October 30, 2007


No one hates GWB more than I, but he has nothing to do with this.

I really wouldn't say so. I wish I could link to a 10-year USD-EUR chart, but if I could, you'd see that the dollar's highest point against the euro was in...October 2000, with the euro trading at just 0.82 USD. Nowadays it's at 1.44 and climbing. At this pace it may reach 1.64 before the end of Bush's presidency, doubling its price in dollar terms in just eight years. Of course, that does not imply any causal relationship, but it still is significant.

The federal budget deficits, together with private sector borrowing, have fuelled the current account deficits. Of course, the Fed is also partly responsible: reasonably, it should have balanced the public spending spree by ratcheting up the interest rates far earlier so as to tighten private spending, and encourage private savings. Instead, both the government and the private sector have been living well above their means for too many years now, relying on money borrowed abroad. That can't last for ever, and sooner or later, gravity takes over.

The danger now is that the dollar enters a vicious circle: foreign buyers of dollar-denominated debt (even those not caught by the subprime mortgage fiasco) are now feeling pretty foolish, because, even with high interest rates (in dollars), they are losing money (in their own currencies). Thus, they are now more likely to put their savings into euros, pounds, Swiss francs, canadian dollars or even pocket lint (an underrated currency) than in USD. This in turn accelerates the USD decline, and pushes interest rates upwards (since it's the only way to try to keep financing the current account deficit).

Despite the high interest rates, rising raw material prices on the other hand keep fuelling inflation. Here in Europe, the rise in oil prices is not very noticeable, because the euro has kept more or less pace with the oil barrel. To a lesser extent, the same happens in the rest of the developed world. As a result, global oil demand keeps rising, while oil becomes ever less affordable in dollar terms.

Of course, all of this has happened before. It was called stagflation...
posted by Skeptic at 5:48 PM on October 30, 2007 [1 favorite]


Of course, the Fed is also partly responsible: reasonably, it should have balanced the public spending spree by ratcheting up the interest rates far earlier so as to tighten private spending, and encourage private savings

Skeptic - that makes no sense. Increasing interest rates should attract *more* foreign investment (if said "investors" were concerned about return on investment - which China is not). The only way to head off this problem would be to discourage foreign "investment". Either though foreign trade restrictions or through subsidizing US export industries. Neither Bush nor Clinton (nor any mainstream US politician) had any interest in that.

(And the US was running trade surpluses during the stagflation of the 70s.)

The dollar was strong because China wanted it to be strong. No one was investing in the US because that was where the best return on capital was (everyone except for the BOC was trying to put their money in China...), they were "investing" in the US to support their export industries. The dollar decline would have started a long time ago without its active propping up by the Chinese govt (and, to keep from being left out, the Korean, Japanese, Taiwanese, etc govts).

*Everyone* knew this was coming (I've been short dollars since 2000). The trade deficit was not sustainable, and the dollar was eventually going to adjust. The Bush administration has been a tragedy for the US (although the total deficit is not that bad - 2.5% of GDP would almost get you into the EU back in the day - it certainly can't compare to what Regan got up to - the real tragedy is that that money was wasted), but the dollar slide isn't its fault. And if we were currently in the second Gore administration, it still would have happened. It doesn't matter how many Nobel Prize-wining, Futurama-appearing, all-around-excellent dudes you have in your government, -6% of GDP equals currency adjustment.
posted by bonecrusher at 6:23 PM on October 30, 2007 [1 favorite]


Nice try including Clinton in the blame for this mess. Those are also reeally nice houses Cheney and Rumsfeld bought themselves last year.

I've been jumping up and down about the bubbles we've been in since late 98 or so. This has been building a LONG time. Bush and Bernanke are just inheriting the insane policies of Greenspan and Clinton. Very broadly; 'strong dollar', print lots of them, foment bubbles, tax all this new false 'wealth', and then jigger the books and call a steadily increasing deficit a 'surplus'. Bush seemed to be hoping for a 'soft landing' in the dollar, but I think that's pretty damn unlikely once all our creditors figure out that we don't have the assets to pay them back.

Everything has causes, and you can keep tracing things back all the way to the Great Depression, but the proximate causes of the bubbles we're now (stock market, partially popped, debt, and real estate) appear to be a period of monetary disorder starting in about 1995 (printing too much money), and a failure by the Fed to understand the dangers of derivatives.

We are in DIRE trouble. To get a country this wealthy into this big a mess, it takes a long time. This has been building, really, since Reagan took us off the idea of a balanced budget.

Economics is slow. Any given President can't do much about the economy, even in an eight-year term; a ship this big does NOT turn around quickly. Each President gets credit for the successes (and is blamed for the failures) of his predecessor.

It's easy to blame Bush, but some of us have been yelling from the rooftops about monetary disorder since before he even took office.
posted by Malor at 10:05 PM on October 30, 2007


It doesn't matter how many Nobel Prize-wining, Futurama-appearing, all-around-excellent dudes you have in your government, -6% of GDP equals currency adjustment.

This is so well put, just perfect.
posted by Malor at 10:06 PM on October 30, 2007


Congress cannot "print dollars" to fund federal expenditures.

They do so by simply spending more than the government takes in, and ordering debt issued to cover the bills.

Take it as a black box problem. The government has no savings (we know this, the $9T debt, remember?) If $1 dollar goes into the government in taxes, and $1.2 dollars comes out in spending, what did the government do? The government created twenty cents, and if need be, will tell the Federal Reserve to mint the dimes (more accurately, to sell the T-bills and T-bonds to cover the debt, that sale mints the dimes)

The whole point of "Full Faith And Credit" is that the government needs to act with Faith and Credit. Since 2000, it has spent money as if there was no tomorrow.

The world has lost faith in the dollar.
posted by eriko at 5:01 AM on October 31, 2007


eriko - that isn't how it works. If the US government wants to spend $1.20 and all they have is $1 they do the same thing you or I have to do. They find someone with an extra 20 cents who's willing to lend it to them, and promise to pay it back, at interest. C.f. http://www.treasurydirect.gov/ This process no more "creates" money than you do when you pull out your VISA.

There is an entity that can create money - that's the Federal Reserve. They don't take orders from Congress. They're deliberately kept separate from elected officials, specifically to prevent the scenario you mention. 1/2 of their governors are appointed by the president, the other half come from private banks. And they couldn't care less about the federal budget deficit. They certainly don't create inflation to ease the federal debt burden. For a surprisingly entertaining description of how it works, see Greider's book, Secrets of the Temple.
posted by bonecrusher at 8:20 AM on October 31, 2007


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