Except with computers the FED is saved the cost of ink and paper. When you create money this quickly of course the dollar drops [remember these are growth rates of the money supply. M2 and M3 are growing much faster than GDP.
Posted on 04/09/2008 2:42:49 PM PDT by BGHater
Everything is cyclical.
Yeaha, a collapsing currency is always the sign of a dynamic and growing economic superpower.
Just look at world beaters like Zimbabwe.
Yeah, I’ll run right out and invest in peso denominated investments.
That's a DITTO. Buy low sell high/sell high buy low
Petron Pizza in Texas is accepting pesos for payment. I wonder if that now makes good economic sense by currency exchange, instead of pandering to a population.
Everything is cyclical.
While in theory this is correct, but unfortunately it hasn't played out that way.
The US Dollar hit a high against the dollar index in 2002 at 1.24 and is now at .71. (see chart above, last one on the right)
Our trade deficit has gone from ~423 billion to over 700 billion during the same time period.
http://www.census.gov/foreign-trade/statistics/historical/gands.txt
One more thing that most folks do not realize is that the stock market measured by the Dow Jones industrial average has gone from ~8000 at the start of 2003 to over 13,000 which on the surface looks like a 60% total return.
You may in fact have 60% more cash in your pocket, however, when you go to spend that money it is worth substantially less.
There was a recent Wall Street Journal article about how the S & P 500 is actually break-even over the last ten years when you account for inflation.
The reality is, in constant dollars, you are buying less of everything from milk to oil and everything in between.
I would challenge anyone to go through their day without buying or using something that wasn't made in another country. Your blue jeans go through 6 or 7 different countries before we buy them here.
S&P was grossly overvalued along with all stocks 10 years ago so that’s not really a good measure. Except for oil/gas, most of the countries we buy from have not allowed the $ to drop that much vs it. The USD is only down about 15% against Asian currencies since 2002 for example. The USD was also overvalued in 2002. The $ dropping has hurt oil prices but the great majority of the reason for the increase is due to increased demand from China/India and elsewhere in the developing countries.
Oh the humanity!
Either way it doesn't matter since valuations are a relative thing. The only thing that matters is how much money you have at the end of the day.
The problem I have is that the so called Wall Street experts and advisors will continue to tell the public to buy and hope, I mean hold.
I'm not sure who your referring to when you say that “most countries we buy from” haven't allowed the dollar to drop. If your suggesting China, then you need to realize that the Chinese Yuan is PEGGED to the US dollar. The Dollar index in the chart above contains our largest trading partners that have a floating currency.
At some point those countries holding US Dollars will find it in their best interest to support the US Dollar or watch their dollar denominated assets lose more and more value.
So, when you do the math, since 2003 (after the bubble) the Dow is actually down over 30% in constant dollars (adjusted for inflation and deflation).
And again, the only thing that really matters is how many dollars you have AND what you can buy with them.
Don't forget that old economic powerhouse, the Weimar Republic.
Except with computers the FED is saved the cost of ink and paper. When you create money this quickly of course the dollar drops [remember these are growth rates of the money supply. M2 and M3 are growing much faster than GDP.
The Fed doesn't create M2 and M3.
I didn’t say it did.
Excellent. Glad I could help.
I don’t agree with your assessment that a weak dollar is good for our trade deficit. It is very bad for our trade deficit. We are a net importer of goods. The additional profits a weak dollar is producing from selling US goods overseas is MORE than offset by an increase in the cost of everything we import. Why do you think oil just hit $112 a barrel. This is a good example of a costly foreign product that is exacerbating the US trade deficit due to a weaker dollar. Sadly, you are dead wrong.
Great article. Gets right to the right point. Again, I don’t know if Bernanke’s intended cure of mass inflation to insure against asset deflation will work or not, or is needed or not. But he is hell bent on doing so and the downside risk to the currency is extreme and treacherous.
I hope we survive this unscathed. There are some very intelligent people here who already fear we won’t come out of this unscathed, but with a very weakened dollar and economy for a good long time to come.
Scary stuff.
Thanks for the ping for an interesting article.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.