Dollar Tumbles to Record Low Against Euro (Again)

Reuters ^ | December 7, 2004 | Natsuko Waki

[snowsislander]

Investors were taking more seriously the threat of intervention by the Japanese authorities, which spent around $330 billion trying to fight the dollar's slide between January 2003 and March 2004.

There are many possibilities here, some of which could make some FX speculators as unhappy as the last time that there was a massive snap back in the yen trade.

And arguably, the momentum in that incident was even heavier than the current momentum which looks to me has hit a slowing period. But this time it is the U.S. dollar, and the game involves possibly breaking a major economy's currency peg.

Interesting times...

[G.Mason]

And the down side of this for America is ... ?

[wu_trax]

higher inflation and higher interest rates?

[JFK_Lib]

The downsides are :

1) It is harder to sell US Treasury bonds to foreign investors without raising the interests rates and that has the effect of raising our national debt payments which depletes the Federal budget even more.

2) Most of our retail merchandise is imported and sold at places like Target, Wallmart and such, and these retailers are going to be hurt by any drop in the US$, especially if China decouples from the US$. While American production would escalate, the immediate effect would be numbers of people unemployed as the retailers start layoffs if their profits dropp.

3) This cuts into the value of saved money (penalizing savings) and hurting people on fixed incomes.

Thats just things off the top of my head in about 4 minutes; theres a lot more I donthave the time to go into.

[OpusatFR]

What's this morning's chatter that OPEC is trading out of dollars into euro's?

[G.Mason]

"higher inflation and higher interest rates?"

You mean like when Jimmy Carter was president and we all starved to death?

You mean it will be harder for people in foreign counties to buy up America?

You mean because the stock market will get the jitters? ;)

[Always Right]

higher inflation and higher interest rates?

Haven't seen signs of it yet. Interest rates will creep up as our economy grows, but not because of pressure from inflation.

[G.Mason]

"The downsides are : ... '

And the upsides?

BTW ... I'm not being cute here.

[crz]

Although it is good for our exports, if left to go on much more and our money will become worthless. High inflation and interest rates come to mind, but what really comes to mind is the Weimar(sp) Republic of Germany before Hitler took power.

I knew a couple of old Germans who got out of there just as Hitler was gaining steam. He said that they would pay you once a week as usual, then twice a week, then once a day and let you off from work for two hours just so you could spend that money they gave you to get it into play. It virtually took a wheel barrow load of money to buy bread.

I doubt it will get anywhere near as bad as that..but it nearly did under Jimmah Cartier.

BTW..this is one reason the gas prices are high.

[JFK_Lib]

The up sides are that our manufacturing base grows and the trade imbalance drops.

But we risk a panic sell off of the US$ and that has absolutely no upside at all.

[G.Mason]

" I doubt it will get anywhere near as bad as that..but it nearly did under Jimmah Cartier."

I don't remember it being that bad. Of course I wasn't having to finance construction projects either.

Economics is not an exact science, by any stretch.

I tend to think there is a "control" war going on.

We'll see who flinches first. ;)

[CIB-173RDABN]

I don't have a clue here on what this all means, but I do trust this administration to know (and understand) what is going on.

I think we can all agree that getting most of our oil from the Middle East has caused us a certain about of pain, and yet the EcoNuts have us so bottled up we are prevented from using the resources we have close at hand, and so could this be a way of making OPEC do something really stupid (that would have the potential of causing us even more pain), and by which this administration can go on the offensive against the EcoNuts and open up, oh let us say Alaska to oil drilling. Are how about off the coast of California, or anywhere we can find oil.

---

This President has shown the ablility to ignore polls, and the pundits and set things in motion that do not reveal themself until months, or years later.

I happen to believe this current hobby of the left over "voter fraud" is going to come back and bite them in the butt when the President ask for legislation to overhaul our election process. The one thing they have forgotten is if new laws are written, it will be by Republicans, not Democrats.

[wu_trax]

Haven't seen signs of it yet. Interest rates will creep up as our economy grows, but not because of pressure from inflation.

no, because the Chinese and Japanese central banks so far continued to give you free money. however if they stop, you have Bush's budget deficit and a population on shopping spree that doesn't even come close to saving enough money for its own consumption, let alone Bush's budget. if you want to attract private investors again you would need interest rates that are a lot higher to compensate for the falling exchange value of the dollar.

[snowsislander]

Are how about off the coast of California, or anywhere we can find oil.

The Gulf coast of Florida is another place that could be opened up for gas and oil.

[beautifulgirl]

If foreign investors lose interest in our debt (which may have already started happening), we will be forced to raise interest rates to attract investors, which could slow economic growth and lead to stock market and real estate declines. There is also a threat of stagflation (inflation despite stagnant growth).

A dollar decline wouldn't be such a bad thing if it were to happen very gradually, but the dollar appears to be in freefall right now. If it is not stabilized soon, we could be looking at a lower standard of living and potentially he Euro as the new reserve currency.

[Bandaneira]

Aussie dollar has risen about 10% against the US Dollar in the last three months.

[Always Right]

For some reason you don't seem to realize our deficit in terms of our GDP is smaller than most of your European buddies and i believe even the Japanese. Europe still has higher unemployment and lower growth. I really don't see the dollar weakness as long term.

[wu_trax]

Although it is good for our exports, if left to go on much more and our money will become worthless. High inflation and interest rates come to mind, but what really comes to mind is the Weimar(sp) Republic of Germany before Hitler took power. I knew a couple of old Germans who got out of there just as Hitler was gaining steam. He said that they would pay you once a week as usual, then twice a week, then once a day and let you off from work for two hours just so you could spend that money they gave you to get it into play. It virtually took a wheel barrow load of money to buy bread.

no, it certainly wont become THAT bad. we were just printing money without ANYTHING at all to back that up. I think Hitler later did the same thing, but he also fixed the prices, so there was no hyperinflation.

In case of the USA today, both the population and the government just spend more money that they actually have. for that to work you need to have foreigners to lend that money to you. the more you borrow the higher the interest rates will rise. if you cant get that money any more the dollar falls. if the dollar falls imports become more expensive. more expensive imports mean higher prices (inflation)

BTW..this is one reason the gas prices are high.

yes, probably, i hardly noticed the higher oil prices at the gas station (which is partly because 90% of that price is taxes anyway, but to another part because the euro rose along with the oil price so it wasnt that bad for us.)

[Modok]

This is the money used for speculation in crude oil market and the currency hedges to protect the speculators that is moving from dollars to euros. This will be over when the oil prices fininsh their post election drop. Damn Soros.