I think only about 5% of people understand this, hopefully much higher on this blog, but here's the bottom line:
1) Foreign central banks will quickly start moving their reserves out of depreciating dollars and into stable currencies or gold
2) The US central bank likely will try to protect the dollar to a point by raising interest rates
3) Rising interest rates (when hey, everyone thinks our housing-loving Fed will be stopping soon) will further decimate the US housing market
4) Deflating the housing bubble, and ending the queue at the housing ATM, combined with a depreciating dollar, will solve our trade imbalance, which cannot continue, as demand for foreign goods dries up as consumer wealth effect and spending dries up and foreign imports become more expensive
I think that about sums it up. That wasn't so hard, was it?
Anyone correct or support my thinking, and also I'm looking for recommendations for safe harbor as the dollar depreciates besides gold - Euros? Pounds? Canadian Dollars?
The euro spent most of the Asian session and the early part of European trade mired below the 1.2300 figure until news that the Swedish Central bank made a major change in its foreign exchange reserves catapulted the currency higher. The pair rose 50 points in a matter of 5 minutes. In an announcement on its website the Riksbank noted that it reduced its dollar denominated assets from 37% to 20% while increasing its holding of euros from 37% to 50% of total reserves
April 22, 2006
Wonk alert: The dollar's decline, interest rate hikes, the trade imbalance and the housing bubble
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19 comments:
The CRITICAL part of the equation that you are missing is this: where else in the world are foreign governments going to get better returns on their dollars with regards to stability than the US?
The answer is nowhere at the current time. As China grows it's economy it should be able to invest more at home and reduce alliance on the US debt market.
Without the critical part above you chain of events won't complete.
g.o.l.d.
Check out the Euro ETF, FXE.
Moman is correct. The saying in politics is that you can't beat somebody with nobody. There is no candidate to become the world's reserve currency in place of the dollar. We have little sympathy or respect around the world, thanks to Bush and the neocons, but over the long haul the USA will still be preferred as the reigning leader of nations over China, Japan, or a unified Europe.
Gaming out the next 50 yrs.
-We hit the limits of growth due to a declining energy base.
-There is a lot of strife as the earth's 9 billion inhabitants engage in widespread resource wars (Irag & Afghanistan were the beginning)
-The present banking system is unworkable in this atmosphere.
-A solution is preposed: One world currency
I have a couple of questions.
1) How fast do you expect this exodus of foreign investors in the dollar?
2)How safe is investing in a gold ETF? I know you advocated it a couple of days back. Also, is a silver ETF on the horizon?
If the Fed raises rates enough---then the dollar will hold.
Bondmasters will sell short their grandmother for 50 basis points more on a leveraged carry trade.
The US economy may tank.
Right now the bond and currency markets are playing chicken with Little Ben, seeing if he will turn into Big Bad Ben.
Keith,
You are forgetting something: Helicopter Ben has a trick up his sleeve. He is going to perform a classic 'sleight-of-hand' magic trick by raising interest rates with the visible hand to ostensibly protect the dollar's value, while flooding more liquidity into the markets with the invisible hand (hence the reason to stop publishing M3). Other central banks have already started cutting back on US Treasury purchases. The Fed's solution: Just print up money and buy them ourselves (Monetizing the debt, it's called)! There are a LOT of shenanigans going on with Cayman island banks (which appear to be fronts for the Fed) buying ludicrous amounts of low-yielding US Treasuries to make up for the reduced borrowing from other central banks. Check out 321gold.com, safehaven.com, dailyreckoning.com!
RE: Silver ETF
See CEF, a fund that almost exclusively holds gold and silver. This is not a ETF.
If the housing bubble pops, it will be deflationary in nature and push the price of gold down!
Here is a bear's look at gold:
http://www.thefinancialhelpcenter.com/Gold-Silver-Page001.html
http://www.thefinancialhelpcenter.com/Gold-Silver-Page001.html
http://www.thefinancialhelpcenter.com/
Gold-Silver-Page001.html
The housing bubble bursting does not necessarily mean there will be deflation.
People have been predicting that China and Japan will start dumping dollars for YEARS now and that this would cause interest rates to skyrocket. Hasn't happened.
Bob Prechter's been predicting economic doom for decades. Hasn't happened.
The US has run monster trade deficits for 25 years. No meltdowns.
Folks, it just doesn't work as simply as a macro economic analysis might lead you to think.
An you, simple anon soul, think this can run forever and increase exponentially forever?
Bristol, I suggest that if you search the news that you will find that NUMEROUS central banks have recently publicly stated their desire to reduce dollar holdings. Yes, big ones like China and Russia. For all of you other gold doubters I suggest a visit to www.Monex.com where you will find lots of info on gold investing and even some nice videos to watch.
Jim
NUMEROUS central banks have recently publicly stated their desire to reduce dollar holdings. Yes, big ones like China and Russia.
Hmmm...a US nuke attack on Iran would be the perfect cover to dump a bunch of dollar holdings.
PLEASE WATCH THIS VIDEO:
"Money, Banking, and the Federal Reserve." You can find it on Google.
FANTASTIC!! First Class all the way!
- http://www.easy-forex-broker.ssr.be - easy-forex
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