Kicker 'n' the Asset Bubble
Oh Canada! Oh Canada!
The thought of moving to Canada crossed my mind when King George was annointed. Now it looks as though that would have made financial sense. This week marked a milestone where the Canadian dollar grew stronger than the US greenback. I was at a bookstore looking at a book with a 2002 publication where $19.95 US and $29.95 Canadian were written on the cover. Oops, sorry that no longer applies. Where's my damn white-out?
Whip out those Econ 101 textbooks. What causes currencies to move? I'm not at home so I'm guessing you might find interest rate parity or relative purchasing power parity or some obscure equation. It's mainly differences in inflation rates in theory . . . unless you're manipulating the currency. BUT under normal circumstances it's inflation rates. What is inflation? It's money in excess of what we need in order to purchase all goods and services in a year. Current inflation is not showing up in standard reports unless you factor in money used to purchase goods and services of other countries as well as our own, i.e. our massive trade deficit. You might want to add 4-5% of accrued inflation per year since King George took office. That would roughly equal the change in US/Canadian dollar value. That trade deficit represents "money in excess," but it remains offshore waiting for currencies to move to such an extent that it will return. Will our dollar decline further in value? I hope not, eh!
Why did the US come off the gold standard established at Bretton Woods? The global currencies were not properly adjusting. What happened to inflation rates as the currencies began to readjust? They went up sky high. This causal relationship can work in both directions: currencies to inflation or inflation to currencies. Are you sure supply and demand dictate the price of oil, homes, food, etc? Or per above, is it money in the system in excess of what we require that drives these prices up? Money has gone from facilitating our purchases to driving them per the intent of our lofty central bankers. Let's just drive the consumer over the edge. Looks like Portland's asset bubble has reached it's peak. Refinance sucka's.
When was the last time we saw interest-only mortgages in such quantity in this country? What regulations were passed during the Great Depression? When were exotic mortgages reintroduced in limited quantity? When were regulations almost all but relaxed? Honestly, if I tell you the answers, you'll know more than a lot of people I work with in the financial industry. Pff, bond analysts.
But we have all this liquidity in the system! Yes, but excess liquidity becomes unproductive liquidity which becomes foreclosed homes and bad debts. Read your Econ 201 book. But we have strong corporate earnings in the double digits! Yes, but have we forgotten about the theory of contestable markets. In a truly capitalist global economy, anyone would start a company to compete for those earnings. Unless of course me and you can't compete in this truly capitalist global economy.
Now here's the kicker. 18.60% of the amount owed before credits in 2006 will be refunded to you December of 2007. You might want to tuck that away somewhere safe. I have a feeling that Oregon will be scrounging around for money soon enough.
Hur mycket pengar sparade du i bank? Sweden sounds nice . . .
|
September 30, 2007 |
Jenson Hagen | Comments (21 so far)
| Share on Facebook |
Sponsored Advertising
Comments
Posted by: Brian | Sep 30, 2007 9:14:04 AM
"To be fair the $ was sinking when CLinton was prez and I don't see any pres contender with a solution beisdes time to fix thing."
Ive only heard one candidate among the current crop address this issue head on.
Posted by: e.p. | Sep 30, 2007 10:09:46 AM
One thing that's contributed to the debt bubble is the fact that the US went off of the gold standard in 1971. If you look at a chart of the money supply, it's apparent that it takes off after '71. Politicians, or rather, the Federal Reserve acts as a counterfeiter with our currency. With each new batch of money that enters into circulation, the dollars in your pocket become worth less. And if you're not rich enough to have a hedge, then you're growing poorer by the minute.
At the turn of the millennium, Greenspan dropped the federal funds rate BELOW the rate of inflation. That's certainly contributed.
Also, I'd bet that repealing the Glass-Steagall Act didn't help.
And Brian's right, there has been one candidate to address our economic instability. It's too bad that more don't follow suit.
Posted by: Kari Chisholm | Sep 30, 2007 11:57:32 AM
Quick question: Other than national pride, and making it tough to travel abroad, what's wrong with a weak dollar?
It would seem to me that it makes it easier to export our products to the rest of the world - creating jobs here at home.
Conversely, a strong dollar makes it easier to buy imports - creating jobs around the world.
Many of us are concerned about the mega multi-nationals (like Wal-Mart) that produce stuff cheaply overseas, at nearly slave-labor wages, and ship back here - killing jobs at home. A weak dollar makes that harder for them.
I'm not fully sold on this thesis - but I'd like to hear the counter-argument.
After all, the words "weak" and "strong" are loaded emotionally -- who doesn't want to be "strong"? But we could just as easily be talking about a "weak employment" or "strong employment" dollar - in reverse terms.
Posted by: John Calhoun | Sep 30, 2007 11:57:33 AM
I have to disagree with the analysis that says that the decline in the $ is tied to our inflation rate. In fact I think that the inflation rate in the U.S. has been lower than in Canada and other major trading partners.
The real reason for a declining dollar is that we have been incurring major trade inbalances for decades and it is starting to catch up with us. While the recent interest cut may have triggered the most recent decline, the fundamental reason is that we have been handing our paper for goods for too long. Now the rest of the world is wising up and no longer wants our paper dollars. Canada for example is exporting oil and gas while we import massive quantities of it. The result is that Canada has a more valuable currency today in spite of a more costly economy.
Posted by: Steve | Sep 30, 2007 1:48:49 PM
"what's wrong with a weak dollar"
Couple of things:
1) Anything we import gets more expensive like oil and cars. For multiple reasons, we don't manufacture that much here anymore and almost everything comes back here from overseas whether raw or finished goods.
2) What foreigner would invest in the US if his investment is declining in value with respect to his currency?
It sounds seductive, but having a weak currency in the long run is not that good a thing. In the short term, maybe.
Posted by: Eamon | Sep 30, 2007 2:12:21 PM
"we don't manufacture that much here anymore and almost everything comes back here from overseas whether raw or finished goods."
Isn't that a result of politics that have artificially inflated the price of the dollar, and won't allowing the price of the dollar to fall help the situation? It might be painful, but a high dollar policy is simply unsustainable because it leads to trade and balance of payment deficits.
Posted by: Steve Bucknum | Sep 30, 2007 2:57:23 PM
Last week, Thursday 9/20 to be exact, I made a $9.10 purchase in Canada. I had $10 US, and got $1.00 Canadian change. This week they are now equal, and that same purchase would result in $.90 Canadian change, a 1% change in one week. I have never in my life seen so much economic variance in such a short amount of time.
For the last six months, I have been moving away from cash or cash equivalent investments. At this point in time, I would rather own a can of beans than the money it takes to buy a can of beans. My Oregon kicker will equal about 45% of my monthly mortgage payment. That is a fixed price issue. I would rather hold debt on real estate now than cash. As future cash will be worth less, my real estate debt will become worth less too relative to other increasing costs.
Jenson, you mention Sweden ... I think Europe is too tied in with American investments. I'd look for someplace that has virtually no connection to US investments. Cuba??
Posted by: Steve | Sep 30, 2007 6:39:41 PM
"Isn't that a result of politics that have artificially inflated the price of the dollar, and won't allowing the price of the dollar to fall help the situation? "
Let me know what politics you think casued this. The only thing I can think of is the CHinese for a long time forced their curency to match our dollar, otherwise, I cant think of something primarily done to stabilize our $.
However, the $ has been dropping for 12+ years now and we have lost manufacturing capability all along. I think there is a balance between a currency dropping and rising vs. staying stable which owould be nice.
Posted by: Steve | Sep 30, 2007 6:41:18 PM
"This week they are now equal, and that same purchase would result in $.90 Canadian change, a 1% change in one week."
You mean a 10% change.
Posted by: Eamon McCleery | Sep 30, 2007 11:36:59 PM
Steve,
I meant to write "policies that have inflated the dollar." Both the Clinton and Bush administrations have favored, in their own words, a strong dollar policy. I actually think the dollar's value peeked in 2002, not 12 years ago. Anyway, Dean Baker from the Center for Economic and Policy Research (CEPR) has written a lot about why we should weaken the dollar. Here's a link to one of his articles: <1 href=http://www.inthesetimes.com/article/1879/the_falling_dollar/
Posted by: Kari Chisholm | Oct 1, 2007 12:36:24 AM
What foreigner would invest in the US if his investment is declining in value with respect to his currency?
And this is a bad thing?
Posted by: Steve Bucknum | Oct 1, 2007 8:21:56 AM
Steve wrote,
""This week they are now equal, and that same purchase would result in $.90 Canadian change, a 1% change in one week."
You mean a 10% change."
No, 10 cents is 1% of ten dollars.
Posted by: Ted | Oct 1, 2007 10:05:38 AM
First, the idea that this relative decline in the purchasing power of the USD(ollar) is going to save us through increased exports is not valid, because nations like China and Indonesia have an absolute advantage in labor costs over the US. A weaker dollar can't overcome the low direct labor costs of goods manufactured in those nations.
Second, the US does not have low inflation. Indexes like the CPI that the masses are made to focus on do not adequately measure costs like housing and energy, which if fairly weighted into the analysis show that average income earners are suffering from inflation and wages aren't keeping up. One reason the US has been able to get away with this for so long is the substitution of labor content in the goods we buy. Electronics, housewares, clothes, etc, can be bought for less down at Wal-Mart and Target, so Americans haven't felt the pain.
Third, I would say the US dollar IS being manipulated right before our eyes. When the Fed pumps billions of "liquidity" to the market as it has recently, it's not doing that because the economy is growing into that money. It is doing the opposite--it is preventing contraction, which is the natural effect of the CDO, subprime loan crisis. Banks should not be bailed out, they should have to recall loans and sell off strategic investments, which would cause their stock prices to fall. The only time the Fed should be preventing contraction is when it gets down to ordinary citizens' federally insured deposits.
Basically, the weaker dollar we are experiencing is a stealth tax to pay for the war and bail out banks for investment practices that shouldn't have been permitted to engage in. It's wrong to conclude that we will only see this when we travel abroad. We will see it in higher prices for all imported goods and for energy costs. Yet no candidate seems to be talking about this issue. Will the dollar depreciate more? Of course it will, because if you judge the Fed by its actions and the silence of our elected "leadership", you will see that is the defacto policy at work. Why do you think they stopped publishing M3?
Posted by: Eamon | Oct 1, 2007 11:07:21 AM
Ted,
All good points. I guess what I am suggesting is that although a falling dollar will undoubtedly be painful, that there is a silver lining here. I also agree that a weak dollar alone probably won't restore America's manufacturing base. However, if our leaders were to combine a weak dollar with renewed public investment in our infrastructure and a more reasonable trade policy, then something positive could come out of the dollars fall.
Posted by: lestatdelc | Oct 1, 2007 11:56:55 AM
Posted by: e.p. | Sep 30, 2007 10:09:46 AMOne thing that's contributed to the debt bubble is the fact that the US went off of the gold standard in 1971.
Well techincally the U.S. left the gold standard in 1933 when FDR outlawed private gold ownership (except for the purposes of jewelery). The Bretton Woods System, enacted in 1946 created a system of fixed exchange rates that allowed governments to sell their gold to the United States treasury at the price of $35/ounce. What you are referring to is when Nixon ended trading of gold under the fixed rates of the aforementioned Bretton Woods System on August 15, 1971 and all major currencies then became fiat currencies.
Posted by: Chris Lowe | Oct 1, 2007 2:17:38 PM
On the CPI, I always want to laugh and cry at the same time when the radio economic reporters tell me that real inflation ("core inflation") should exclude fuel and food. Both make up a huge proportion of what matters to everyday working people. Beyond that, fuel costs ramify throughout the rest of pricing because the extensive transportation needed to move consumer goods on a national and global scale, as well as commuters all around expanded metro areas.
The unemployment comparisons to Europe likewise are skewed, I believe. It is my understanding that the European figures include persons who would be excluded in the U.S. as "discouraged workers" -- persons who would like to be employed but are not "actively seeking work" according to questionable criteria. For instance, someone who stops claiming unemployment benefits because they have run out and thus stops filing "looking for work" certification needed to get benefits gets counted as not looking for work at all, I believe.
Anyway, both unemployment and underemployment (people working part-time who would like to work full-time) are systematically underestimated in the U.S.
If any of the above impressions are wrong, I'd welcome being educated, and also welcome references.
Posted by: Steve | Oct 1, 2007 8:37:10 PM
"""This week they are now equal, and that same purchase would result in $.90 Canadian change, a 1% change in one week.""
Sorry, you're right. I was thinking of last week when the dollar was at par with the CDN dollar.
"And this is a bad thing?"
Well, in the real world opportunites need to compete for dollars. No, govt just doesn't print up dollars contrary to what politicians think.
The dollars in China and the oil conuntries need someplace to go. If they invest here, that effectively means more dollars for the same opportunities which will make them cheaper for the business to borrow.
I keep getting these mixed messages that we should cooperate with other nations and then avoid doing business with them by allowing them to invest here. Think of this, if they invest here, there is that much less motivation to drop a bombo on us.
Posted by: Eric Wilson | Nov 3, 2008 11:49:01 AM
KALANA VILLAGE GOLD ASSOCIATION MALI .
TEL: 00223 5217358.
Attention :
I am Eric Wilson, a native of Kalana Mining Village , in Republic of Mali , in west africa. I am contacting you on behalf of my Village community Elders which comprises of mainly local gold minners to represent them and as well look for a prospective buyer or investors for the bulk of gold mined locally in our community.My community in conjuction with the village heads has in their possession this article.
COMMODITY SPECIFICATIONS:
GOLD DUST
A) COMMODITY: Aurum Utallum(AU)
B) FORM : Gold dusts.
C) Purity : 91.3% like minimum value and 93.4% like maximum value.
D) Fineness : 22+ carats plus
E) ASSAY : Final assay to be made in buyers home country.
F) ORIGIN : Sierra Leone, Mali , Ghana , Cotonue, West Africa .
G) PACKING : Export Package Boxes.
H) PRIZE : 12,500 Usd
I) QUANTITY: . : 1,900 Kilos Gold dusts
GOLD BAR
A) COMMODITY: Aurum Utallum(AU)
B) FORM : Gold bar.
C) Purity : 93.4% like minimum value and 93.4% like maximum value.
D) Fineness : 22+ carats plus
E) ASSAY : Final assay to be made in buyers home country.
F) ORIGIN : Sierra Leone, Mali , Ghana ,Cotonue, West Africa .
G) PACKING : Export Package Boxes.
H) PRIZE : 14,500 Usd
I) QUANTITY: . : 3,100 Kilos Gold bar.
The community as well has the right to go into any contract of extration or minning with any interested person or company depending on the discussion reached between both parties concerned.
I hope to have a long term business relationship with your esteemed company.
l remain to hear from you soonest.
Thank you for your anticipated co-operation,
Thanks
Eric Wilson
Posted by: Eric Wilson | Nov 5, 2008 11:56:27 AM
KALANA VILLAGE GOLD ASSOCIATION MALI .
TEL: 00223 5217358.
EMAIL: eric.wilson33@yahoo.com
Attention :
I am Mr Eric Wilson, a native of Kalana Mining Village , in Republic of Mali , in west africa. I am contacting you on behalf of my Village community Elders which comprises of mainly local gold minners to represent them and as well look for a prospective buyer or investors for the bulk of gold mined locally in our community.My community in conjuction with the village heads has in their possession this article.
COMMODITY SPECIFICATIONS:
GOLD DUST
A) COMMODITY: Aurum Utallum(AU)
B) FORM : Gold dusts.
C) Purity : 91.3% like minimum value and 93.4% like maximum value.
D) Fineness : 22+ carats plus
E) ASSAY : Final assay to be made in buyers home country.
F) ORIGIN : Sierra Leone, Mali , Ghana , Cotonue, West Africa .
G) PACKING : Export Package Boxes.
H) PRIZE : 12,500 Usd
I) QUANTITY: . : 1,900 Kilos Gold dusts
GOLD BAR
A) COMMODITY: Aurum Utallum(AU)
B) FORM : Gold bar.
C) Purity : 93.4% like minimum value and 93.4% like maximum value.
D) Fineness : 22+ carats plus
E) ASSAY : Final assay to be made in buyers home country.
F) ORIGIN : Sierra Leone, Mali , Ghana ,Cotonue, West Africa .
G) PACKING : Export Package Boxes.
H) PRIZE : 14,500 Usd
I) QUANTITY: . : 3,100 Kilos Gold bar.
The community as well has the right to go into any contract of extration or minning with any interested person or company depending on the discussion reached between both parties concerned.
I hope to have a long term business relationship with your esteemed company.
l remain to hear from you soonest.
Thank you for your anticipated co-operation,
Thanks
MR Eric Wilson.
Posted by: Peter Hufgard | Dec 26, 2008 7:57:28 AM
Dear Mr. Wilson,
If this gold that you offer, does really exist and you really want to sell it, then search no longer. I can arrange this deal for you easily. However, I am rather afraid that your offer will turn out to be a scam. 3100 Kg of gold bars from a country, which is not on a black list, poses no real problem to get into the proper refining cycle. Certainly not at the price which you offer. Contact me if you are real - but don`t waste my time with demands such as: payments up front etc or any other nonsensical proposals.
Best regards
Peter Hufgard
Email:phufgard@web.de
Peter Hufgard
Note: The presence of any individual above does not imply an endorsement by BlueOregon. The selection of faces shown is done by Facebook. Visit BlueOregon on Facebook.
Post a comment
Posted by: Steve | Sep 30, 2007 8:09:19 AM
Interesting, I have wondered for a while why the $ is so low outside of piling on. In our favor:
- Low unemployment (compared to 10+% in Europe)
- People buy oil with $
Against us:
- Low interest rates (however, Japan is the same low int forever)
- Bad import/export import bal (by that account China's currency should be worth a ton since it is not now pegged to the $, yeah right)
To be fair the $ was sinking when CLinton was prez and I don't see any pres contender with a solution beisdes time to fix thing.
Here's one theory - excessive govt deficit spending? Yes, Bush/congress is responsible for this. Since most govt spending is inflationary (we collect taxes and then use them to build things exclusively for govt use like bombs, so no real consumables goods are produced.)