Posted on 11/29/2006 5:30:58 PM PST by GodGunsGuts
WILL CHINA LEAD A STAMPEDE OUT OF THE US DOLLAR?
by Gary Dorsch
Editor, Global Money Trends Magazine
November 29, 2006
The $2 trillion per day foreign exchange market never sleeps. Yet for the past six months, the big-3 central banks, the Federal Reserve, the European Central Bank, and the Bank of Japan managed to lull the currency markets into a deep trance. Since last May, the big-3 central banks corralled the US dollar to within a 3% to 5% trading range against the British pound, the Euro and Japanese yen.
The big-3 central banks utilized their three major weapons, (1) relentless jawboning, (2) Japanese threats of intervention, and (3) coordinated rate hikes, telegraphed far in advance to avoid any nasty surprises in the markets. But the big-3’s spell-binding magic act began to wind down on November 25th, when Chinese deputy central banker Wu Xialong jolted the foreign currency markets, warning other Asian central bankers of the future risk of a US dollar devaluation.
Beijing is having second thoughts about the composition of its $1 trillion portfolio of FX reserves, with 70% held in low yielding US fixed income securities. “Firstly, long-term US interest rates are falling. Secondly, the exchange rate of the US dollar, which is the major reserve currency, is going lower, increasing the depreciation risk for east Asian reserve assets,” Wu said.
On October 10th, Fan Gang, another member of People’s Bank of China’s policy committee, made similar comments, “China risks an erosion of its holdings because the US dollar will probably decline.” On August 29th, Gang wrote, “The US dollar is no longer a stable anchor in the global financial system, nor is it likely to become one, therefore it is time to look for alternatives.”...
(Excerpt) Read more at financialsense.com ...
So, in what category do you put special loans (and rates) for minorities?
Sometimes, I think what makes discussion of this matter difficult is the whole "Isolationist" versus "Free Trade World". The Constitution addresses neither.
He has very much also studied the causes in addition to the effects of inflation.
He will not end it or embark on any no-inflation policy.
He'd be a fool to "end it or embark on any no-inflation policy". That would be absolutely absurd and ignorant of all actual economic history of the world.
Continuing inflation gives power to the FED and to the government in general as they manipulate this rate and that fiscal policy to show that they are "doing" something.
Baloney. Fed has a task, economically, in defending our country, defined as an economy entity, WITH boundaries. Do you posit we should be as Europa, and constantly wrangling for some type of "economic" unity?
Reagan simply said Stop it! and we had the Reagan Boom and no general overheating or unbalanced economic relationships.
Right. And he did so at exactly the right moment. The time HE was in, and what is now, are not identical holograms.
Conservatives who tinker are harmful to the extent that they tinker. Liberal tinkerers are worse only because they have grand social designs to guide their tinkering and they wrench levers and swing hammers instead of turning dials.
lol. So what, if any, role do you think the Federal Reserv should or should not have? Liberal and Conservative Economist disagree vastly on this subject. Are you proposing a "third" way?
Your theories blow my mind, actually. You seem to be positing a world with no rules, and no means by which a solid dollar can be worth a solid dollar. A free for all. In this kind of thinking, only a KING can arise, not a President.
So, in the small, do you likewise posit that no business should have an approach/plan to making a profit?
You simply cannot get there from here by adjusting anything other than by holding the money supply stable for stable price levels. Concentrating only on the money supply for the sake of the money supply, not for some grand vision of correcting for unfair valuations or steering the economic ship in a more favorable direction is the only adjusting that works because it requires only a short time line to do its work.
You'd have to get rid of all lawyers worldwide, to accomplish the above successfully. Dittos on all financial planners and advisors.
Everything else requires more time than any FED chairman is permitted by political exigency. He cannot make ANY positive adjustments. All will be negative so long as inflation is perceived as any sort of tool for economic improvement, no matter what the Chinese are doing. Even if the FED makes the"right" adjustment, it must re adjust shortly because the results are not apparent soon enough. Adjusters never do see the results of individual adjustments because they are quite unable to leave them alone long enough to see what would eventuate from the action.The problem is NOT misadjustment or wrong goals, it is the very fact and attitude of adjustment and goals(other than stable prices) that are harmful.
Your initial theory in the para is correct, but only in a textbook mode. Further, if the Fed's only task is to "hold money supply level" -- you posit this based on the notion of an isolationist theory -- that nothing untoward could ever occur via economic means. Your theory rules out a lot of matters such as corruption, terrorist networks, etc.
There is a great deal more involved in a decision to raise an interest rate 1/4% than purely "tinkering", as you posit.
verboten in a freemarket economy which this should be
The time is ALWAYS right to return to honest dealing. Theft from creditors, or anyone else, is always wrong morally and practically. You simply cannot justify stealing from your own population by trimming the value of the money you have ordained for the people. It is not "for their own good." It is for the short term political benefit of the thief.
Thks for the kind word, e_p.
inflation - A general increase in the price level of goods and services. Unexpected inflation tends to be detrimental to security prices, primarily because it forces interest rates higher. A point to keep in mind is that a certain amount of inflation is already embodied in security prices. - Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott.
inflation - n 1: a general and progressive increase in prices; "in inflation everything gets more valuable except money" - WordNet ® 2.0, © 2003 Princeton University
I looked at a variety of sources and didn't find a single one that defined economic inflation as simply an increase in money supply.
Nor was that the definition used in any of the various business classes I took in college.
It is a proper use of the inflation to say the money supply becomes inflated when the money supply increases, but if you have a reference the defines the increase in money supply itself as economic inflation, please point me towards it.
It is important to use the correct definition of words in the proper context so the meaning of what we say is clear. Spending time arguing over definitions of words is also not a productive use of time.
I do want to make sure I am using "inflation" properly, but everything I'm reading other than your comments says I have been doing so.
A business makes plans on its own dime and pays the consequences when its plans are inefficient.A business works in the market and constantly receives signals from the market that, if paid attention to, cause the company to constantly make adjustments in prices and products. It is efficient. Government is not in the market. Wrong decisions take a long time to become apparently wrong. Government does not get market signals in real time. Government gathers market information and tries to act based on old information. It Market signals do not immediately have impact on government operations. The government does not immediately lose or gain profit based on correct reaction to the market. The government planning economically is like a person with no hands trying to make snowballs fast enough to engage in a snowball fight. The market consists of billions of individual decisions each of which itself causes minute adjustments of relationships. One man in Washington or a committee of a thousand men cannot substitute their judgment for the millions and millions of individual actors in the market. The conceit that they can make efficient and superior decisions is not even rational. The information they act on is late and second or third hand. It takes longer to determine on a course of action. The feedback, being again second or third hand, takes too long to become apparent. By the time the dial is adjusted the situation has changed but the experts will not be aware of that change until sometime after that change has been supplanted by three more changes. Government fiddling is market interference necessarily using outdated and only partial information that is full of static. It is the blind man driving your car with you in the back seat.
Reagan, or more accurately, his Federal Reserve, reduced but did not end inflation.
--and for the record my words were accurate too, but the important thing is for everyone to realize that even though luck is handy, it goes a lot further by being flexible and enjoying the advantages of knowing about other people's successes. No matter what the market, great risk is not necessarily a mandatory prerequisite for great reward.
Lets hope the dollar continues to decline. It will help our exporters and make Chinese imports more expensive which will lose a big chunk of exports for the Chinese.
That will inject new life in our domestic industries. It will also give new life to developing our domestic oil exploration and give a valid reason if on is needed to get busy on ANWAR.
Actually, because you can't hit a 0% inflation rate and because deflation is much worse than inflation, it's safer to target a low inflation rate. I think they currently shoot for 1.5% to 2.5%.
It surely did end it. We had a mild deflation right up to the end of Clinton.
During the deflation of the late 80s-90s the country experienced an era of unprecedented labor peace because, while nominal wages did not rise, purchasing power rose continuously and industrial employees never got to feeling squeezed. Their dollars bought a little more each year.Real interest rates were at historic levels for times of stable money and nominal rates declined to historic lows.People just felt better.And yes you CAN hit 0% and stay there.
My definition of deflation is a decrease in the general price level, over a period of time. Are you claiming that prices at the end of Clinton's term were lower than when Reagan took office?
How?
How?
Didn't you know that the Reagan administration was the first to use one of these:
Greenspan, on the other hand, wanted to flood the market with cheap money to create the stock and housing bubbles for personal gain. He refused to use his button. Bernacke also seems unwilling to use his since they can't manage to keep inflation at 0%. Looks like we should either use the button or go back on the gold standard.
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