Posted on 11/27/2004 1:07:30 AM PST by jb6
look if I borrow $100 dollars at 4% for 10 years.
the currency appreciates at -3% with inflation at -3%
It seems like a positive return if you sit put in the US of 1% but if you loaned it from Europe then its -2% (and thats if their inflation matches ours)
Thats ignoring the fact that thanks to that 100 dollars I increase my growth from 3 to 4 or 5 % so I m getting a double benefit. My oponent is loosing their investment at
-2% per year & I gain a marginal improvement on my rate of growth. This is how I c it without a whole lot of ecconomic mumbo jumbo.
Their taxes are relatively low. When Warren Buffett (SP?) came out and essentially said, "You people are nuts with this Prop 13 thing" you could almost see them passing out the torches and readying the battering rams to storm the castle. In NYC we have over-inflated apartments -- two bedrooms selling for $1 million and more. But the people who buy those can afford them. It's Wall Street money and left over dot com money. In California you have people just scraping by to make payments on a $750k two bedroom that would be reasonably priced at $250k in any sane universe.
(o.s. I drove all night once from New Orleans to Miss. in a tiny rental car to see Roanoke. It was worth it!)
Economic theory is just theory and can fall victim to unforeseen political events, war, embargo,terrorist attack or an attempt of the President and Congress to buy us out or recession.
That said if you place a 20 year gold chat on top of a 20 year dollar chart you will see inverse spikes and dips.
Stock market, I am not sure but investors do not like uncertainty. The big difference now from the 1970's is that the market has lots more traders and fewer investors. Traders and investors have very different market strategies. If the traders can hang in there the market may not crash. However, each time the dollar declines the market takes an invisible hit.
The Economist says "Don't watch Greenspan watch OPEC."
Times Online
2November 26, 2004
Q&A: The falling dollar
Why is the exchange rate of the dollar so important?Unless you have a pre-Christmas shopping trip to New York planned, you might think that how many dollars you can get for your pound or euro is insignificant to you personally. But in today's global village, where businesses in Britain, Germany, America and the Far East are often inter-related, the currency policy of the world's biggest economy is hugely influential.If a British business wants to sell its goods to the United States, while its costs are often in pounds or euros, its sale price will be in dollars, and therefore its prices now are going to be 30 per cent more expensive than they were three or four years ago, when the euro was at dollar parity - making them very uncompetitive. Probably the most notable example of how this might affect a business is Jaguar, which has closed down its historic factory in Coventry simply because demand for its luxury cars in the United States has evaporated.The US accounts for 43 per cent of all overseas direct investment by British companies, more than the entire EU, which accounts for 35 per cent.
The industrial group Tomkins this week blamed the weaker dollar for wiping £220 million from its reported sales and £22.8 million from its pre-exceptional operating profits in the first nine months of the year.The drugs sector is especially vulnerable to a falling dollar. Robin Gilbert, of Numis Securities, said: "Short term, the weaker dollar is a drain on the pharmaceutical sector. The US is responsible for more than 50 per cent of drug company profits." Also key in the most recent run on the dollar has been the growth as an industrial power of China, with its growing demand for raw materials (whose prices are often set in dollars) and increasing industrial output for export, helped by very low labour costs.By keeping the dollar low, American exports have had a better chance of being competitive against cheaper Chinese goods on the international market.What is the Washington Government's position in this?A week ago, US Treasury Secretary John Snow was in Europe, visitng finance ministers and reinforcing the message that Washington's policy was not to intervene in the currency markets. "It's our policy because it's our policy," he said.In the past four years, under President George W Bush, the American Government has built up massive trade and borrowing deficits. To trade its way out of the former, the American Government is trying to help US exporters by keeping the dollar articificially low, thus making their goods less expensive, relative to European rivals, in China and other expanding markets. So the Americans sell more goods and create more jobs, and as they tend to import less of the pricy European goods (as a result of the dollar policy), their trade deficit is reduced, but at the expense mainly of European businesses and jobs. Germany has been particularly hard hit.
There is then the economic arguments over currency intervention - and the President is surrounded by hawkish non-interventionists.
Are there other influences?
Yes, oil. Many analysts believe that it was the lack of refinery capacity in the United States, rather than the lack of crude supplies, that caused oil prices to rocket spectacularly this year.
But with the dollar's buying power diminishing at the same time, oil exporters have also been forced to demand more dollars for their products.
This increased cost in something so fundamental to so many European manufacturing businesses, who are seeing their costs rise just as their export sales are hit, is putting European traders under pressure. This was the worrying thrust of the CBI's monthly industrial report published yesterday.
How high can the pound go?
Most currency forecasters agree that the pound was set to go higher against the dollar after breaking through a series of key resistance levels, perhaps rising to $2, maybe before the end of the year.
There's a good book on the subject, Extraordinary Popular Delusions and the Madness of Crowds. Written in the 1800s, it's still true today. A kind of temporary insanity happens when any commodity starts rising rapidly.
I happen to be living in Europe at the moment. Today if I went out and bought a pair of Levi's it would cost me around 75 Euros. What you are saying is that in a few years this would be roughly $187.00 for a pair of Levis.
Oh, and the average 1100 square foot dinky row house costs about 150,000 Euros. That would mean that a house about half the size of an American suburban house would cost about $375,000. If I wanted to rent a house near a major metropolitan city I could expect to pay about 700.00 Euros per month, and it would likely take me about two, three, or more years on a waiting list to get one.
Oh, and by the way, the average European here works about 36 hours a week and gets 4 weeks paid vacation every year. They just go to work every day, pick their nose and drink a cup of coffee (that costs about $3.00) and make about $75.00 an hour in the bargain.
Oh, and by the way, many people here retire with pension at about 60-62 years of age.
Oh, and by the way, the country I live in is about 6.5% Muslim and rising rapidly (the most common name given to baby boys in the cities is Mohammed [the second is probably Abdul but I don't know that for sure]). A disproportionate number of the foreign born or unassimilated second generation immigrants are on welfare or in low paying jobs.
Militarily, they can't punch there way out of a paper bag.
There are economic and demographic disparities that are just baffling to me.
I guess we do not have Dick Nixon to kick around anymore.
think our economic situation today puts us in a better situation that 1974.
1974 was bad, the embargo and Nixon taking us off the Gold Standard really hurt. Prior to 71 Gold was held at $35.00 oz (artificially low) and when they started to let the dollar float gold went way up and the dollar crashed.
My Maxist Economics professor had brought an old TV with a brick through the screen to class one day. The lesson of the day was the America and the Gold Standard.
He said when Uncle Walter announced Nixon's move he was so pissed he grabbed a brick and threw it at his TV.
Wouldn't $10 to the Euro be even better? How about $20? All this cheerleading for GWB's weak dollar reminds me of how the German politicians crowed about the cheapness of their exports while they were going through hyperinflation in the 1920's. There's no such thing as a free lunch. The only true economic growth comes from innovation and investment, not jerking a currency one way or the other.
"There's no such thing as a free lunch. The only true economic growth comes from innovation and investment, not jerking a currency one way or the other."
Well said.
Another theory on oil is an invisible "Terrorism Tax" that traders are plugging in to their algorithms. They are hedging their risks in case Saudi Arabia is hit by terrorism.
Besides watching OPEC watch the Saudis, no they are not the same. The Saudis have always wanted to keep prices low so that their investments in the US will not crash.
If they pull their money......
Nixon had no choice. The Bretton Woods system was doomed to failure after all the reckless government spending of the 1960's. France also threatened to convert all their dollars to gold, which would have broken the system. Without France perhaps we could have held on a little while longer, but it was just a matter of time. My theory is that the oil embargo was a coordinating attack with France, but I've had no time to research the idea.
Good idea. Diversification away from dollar reserves by Asian central bankers and OPEC was said somewhere some time ago to be a major threat.
If this unravels Greenspan will wish he'd made a graceful exit five years ago, and Andrea Simpson will stop sleeping with him.
As far as the embargo is concerned there is a theory that Nixon, realizing what taking us off the gold standard would do baited the Arabs into the embargo in order to shift the blame for the crappy economy.
No complaints around this house for buying and holding the platinum 5+ years. During the same period, purchased gold $260-$310. In addition to eagles, picked up some Austrian Philharmonic 2000 schillings pre-Euro. Now they have collector value in addition to the precious metal value.
;o)
I repair cars---I am recession proof
Nobody is recession proof. The economy is like the weather. When a hard rain falls, everyone gets wet.
Those notes are in dollars.
If they're worthless we won't be owned by anyone.
Where will OPEC and Asian Central Bankers put their money?
I live in California and I know of few people that hate prop. 13 (other than a few liberals).
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