US Dollar has sunk to record lows against Euro

http://news.scotsman.com/latest.cfm?id=3759014 ^ | me

[soccer_linux_mozilla]

The United States’ trade deficit is soaring and the once high-flying dollar has sunk to record lows against Europe’s common currency.

The dollar’s record low against the euro coincided with the government’s report that the United States was running a trade deficit through September at annual rate of 592 billion dollars. That compares with last year’s record 496 dollars billion. As a result, the country is having to borrow almost 600 billion dollars from overseas this year to pay for the imported cars, televisions and other items Americans are buying.

[Southack]

I don't think it is the addiction to cheap goods that drives the people of whom you speak, but rather, they are simply confused about what a Strong Dollar means.

They think that a "strong Dollar" means a strong U.S., when it means just the opposite; a "strong Dollar" means the Dollar is strong enough to buy lots and lots and lots of foreign made goods at the expense of losing American jobs.

It's merely an educational issue.

[Dec31,1999]

Very true, Tortoise. The fact that it is now cheaper to rent than it is to buy is a major indication that the real estate bubble is about to collapse, or at least decline.

I've just rented a house in a nice area which would cost me much more to buy than to rent.

[MaryJaneNC]

The euro is inflated.
Europe is more in danger of economic collapse than the U.S.
Solana is running around the world giving away billions.

[Southack]

"The fact that it is now cheaper to rent than it is to buy is a major indication that the real estate bubble is about to collapse, or at least decline."

Incorrect. The first sign of a real estate decline will usually be a decline in population for a given area.

Rents are lousy predictors of real estate declines, historically.

[Paul Ross]

You can blame GWB's speeches for the increase in liberalism.

Abdication of the right, with calculated 'triangulations' and 'compassionate conservatism' and 'new tone' and 'bipartisanship'...were all euphemisms for a very blatant abdication of conservative advocacy. This was the equivalent of an attempt to appease the left and the democrats. But there is no appeasing them. They just, rightly, took it as a sign of weakness. And on issues, since there was no Reagan defense of conservative principles, they were correctly detecting weakness. There were no conservatives espousing conservative policy at the administration level...with the exception of Donald Rumsfeld and John Ashcroft. And both were muzzled, or undercut by orders from HQ. This is why we had a 51 to 48% electoral split, instead of 60% to 40%.

[Dec31,1999]

You make a very good point, except for the oil thing. Gas and heating/air conditioning will cost a lot more, too.

[fallujah-nuker]

I response to my post "The point is the collapse of the dollar will produce immediate hardships, while any benefits will take time." Southack replied "Not a chance."

Let me just consider a few possibilities:

1. When foreigners get burned on their dollar holding they will stay home from the T-bill auction, meaning less money chasing them, meaning lower prices and thus double digit interests rates.

2. Grandma's investment portfolio was weighted towards bonds, now her bonds have a lower resale value due their lower interest rates, meanwhile...

3. Imports which are equal to 16% of our GDP are more expensive due to the weaker dollar, we already see a little of this at the gas pump. In the short term we have little capacity to increase production due to all the capacity we sent to China. Initially we will import a little less but it will cost more for less. Of course Grandma is on a fixed income, except for...

4. Entitlement spending will go up because of COLA raises, unless you expect that Congress will tell the AARP to get lost in an election year. Anyway, federal spending will go up.

5. Grandma grandson owns a house with an ARM, his mortgage payments are going up, he's upset and will probably actually get out and vote this time. Hmmm, I don't think he will vote Republican.

All this unrestrained joy over the dollar puzzles me, the cheerleaders are happy that imports will cost more. An import tariff would have done the same thing while keeping the dollar strong for what we need to import. Is their an American banana industry overcome with joy at the prospects the weak dollar will make banana imports more expensive?

Anyway, with the import tariff we would not have squandered our industrial base and built up that of China's. So we would be better off, higher prices for imports but with the capacity to produce what we need. I suppose future generations will regard those smitten with free trade mania in the same way as Dutchmen smitten with tulipmania.

[tortoise]

I bought my house earlier this year. I pay twice what I was renting for... however, since I bought my house, it's appreciated in value about $30K. I paid just under $200K and 8 months later the same EXACT floorplan house sold up the block for $230K. If I chose to sell I would get nearly the same if not more. How would a rental have done that for me?

Atypical, short-sighted, and not exactly a stunning return on investment in any case. Above average for real estate maybe, but that is not saying much. Also, how much of that $30k is left after you deduct interest payments, property taxes, etc?

As I said in my original post, do the math. A $30k pre-loss return on $200k capital is not huge, but you are paying a premium for the privilege by your own admission (twice rent). And be careful of leveraged positions, you can lose more money than you put in -- it is not all that uncommon among homeowners. Beside the wealth inhibiting aspects of highly leveraged home ownership, it is also risky and hence why I do not generally recommend it. Weakly leveraged or unleveraged home ownership is a favorable shelter on the other hand.

It is great that you have a house and I am happy for you, but don't become blinded to the financial reality of it just because you want it. Houses are generally classified as "shelters" rather than "investments" for a reason, and they are not risk free for most people.

[Southack]

"1. When foreigners get burned on their dollar holding they will stay home from the T-bill auction, meaning less money chasing them, meaning lower prices and thus double digit interests rates."

Only if they want to kill their economies overnight. The play above that you opine would crash the Dollar so far as to render "cheap" Chinese and European imports more expensive than cavier and car-loads of cocaine.

They'd lose their *largest* customer overnight. Export-driven economies simply don't have that luxury...

...and even if they did, bring it on. You'd shift our current 9.5% of import-driven GDP to domestic American jobs. American employers would be hiring at rates not seen in decades.

[Dec31,1999]

Well, I don't see that happening barring a particularly nasty flu or terrorist attack. I agree that it is mostly supply and demand.

But there may be other forces at work, as well, such as employment.

[fallujah-nuker]

investigateworld wrote of China "...They don't respect our patent laws, trade market laws..."

I can vouch for that first hand, in Singapore there is a large building, I forget now if it was Sim Lim Tower or Square. About 8 stories tall, very fancy, even had a jade dragon about 8 feet long on the first floor. One of the biggest items for sale, if not the largest, was bootleg America software, all from China.

This was in 2000, I understand that the Singapore government has cracked down since then, I'm not sure if it is available elsewhere on the island. Anyhow it was not bootlegged in Singapore, but China.

[fallujah-nuker]

investigateworld wrote of China "...They don't respect our patent laws, trade market laws..."

I can vouch for that first hand, in Singapore there is a large building, I forget now if it was Sim Lim Tower or Square. About 8 stories tall, very fancy, even had a jade dragon about 8 feet long on the first floor. One of the biggest items for sale, if not the largest, was bootleg America software, all from China.

This was in 2000, I understand that the Singapore government has cracked down since then, I'm not sure if it is available elsewhere on the island. Anyhow it was not bootlegged in Singapore, but China.

[FreeReign]

There were no conservatives espousing conservative policy at the administration level...with the exception of Donald Rumsfeld and John Ashcroft. And both were muzzled, or undercut by orders from HQ. This is why we had a 51 to 48% electoral split, instead of 60% to 40%.

So then the electorate generally speaking is like a heard of sheep? If a politician starts talking about small government and freedom, the electorate will be lead away from their current affinity toward big government?

That may be true, but how pathetic is that and how liberal is that. Why should any politician be counted on to do that -- when the general electorate doesn't want it.

Small government and freedom is something the electorate has to want and demand. We can't rely on politicians leading us there. That is the very essence of self responsibility, small government and freedom.

The responsibility rests with electorate.

[Paul Ross]

So then the electorate generally speaking is like a heard of sheep?

Perhaps as much as 15% or more. It's at least 25% in Illinois and Minnesota. This is why we FReepers call them the SHeeple.

A conservative is constantly thus having to battle the MSM [ i.e., the malign liberal force of gravity, politically speaking ] to hang onto the SHeeple for the election.

[fallujah-nuker]

They reach a point of throwing good money after bad, it is not enough to hold on to your existing dollar reserves, you need to keep buying more to prop up the value. For China there are also some benefits of a stronger Yuan, one being that her imports would be cheaper for raw materials.

For us the biggest benefit will be the absolute discrediting of free trade. They will be as popular as a prohibitionist in an Irish ward.

[oceanview]

it already does.

I still say, that China is the target here. If we can fight off the yuan peg, the dollar slide against the euro and the yen will then mitigate. the component of the oil price increase due to the weaker dollar, will then also reverse (the component due to the demand increase will be permanent).

[FreeReign]

Perhaps as much as 15% or more. It's at least 25% in Illinois and Minnesota. This is why we FReepers call them the SHeeple. A conservative is constantly thus having to battle the MSM [ i.e., the malign liberal force of gravity, politically speaking ] to hang onto the SHeeple for the election.

Which was my original point.

liberals + sheeple = people_responsible_for_the_liberal_government_we_have.

[Dec31,1999]

Well, I don't see that happening barring a particularly nasty flu or terrorist attack. I agree that it is mostly supply and demand.

But there may be other forces at work, as well, such as employment.

[Dec31,1999]

But wouldn't that have been much easier and lucrative if we had put a 10% tarrif on Chinese goods four years ago? Other countries do it. Why do we have to be the world's _____?

[oceanview]

of course. but GATT, and MFN and WTO all preclude that.