1.20.09: The Beginning Of The Dollar Bull Market?

[sonicdragon]

There are some very accurate ; other controversial; and yet other plain erroneous things said in this thread, IMHO. But it's very interesting

Let me add some fuel to the fire:

“Asians make things and sell them to Americans, who borrow money from their suppliers (on the inflated value of their houses) in order to continue living beyond their means. Asians take their profits and either re-lend them to Americans... or use them to buy more productive capacity, in America and elsewhere. For those who wonder where this trend will lead, we offer a guess: The average American will be left with a shoeshine kit and instructions on how to say 'please' and 'thank you' in Chinese.”

Bill Bonner

On the other hand, one of the most accomplished economists ever, Milton Friedman, argued that thre was nothing wrong with trade deficits, and the current balance-of-payments-accounting paradigm is deeply flawed, noting that that countries with large deficits appeared to make much better returns on their foreign assets than countries with surpluses. His analysis also pointed to the cyclical nature of deficits, whereby free market mechanisms would eventually bring trade deficits under control - however when the largest creditor nation - china - has a fixed exchange rate and closed capital acccount this clearly cannot occur: hence we now see it spiralling out of control.

As to budget deficits, I've mentioned this recently on another thread, but I believe the most important thing about government spending is what it is spent on ! Obviously it's a subjective issue, but to the extent that budget deficits are used to finance productive (in a very general sense) thngs, it is good, since those productive "things" will eventually lead to increased efficiency and tax revenue (the cyclical idea again). But when politicians spend on pork belly projects, take the country on an imperial course etc etc there will usually be dire economic consequences down the road.

SD

[midas]

As to budget deficits, I've mentioned this recently on another thread, but I believe the most important thing about government spending is what it is spent on ! Obviously it's a subjective issue, but to the extent that budget deficits are used to finance productive (in a very general sense) thngs, it is good, since those productive "things" will eventually lead to increased efficiency and tax revenue (the cyclical idea again). But when politicians spend on pork belly projects, take the country on an imperial course etc etc there will usually be dire economic consequences down the road.

SD

" Asians make things and sell them to Americans "

but that is the whole point sonicdragon - the Americans are buying cheap consumer goods

from Asia things that will need to be replaced in the not too distant future

it was announced again only this week how much consumer credit rose again in the first-quarter-

surely this is all going to lead to pain eventually ?

[samran]

As to budget deficits, I've mentioned this recently on another thread, but I believe the most important thing about government spending is what it is spent on ! Obviously it's a subjective issue, but to the extent that budget deficits are used to finance productive (in a very general sense) thngs, it is good, since those productive "things" will eventually lead to increased efficiency and tax revenue (the cyclical idea again). But when politicians spend on pork belly projects, take the country on an imperial course etc etc there will usually be dire economic consequences down the road.

SD

" Asians make things and sell them to Americans "

but that is the whole point sonicdragon - the Americans are buying cheap consumer goods

from Asia things that will need to be replaced in the not too distant future

it was announced again only this week how much consumer credit rose again in the first-quarter-

surely this is all going to lead to pain eventually ?

americans need cheap things from wherever they can get them from to keep inflation low.

One thing that I don't see people mentioning though is that the current weak dollar makes US based investments relatively more attractive. While the concept of the J curve was debunked in the 1980's, surely a weak dollar is going to help increase the attractivness of the US economy and help turn it around.

[cclub75]

One thing that I don't see people mentioning though is that the current weak dollar makes US based investments relatively more attractive. While the concept of the J curve was debunked in the 1980's, surely a weak dollar is going to help increase the attractivness of the US economy and help turn it around.

Yep, but there is a problem : this kind of view is... static.

The problem is : we have a dynamic trend.

Basically : would you buy assets in USD today if you'd know that the value of USD would continue to decrease tomorrow ?

Tonight, we have a FED meeting. You can be sure that Bernanke will... stay frozen like a gecko on the wall.

He can't cut (USD would free fall) and he can't increase (acceleration of the burst of real estate bubble, and acceleration of the current hard/soft landing of the economy).

It's the perfect trap.

The last card he can play : rozy words. He will surely give us a nice statement, that operators will deeply analyze.

[samran]

while it is a static view, you can bet your rapidly declining dollar that a relatively big song and dance will be made about the turn around of the US terms of trade if there is nothing else good to talk about.

[sonicdragon]

As to budget deficits, I've mentioned this recently on another thread, but I believe the most important thing about government spending is what it is spent on ! Obviously it's a subjective issue, but to the extent that budget deficits are used to finance productive (in a very general sense) thngs, it is good, since those productive "things" will eventually lead to increased efficiency and tax revenue (the cyclical idea again). But when politicians spend on pork belly projects, take the country on an imperial course etc etc there will usually be dire economic consequences down the road.

SD

" Asians make things and sell them to Americans "

but that is the whole point sonicdragon - the Americans are buying cheap consumer goods

from Asia things that will need to be replaced in the not too distant future

it was announced again only this week how much consumer credit rose again in the first-quarter-

surely this is all going to lead to pain eventually ?

Yes, exactly. That's part of the point of that quote. I was just demonstrating how divergent opinion can be on this matter with 2 oposing views from very bright people.

[Beardog]

Hmm lets see when Clinton was in office the baht was 42-1 We had money surplus & The U.S. was strong.

Can not fully blame Bush for the markets downturn as it was starting to slide a bit when he came into office. Now the dollar is 32-1 A hefty 25% drop in value. The U.S. is in debt past our eyebrows.Since most big corporations have outsourced the good jobs to cheap labor they are flourishing while working class Americans (the majority that can't afford to take a gamble on the stock market) Are getting the shaft.

not only that U.S. has gone from a most favored country to seen as a most loser country.

kinda hard to respect a man that has single handedly destroyed the economy. Pee Wee Herman would have been a better answer,or Maybe Bushman's dog BARNEY could make better decisions as his IQ is higher than 87 I would bet. Even his own party despises him Chenny & Rove(which do all the brainstorming anyway!) 3 more lame ducks & the U.S will be as good a deal as Thailand for Americans!

We got A 300 person party when he is gone if anyone is down in Lake Tahoe California & wants to go to a good ripper!