Beware the Weakening Dollar

TrendMacrolytics/SmartMoney.com ^ | September 28, 2007 | Don Luskin

[Travis McGee]

"What we are talking about is a financial chess game, that always results in the US returning to the “runner” of the board.

So, "we will always win, because, we are Americans!"

Pride goeth before the fall.

Previously, our allies always stepped in to protect the dollar at key exchange rates, afraid of the global system losing its balance. The yen at 110, the Euro at 140 etc. That is, they would lower interest rates to protect the dollar status quo.

This is not happening this time. The world sees the dollar as doomed this time, and they don't want to ride it down. The Saudis are not dropping interest rates as they have previously, which means they are dumping their dollar peg. The Chinese are staying away from the T window. This is not just another swing in the old cycle. This is the end of the dollar's world reserve status. We are not going to just "run the board" again because we are America, and we always win.

[Travis McGee]

Gotcha.

[endthematrix]

Accept globalization has changed past trends. The flight of dollars to Asia and other once underdeveloped countries are now reducing borrowing, holding reserves and investing.

[endthematrix]

"Within months really, the USD should rally"

On what indicators?

[ran20]

I enjoy your posts, you really understand things imo.

A point I’d like to add to the discussion is I notice many learned Americans, major journalists, economists, experienced bloggers and forum users.. are blissfully ignorant of Europe’s rising economic strength. I notice some making increasingly elaborate conspiracy theories for why the Euro keeps rising, and why its about to fall back down dramatically.

It seems many are living in the 1990’s.. when economic growth was being driven by IT. And America’s best in the world venture capital and small business system was growing by leaps and bounds, while Europe was stalled out.

What they missed was ‘the transition’.. into this decade when IT started really increasing the productivity of big operations. The biggest sign I know of, the French firm Alcatel bought Lucent one of the stars of the tech boom. Europe was never really great at making small business, but they’ve always been good at running large national champion companies. No one I know of thinks that Cadillac or Lincoln are remotely close to BMW or Mercedes in technology, sales or profit. Europe’s big corporations are growing powerfully and their tech portfolio is growing.

Then there is Euroland’s unseen economic power to consumers. Like European engineering firms, glass makers, advanced metal producers.

I liked your statement ‘we will always win, because, we are Americans!” Its true its like we will always win because we spend slightly less on government then them. As if things like how many of our young are becoming engineers doesn’t make any difference to national wealth. Or how well ran our big companies are being ran, as opposed to ceo’s looting them for all their worth.

[rb22982]

A point I’d like to add to the discussion is I notice many learned Americans, major journalists, economists, experienced bloggers and forum users.. are blissfully ignorant of Europe’s rising economic strength

Really? Based on what data? Their GDP growth has been below ours, their inflation rate has been higher, their unemployment #s are far worse. Some of Scandanavia (not in the Eurozone) is doing well because of oil exports and some of the eastern european countries are doing well, but most of old Europe is doing far worse than we are AND their central bank lending rates are below ours. Our currency is mainly down vs just European currencies predominantly and from the best I can tell no good reason. M0 & M1 in Euros is going up, while M0 & M1 in USD is actually dropping. Our export #s are soaring (up 49% in 4 years) while Europe is really struggling.

[Jorge]

Also, wouldn’t gold be better than Euros, in case the European Union gets in trouble?

I'm not an expert but;

Right now I'm reluctant to put more money into gold while it's so high.

It's nearly double the price I paid just a few years ago.

However with the dollar weakening it seems the trend around the world is to move more into euros as a reserve currency.

[Travis McGee]

Very good points!

I’d love to be wrong...

[Sun]

“I’m not an expert but;

Right now I’m reluctant to put more money into gold while it’s so high.

It’s nearly double the price I paid just a few years ago.

However with the dollar weakening it seems the trend around the world is to move more into euros as a reserve currency.”

Thanks for your input. I purchased some gold when it was down, and will probably just buy a little more.

I figure IF something happens, at least I’ll have grocery money, etc., and IF the worst happens, the gold we have will be worth a LOT.

[ran20]

Sorry was going to get back to you a couple days ago then got sidetracked. I agree each year the gdp numbers show us growing around 3% and the EU countries growing maybe 1-2%. I’ve been watching gdp around the world since I started websurfing in about 1996 or 97. I remember when China was around 3,500 in ppp and I was calculating what it could be in 10 and 20 years at the rate of growth!

The thing is they seem to calculate the numbers in relation to that specific nation. So if they are calculating Sweden’s growth for 2005, they only take into account basically inflation in Sweden and the internal gdp growth.

But then if the currency moved quite a bit, and they translate it into Dollars, from Euros or Krone or whatever the Swedes use.. that number changes it in relation.

49% rise in exports for us is a great sign. And the falling dollar is starting to make some of our really big big industries competitive again. And thats what I’m talking about, some little tech company isn’t going to drive national wealth.. . A company like GE growing powerfully is going to drive national wealth.

Here is Germany’s exports since 2000. Germany I believe is their powerhouse right now.. And these numbers are inflation adjusted to 2000.

2006: 1031.552000000000000
2005: 916.867000000000000
2004: 857.872000000000000
2003: 782.493000000000000
2002: 764.182000000000000
2001: 732.722000000000000
2000: 688.390000000000000

US exports since 2000.. not adjusted for inflation.

2000: 780,418,627,647
2001: 731,025,906,239
2002: 692,999,529,459 (dollar too high)
2003: 723,743,176,992
2004: 817,935,848,814 (dollar lower propelling exports)
2005: 904,379,818,000
2006: 1,037,142,973,000 (12% growth in one year.. cheers!)

Since 2002 US exports have risen 49%. But since 2000 they have risen 33%. German exports have risen 49% since 2000.