A Dollar Warning

Wall Street Journal ^ | Sunday, November 28, 2004 | Wall Street Journal Editors

[Sarah]

A Dollar Warning America can't devalue its way to prosperity. Sunday, November 28, 2004 12:01 a.m. EST President Bush has let everyone know he intends to pursue an ambitious second-term agenda. But if he wants to know what could spoil his plans even before his second Inaugural, he might consider the market reaction to his Administration's weak dollar complacency.

[Starwind]

I'm planning some discretionary construction.

Can you maybe provide some links to any info that might help me plan when lumber prices might come down?

[REDWOOD99]

Lumber prices are historically at their lowest point from Thanksgiving to Christmas. This is a function of weather mostly. Mills don't want to curtail production until they absolutely have to because they don't make money unless they sell wood. The price drops until the mills reach a point where it makes more sense to take their production facilities down for maintenance to gear up for spring. Most lumberyards slow their buying down drastically in Dec. to reduce inventories at year end. If you can afford it, now is the time to buy. It may not be the absolute bottom of the market but it is close. One hint- shop your project. Get quotes from at least 3 sources and play one against the other until you get the best price. Good Luck- R

[Dalite]

"Your steel and lumber examples are odd, they aren't blameable on the week dollar, as they're American industries, no?"

Excess cash in the money supply causes inflation

Inflation gives the appearance of rising prices due to lessened buying power

Lessened buying power in indicative of a weaker dollar

Inflation = weaker dollar

[Dalite]

"As far as inflation goes, it is probably not escapable"

Not only that; it is mathematically guaranteed

[Dalite]

"Nobody wants to hear it. They're too busy arguing over what Greenspan's latest fart smelled like"

They don't have to hear it. We can just throw them a picture of a life preserver as they are drifting by........

[Iris7]

I disagree with "mathematically guaranteed", but I will amazed if inflation is not the route chosen.

Something as trivial as crashing the housing market is avoided for political reasons right now, so what will be the choice when fifty percent unemployment is in the cards and no welfare is available? Let the voters starve?

I think we will see an extended period of double digit inflation and unemployment. The Dems will likely be able to hang the thing on the Pubs, since the voters are too stupid to count with their toes.

[Dalite]

I consider that Government spending is ultimately the source of all inflation.

Inflation can be described as a hidden tax that gives the appearance of rising prices due to loss of buying power.

Inflation is caused when there is too much cash chasing the same (or smaller) amount of goods.

So, using those loose corollaries, we have an abundance of government spending, prices are rising and there is an excess of cash.

The most amazing thing is that the inflation is falsely kept low to the US citizen by cleverly being exported in payment to our trading partners for goods and services that make up the trade imbalance.

If there was ever any doubt as to why the current immigration policy (no immigration policy) is in effect, all you have to do is consider how much US Dollars they send out of the economy to bring the next one over the border.

If all of our excess money was contained within the United States, the amount of inflation would be astronomical.

That is why I refer to it as mathematically guaranteed.

If you purchase a fifth of a quality adult beverage, and invite another friend over to share some fellowship (and adult beverage), you would have a fairly good chance for success (great fellowship and a nice glow).

However, if 1000 of your closest friends showed up uninvited, it is doubtful that you would achieve either goal (Fellowship or warm glow).

In fact, if you factored the experience down to what happened to the effects of the adult beverage, you would find that it was diluted far beyond the point that it could be noticed, when shared with the extra 1000 guests.

For this example, consider and the combination of yourself and your friend to be a balanced cash supply; balanced against the fifth of quality adult beverage (perfect mix of gods and services) - both comprising a perfect economical system.

Now, consider the 1000 guests (excess dollars), chasing the same amount goods and services (one fifth of quality adult beverage).

Do you think that this would be the desired situation?

How does it compare with our current situation?

[familyop]

Did you misunderstand what I wrote? China is keeping large tracts of forest in reserve and not cutting while we feed lumber to that country. I already know that we (USA) are not running out of trees except for the overly large forest fires caused by greenie policy. I also know that certain US lumber companies teamed up with environmentatists against their competition to shut them down a long time ago. Other businesses (including large developers) have been doing the same.

[Iris7]

I am familiar with these arguments and many others. The "dollars" you refer to largely exist as various contractual obligations owed to and from bank-like entities, from hedge funds to manufacturing concerns to cities and counties. Banks, too, of course.

This is certainly true of East Asian holdings.

An attempt to "cash out" these holdings would require an avalanche of cash creation by the Fed, or the bankruptcy of the financial system, or both. Severe and instant inflation, severe cash crunch, severe writedown of debt and assets, business failure, loss of faith in the dollar - sure could happen, and is what the Chinese have been threatening for a number of years now.

[Kozak]

So what? We sell wood to China. We have no shortage of trees, and can plant more if the demand is there.

[Dalite]

"An attempt to "cash out" these holdings would require an avalanche of cash creation by the Fed, or the bankruptcy of the financial system, or both. Severe and instant inflation, severe cash crunch, severe writedown of debt and assets, business failure, loss of faith in the dollar - sure could happen, and is what the Chinese have been threatening for a number of years now."

Here is a new Asian Wrinkle.... What if China decides to comply with our demands to unpeg from the dollar and retaliates by purchasing all of OPEC's production for a couple of years with their excess debt?

I Wonder who gets the last laugh then?

[bert]

Thanks for that bit of info.

To sharpen it a little, American Furniture manufacturers are shipping kilndried and properly procedssed lumber to China (and Bolivia and the Philippines?) to be used in the furniture manufacturing plants moved off shore.

Is that what you mean?

[bert]

.....the debt is in dollars so reduce the real debt by reducing the value of the dollar.....

I like your analysis. This process worked before to our advantage. The Japaneese absorbed massive quantities of $$$ and to use them came to America and bought everything.....New York, LA, golf courses, Palm Beach Condo's and such. The US$ then began to drop against the Yen and the Japaneese sold out. America had the realestate and the $$$

[staytrue]

I meant to say that complaining about china consuming all the lumber in the USA is probably a wrong complaint.

They are displacing US workers, but not causing a lumber shortage.