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The Last Days of the Dollar?

Discussions about the economic and financial ramifications of PEAK OIL
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Re: The Last Days of the Dollar?

Unread postby mmasters » Sun 11 Feb 2007, 19:17:51

$this->bbcode_second_pass_quote('pogoliamo', 'L')ast days for the dollar? No. I see no reason in predicting such outcome

:lol:
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Re: The Last Days of the Dollar?

Unread postby Micki » Sun 11 Feb 2007, 19:27:36

pogoliamo.

I have to disagree on some of your definitions.

$this->bbcode_second_pass_quote('', 'I') think we are no longer living in an inflationary environment. The real estate in US, UK and France is going down. Australia will probably soon join the camp and Spain and Italy are on the way. Base metal prices are down. Oil is down to 60$ from over 70$. Mortgage companies are tightening standards, rates are rising and will continue to rise in UK, EU and all around the world. Bond yields are up. 100 000 home mortgage delinquencies for 2006 in UK. Shares of major banks going down for a while now, meaning expectations for rates are to go up and for less lending. JC Trichet warned last week the prices of some equities may undergo sharp corections. This just doesn't look like an inflationary environment to me any longer. High inflation expectations are just an extrapolation from the past. It is incorrect.


My personal take is that we live in a stagflationary to inflationary environment.
Your view is way to short sighted.
Inflation is fuelled by money creation, that is the driver - higer prices are just the consequences.
A serious drop for instance in DOW or further cracking of the housing market I believe will be followed by easing of interest rates in an attempt to avoid deflation. This will mainly fuel continued commodity inflation as the paper money seeks safe harbor.
Stockmarkets and housing may react positively with increasing prices, but it is equally possible that higher prices in commodities, energy etc. puts a lid on consumer spending and housing affordability, thus creating a stagflationonary environment.

Right now the central banks (like the fed reserve) have some control of whether we are heading in an inflationary or deflationary direction.
The last few years talk about inflation fighting and interest rate hikes whilst increasing the money printing however suggests that they are more keen on inflation rather than deflation.

One more note, although the US market seems void of cycles (courtecy PPT?), the Australian market is ripe for a pullback. These happen in bullmarkets, just like there are rallies in bear markets. That doesn't mean we are in a defation.


$this->bbcode_second_pass_quote('', 'D')o you actually follow the price of gold? Gold went down in one day few weeks ago from 645$ to 620$ and for the last two days we saw a jump from 648$ to 668$. Would you feel comfortable now buying at 670$? With 100% of your capital? How happy would you feel about such an investment wen you see gold price at 620$ in the end of next week? This is not investing threadbear, unless you are experienced trader and know how to profit from volatility, I wouldn't call it even a speculation.


Investing is for the long term.
If you believe the fundamentals will drive gold price to $2000+ in the coming few years and you invest without leverage, you don't worry about short term swings.
Of course it is nicer to get a better entry point, but that is not part of the discussion.
If you followed our discussions on gold you would also learn that some (like myself) believe the gold price is and has been heavily weighted down but the short holder sit on some pretty toxic positions. They are therefore fighting tooth and nail, to get the price down. But as the trend for gold is up, this creates a lot of volatility when the price keep bobbing up and down.
Good money can be made with nimble short term trades, but I avoid shorting and hold a core position that I won't sell.

I don't recommend 100% PM either.
You can make money on anything, if your timing is right.
I do however believe there are times when certain instruments are generally safer or will generate better returns than other.
If inflation continues and we (let's imagine) get a rally in every investment vehicle except US$, I think PM's and energy will gain price faster than most stocks, housing etc.
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Re: The Last Days of the Dollar?

Unread postby pogoliamo » Sun 11 Feb 2007, 19:45:47

$this->bbcode_second_pass_quote('', '
')For the entire period we examined - March 1968 through September 2006 - the correlation between the monthly change in the price of gold and the monthly change in the seasonally adjusted headline CPI (CPI-SA) was 0.15. The unadjusted CPI (CPI-NSA) had a correlation of 0.14 with the price of gold. As indicated below, this is better than the correlation between the change in the price of gold and the monthly inflation rates as measured by the seasonally adjusted and not seasonally

Correlation Results
For Different Lags Correlation
No Lag 0.15
1 Month 0.09
2 Months 0.10
3 Months 0.14
4 Months 0.05
5 Months 0.06
6 Months 0.10
7 Months 0.06
8 Months 0.00
9 Months 0.03
10 Months 0.01
11 Months 0.04
12 Months -0.05


Gold Remains a Poor Inflation Gauge
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Re: The Last Days of the Dollar?

Unread postby threadbear » Sun 11 Feb 2007, 19:55:30

$this->bbcode_second_pass_quote('pogoliamo', '')$this->bbcode_second_pass_quote('threadbear', '
') Mr. Bill has chosen a recent 20 year block of historical time, BEGINNING with gold priced at $800 to explain to you why gold may not be such a good bet. I could just as easily choose the twenty year block of time prior, where gold ENDED at $800 per oz., and draw comparisons to that time and today to explain why it IS a good bet. Both are looking in rear view mirrors.

I think it wise to understand that everything we do is a form of speculation. Waking up in the morning and getting out of bed, somedays isn't a good idea, statistically speaking. Holding dollars in an inflationary environment is a dopey idea too.





I think we are no longer living in an inflationary environment. The real estate in US, UK and France is going down. Australia will probably soon join the camp and Spain and Italy are on the way. Base metal prices are down. Oil is down to 60$ from over 70$. Mortgage companies are tightening standards, rates are rising and will continue to rise in UK, EU and all around the world. Bond yields are up. 100 000 home mortgage delinquencies for 2006 in UK. Shares of major banks going down for a while now, meaning expectations for rates are to go up and for less lending. JC Trichet warned last week the prices of some equities may undergo sharp corections. This just doesn't look like an inflationary environment to me any longer. High inflation expectations are just an extrapolation from the past. It is incorrect.




You don't think you're in an inflationary environment, because why, the real estate price is starting to correct? Okay...if you're in the US, tell me, is your medical insurance going up or down? Are you paying more or less for daycare at a daycare center, price of filling up your car?

You are way wrong to create a scenario, in your mind where prices of everything rise or fall in a synchronized fashion. Most everything that is inexpensive right now, will go up in price. Real estate, on the other hand, which is so expensive right now, will drop. This is the third time I've made this point.

Oil is down to 60.00 from 70.00? It is still expensive by historical norms, and part of speculation is to actually read newspapers to try and gauge the political situation to determine what it could be a year from now. If Iran is attacked, oil and gold will both skyrocket.

Do I check gold price? Is the pope Catholic? Last I checked it was around 670.00 per oz.--in yankee bucks.
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Re: The Last Days of the Dollar?

Unread postby Micki » Sun 11 Feb 2007, 20:16:55

Let's try to give a quick answer to this one as well.

$this->bbcode_second_pass_quote('', 'M')icki, what is the connection you make between gold and bond and stock market? In the political environment where we live, how to you imagine gold-standard working?


The first question was a bit general.
I however don't like bonds as the returns are to low.
I think the US is pretty close to lowering interest rates though.
Stocks may or may not rally (or just short term) depending much on what happens with US$/energy prices etc. I am slightly more in the stagflationary camp and think hard stuff will gain more than the companies. If we see a real price rally in energy/PMs I however think quite a few junior will come out big winners. Picking the right juniors is of course very difficult, so develop a trading strategy if you want to get into these (or possibly use money you can loose).

I actually don't see any gold standard happening in the near term future. We need to see some real paper currency crisis first.
That doesn't mean PM's can't appreciate in value and regain status as a monetary asset rather than jewlery.

$this->bbcode_second_pass_quote('', 'I')nvesting in something is a complex matter, we all know that.

Price of up, sideways or down.
Investing is not hard if you learn the trade and practice discipline.
I think carpentry cause I can't hit a nail straight.
Trading without a skill, plan and disciple is however a sure way of loosing your shirt. And remember EVERY trader has loosing trades. Good traders just win more than they loose. (You need to have a plan for when to admit you have a loosing position and get out. Stoploss orders are good for this as they remove emotion.)

$this->bbcode_second_pass_quote('', 'S')o what is gold good for? Short-time speculation? Mid or long-term investment? As a diversification instrument?

All of the above. But if you don't have the skill and time to do short term trading, investing is a safer bet.
We probably need a new thread if we want to discuss this in detail.


$this->bbcode_second_pass_quote('', 'W')ho should buy gold, and how should you buy it, I mean literally, what do you exactly do , in which countries what is applicable, and how do you store it?

Depends on several factors.
But generally I think (at least) some in allocated gold; physical in own posession or through service like James Turk's goldmoney.
I have some in Gold ETF here in Australia, but it is being audited as being in store (i.e. not leased out for shorting.).

$this->bbcode_second_pass_quote('', 'A')nd next how reliable is the information regarding gold supply and demand and other gold-related issues.
There is a lot of obfuscation. One of my personal favourite teams of gold analysts is GATA (gata web).


$this->bbcode_second_pass_quote('', 'M')any questions... Many but's anf many if's. And before you make an investment and put your money in gold you have to have the answers! Clear answers!

There are sites on Internet, SCAM's and HYIP's which pretend to have 1300% annual return of your investment, and there are pretty good reasons to suspect those as fraudulent. Correct?

So I want to hear sound answers to the questions above and want to warn some of the readers here, that gold makes sense only as 5-10% of the total amount of capital as an inflation hedge.
I would be careful with anyone who promises any kind of return, so I have opted to take responsibility for my own investment decisions.
That type of figures is based on leverage. i.e. you have $10,000, this is 10% of your investment and you leverage the rest.
So total investment $100,000
The underlying investment now appreciates 100% your total holding goes to $200,000 and you sell.
So your profit after paying back leverage (+ some interest) is say $110,000. From 10,000 to 110,000 is over a 1000%.
Now remember, if the value goes DOWN, you loose at the same rate! (i.e. if the underlying value drops just 10%, you have lost 100% of your intial investment and the broker is on your back with margin calls.)


Final comment, although I think economics is very closely related to PO, I think this is the wrong forum to discuss general investment strategies or education etc .
I have recently joined [url=The Crow Bar]http://crowlee.proboards76.com/index.cgi[/url] which is a new forum accessible amongst other from financial sense and would recommend that discussions this type of discussions is held there (or other similar forum).
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Re: The Last Days of the Dollar?

Unread postby pogoliamo » Sun 11 Feb 2007, 20:46:14

Thanks Micki. You made your call - The Fed lowering interest rates, a key point I think.

My prediction is for the exact opposite, 5.50% by the end of the year ;)

Good Luck!
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Re: The Last Days of the Dollar?

Unread postby MrBill » Mon 12 Feb 2007, 04:20:59

$this->bbcode_second_pass_quote('firestarter', '')$this->bbcode_second_pass_quote('MrBill', '
')Having said that I see NO unwinding of the global credit play in the near future. Not from American, Japan, China or anyone else that matters. I really do not! I see the near future as seeing very much like the immediate past. I can find no other path. And I have looked from a critical point of view.





When does the post near future kick in, in your view, and how do you envision it playing out? My view is that the consumer (American ) has several more elaborate ways to pile on debt before the bubble finally fizzles out.


I listened to Germany's Foreign Minister, Steinmeier, talk yesterday at the same summit in Munich as James Baker. Wow, he hit the peak oil nail right on the proverbial head. He touched base in a few short minutes on global population reaching 10 billion by 2050; energy demand (not supply) increasing by 50% by 2030; climate change; resource wars; 65% of the folk living in cities; etc.

It was pretty peak oil aware in my opinion. And this was in a room of policy makers, diplomats and politicians from around the world, so his remarks were not going unnoticed. It was about as plain talking as one can hope for. I think his point was clear about being on the backside of post peak oil decline, although he may be more inclined to trust technology and the search for alternatives than some of us on peak oil dot com.

So I see scarcity dominating the agenda going forward. This article from last week on corn for ethanol production for example.

$this->bbcode_second_pass_quote('', ' ') The administration is relying on another “safety value” — a technology to produce ethanol from the cellulose in corn stalks and other plants like switchgrass that can be produced more cheaply than corn. So far, this so-called “cellulosic” process is much more expensive than corn-based ethanol. Major research breakthroughs will be required to make it economically competitive.

"There quite a long learning curve in terms of proving the technology and bringing it into production," said Peter Gray, KPMG's head of corporate finance for energy and natural resources. "It’s still quite a long way from being economic."

Meanwhile, the surge in corn prices has raised the cost of producing ethanol. Higher prices for the natural gas — needed to generate heat to brew ethanol — has also gone up. That has some producers considering delaying or abandoning plans to build more capacity.
Is there enough corn for Bush ethanol plan?

The implication being that anyone who has bothered to run the numbers doubts whether we can grow enough bio-fuel to meet our energy needs. And really in the near term it means choosing between cheaper food prices or less reliance on imported oil as clearly we cannot have both. So prices for everything are going up.

Money supply creation is exacerbating that dynamic, but even without artificial inflation you would have price appreciation due to higher input costs, for energy and base metals for example, and from scarcity, for arable land for example. Especially, if you buy into rapid peak oil depletion once it starts to decline in combination with climate change and a global population set to increase 50% in the next 40-years. Nevermind manmade inflation we are talking scarcity and approaching the natural carrying capacity of Mother Earth as evidenced by collapsing fish stocks. Close to one billion people rely on wildfish stocks for some or all of their nutritional needs.

But in the meantime we still do have currency manipulation from central banks, as well as the now infamous yen carry trade which shows no signs of unwinding anytime soon, as another source of global liquidity looking for a home.



$this->bbcode_second_pass_quote('', 'G')7 European Official: "Up To Japan" To Address Yen Weakness

ESSEN (Germany)--The Group of Seven leading industrial nations can't do much about the weak yen and it's up to Japan to address the issue, a European official, attending the G7 meeting this weekend, said Friday.

"There's not much we can do really....it's up to Japan," the official told Dow Jones Newswires when asked about what the G7 will do about the currency's weakness on foreign exchange markets.

G7 finance ministers and central bank governors are meeting in Essen later Friday for a two-day summit.
"Up To Japan" To Address Yen Weakness

And all that liquidity looking for a home is going to flow into the same assets as it has been already, unless someone can think of some new assets to invest in? I can only think of stocks, bonds, real estate and commodities for the bulk of that investment? That along with decreasing returns and compressed margins that force the marginal investor to either accept more risk for lower yields and/or to invest in emerging or foreign markets in search of higher returns. So if real estate in London, New York or Moscow is too high, by comparison Cyprus or somewhere else may look cheap. It is certainly not the islanders here who are buying?

But not everyone it seems agrees with me. This was an interesting article.

$this->bbcode_second_pass_quote('', ' ')
The chief executives of the world’s three largest mining companies have decided to bow out this year, prompting speculation that they are quitting before the commodities bubble bursts.

The mining industry is plagued with self-doubt at present as executives try to determine whether the current boom is part of a normal economic cycle or whether it is something special.

The departures of Tony Trahar, Leigh Clifford and Chip Goodyear from Anglo American, Rio Tinto and BHP Billiton respectively seem to suggest that the industry’s leaders are backing a short-lived boom.

By “retiring” this year, they leave companies that are reporting record profits and handing back billions of dollars to shareholders.
Mining chiefs take bow and quit while they are winning


You can interpret that as they have made enough money and now they are retiring, but I tend to think if they thought they could double their money again in the next 5-6 years that they would probably elect to stick around?

So I think for the above reasons the near future will continue to look like the immediate past. I think there are some asset bubbles, but in fact the fundamentals that created them have not changed dramatically, so they may continue to expand for sometime to come.
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Re: The Last Days of the Dollar?

Unread postby Dukat_Reloaded » Mon 12 Feb 2007, 07:29:42

If gold keeps going up they will raise interest rates. Gold is at $670 now and the fed has been sounding hawkish, they allways speak hawkish when gold is rising, but that is all they have been doing, sound scary but do nothing, I think this time will gold almost at $700 they will need to raise rates, I don't think the hawkish tone will work anymore.
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Re: The Last Days of the Dollar?

Unread postby MrBill » Mon 12 Feb 2007, 08:40:06

$this->bbcode_second_pass_quote('Dukat_Reloaded', 'I')f gold keeps going up they will raise interest rates. Gold is at $670 now and the fed has been sounding hawkish, they allways speak hawkish when gold is rising, but that is all they have been doing, sound scary but do nothing, I think this time will gold almost at $700 they will need to raise rates, I don't think the hawkish tone will work anymore.


For what it is worth Fed funds is at 5.25% right now, while the one-year LIBOR is at 5.42%. So money market traders have gone from expecting one or two rate cuts in 2007 to pricing in a Fed tightening to at least 5.50%. I think the market can live with another 25 bps points tightening at the moment. Does Bernanke have it in him though?
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Re: The Last Days of the Dollar?

Unread postby pogoliamo » Mon 12 Feb 2007, 09:28:30

$this->bbcode_second_pass_quote('Dukat_Reloaded', 'I')f gold keeps going up they will raise interest rates. Gold is at $670 now and the fed has been sounding hawkish, they allways speak hawkish when gold is rising, but that is all they have been doing, sound scary but do nothing, I think this time will gold almost at $700 they will need to raise rates, I don't think the hawkish tone will work anymore.


Dukat_Reloaded nice to see you back! I remember you , hehe, some time ago, when we had $780 gold, were making a case that is is about time to take profits. :P I also remember the replies you got :lol: :lol:


$this->bbcode_second_pass_quote('MrBill', '
')For what it is worth Fed funds is at 5.25% right now, while the one-year LIBOR is at 5.42%. So money market traders have gone from expecting one or two rate cuts in 2007 to pricing in a Fed tightening to at least 5.50%. I think the market can live with another 25 bps points tightening at the moment. Does Bernanke have it in him though?


LBO's are running wild. EU and UK will tighten more and make more space for The Fed to raise. But yes, at this point we can just guess.
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Re: The Last Days of the Dollar?

Unread postby spear » Mon 12 Feb 2007, 14:50:10

Maybe these mining chiefs were told to retire because someone bigger is stepping in?

The worlds three lagest gold mines is one hell of a score.
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Re: The Last Days of the Dollar?

Unread postby MrBill » Mon 12 Feb 2007, 15:14:10

$this->bbcode_second_pass_quote('spear', 'M')aybe these mining chiefs were told to retire because someone bigger is stepping in?

The worlds three lagest gold mines is one hell of a score.


Succession is always tricky. In one case, per the article, the decision is being forced by an age threshold, but the others seem to be voluntary? In any case, sometimes you are in the right place at the right time, and if these senior managers have lived through the slim times when they could barely cover the cost of their capital and keep mines open, I guess these past years have been mana from heaven. Why not go out on a high note?
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Re: The Last Days of the Dollar?

Unread postby topcat » Mon 12 Feb 2007, 15:17:21

Or maybe they are going to pull a Robert McEwen (founder of Goldcorp) and start their own smaller company?

He left there with a boat-load of cash and is now buying up several smaller PM miners/explorers.
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Re: The Last Days of the Dollar?

Unread postby threadbear » Mon 12 Feb 2007, 16:19:25

$this->bbcode_second_pass_quote('pogoliamo', '')$this->bbcode_second_pass_quote('Dukat_Reloaded', 'I')f gold keeps going up they will raise interest rates. Gold is at $670 now and the fed has been sounding hawkish, they allways speak hawkish when gold is rising, but that is all they have been doing, sound scary but do nothing, I think this time will gold almost at $700 they will need to raise rates, I don't think the hawkish tone will work anymore.


Dukat_Reloaded nice to see you back! I remember you , hehe, some time ago, when we had $780 gold, were making a case that is is about time to take profits. :P I also remember the replies you got :lol: :lol:


$this->bbcode_second_pass_quote('MrBill', '
')For what it is worth Fed funds is at 5.25% right now, while the one-year LIBOR is at 5.42%. So money market traders have gone from expecting one or two rate cuts in 2007 to pricing in a Fed tightening to at least 5.50%. I think the market can live with another 25 bps points tightening at the moment. Does Bernanke have it in him though?


LBO's are running wild. EU and UK will tighten more and make more space for The Fed to raise. But yes, at this point we can just guess.


The fed isn't likely to raise rates, for a long while, in spite of the talk. Ultimately, there is no monetary quick fix for a weakening purchasing power, in an environment of resource, energy scarcity.

And raising interest rates won't support the dollar, after confidence in it's ability to maintain it's hegemony, through sane foreign and domestic policy, is shattered.
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Re: The Last Days of the Dollar?

Unread postby MrBill » Mon 12 Feb 2007, 16:34:45

threadbear wrote:
$this->bbcode_second_pass_quote('', 'T')he fed isn't likely to raise rates, for a long while, in spite of the talk. Ultimately, there is no monetary quick fix for a weakening purchasing power, in an environment of resource, energy scarcity.

And raising interest rates won't support the dollar, after confidence in it's ability to maintain it's hegemony, through sane foreign and domestic policy, is shattered.


you may be right, but the market is betting against you!
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Re: The Last Days of the Dollar?

Unread postby threadbear » Mon 12 Feb 2007, 16:48:54

$this->bbcode_second_pass_quote('MrBill', 't')hreadbear wrote:
$this->bbcode_second_pass_quote('', 'T')he fed isn't likely to raise rates, for a long while, in spite of the talk. Ultimately, there is no monetary quick fix for a weakening purchasing power, in an environment of resource, energy scarcity.

And raising interest rates won't support the dollar, after confidence in it's ability to maintain it's hegemony, through sane foreign and domestic policy, is shattered.


you may be right, but the market is betting against you!


The contrarian in me thanks you for the validation. :P
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Re: The Last Days of the Dollar?

Unread postby MrBill » Mon 12 Feb 2007, 17:08:18

$this->bbcode_second_pass_quote('threadbear', '')$this->bbcode_second_pass_quote('MrBill', 't')hreadbear wrote:
$this->bbcode_second_pass_quote('', 'T')he fed isn't likely to raise rates, for a long while, in spite of the talk. Ultimately, there is no monetary quick fix for a weakening purchasing power, in an environment of resource, energy scarcity.

And raising interest rates won't support the dollar, after confidence in it's ability to maintain it's hegemony, through sane foreign and domestic policy, is shattered.


you may be right, but the market is betting against you!


The contrarian in me thanks you for the validation. :P


nothing wrong with being a contrarian, so long as you are right? ; - ))
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Re: The Last Days of the Dollar?

Unread postby threadbear » Mon 12 Feb 2007, 17:46:34

MrBill,

Your knowledge of the economy, in all of it's complexities, is vast and acquired over many years. Mine is more recently acquired and quite rudimentary, I admit.

My impression of money is that is as much a unit of power as a means of exchange. As the US declines in resources, prestige and most importantly, credibility, it would be unusual to see it's currency remain strong and it's status among other nations, unchanged or strengthened. Therefore, regardless of interest rates, the purchasing power of the dollar should erode.

If I am somehow wrong in my understanding, and the dollar remains strong and the US leads the world in any appreciable way, I will send you a fruit basket, with my humblest apologies, and much digital grovelling :lol:
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Re: The Last Days of the Dollar?

Unread postby Atheist » Tue 13 Feb 2007, 03:57:42

http://counterpunch.org/roberts02122007.html
Paul Craig Roberts urges people to
DUMP DOLLARS!
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Re: The Last Days of the Dollar?

Unread postby MrBill » Tue 13 Feb 2007, 04:19:40

$this->bbcode_second_pass_quote('threadbear', 'M')rBill,

Your knowledge of the economy, in all of it's complexities, is vast and acquired over many years. Mine is more recently acquired and quite rudimentary, I admit.

My impression of money is that is as much a unit of power as a means of exchange. As the US declines in resources, prestige and most importantly, credibility, it would be unusual to see it's currency remain strong and it's status among other nations, unchanged or strengthened. Therefore, regardless of interest rates, the purchasing power of the dollar should erode.

If I am somehow wrong in my understanding, and the dollar remains strong and the US leads the world in any appreciable way, I will send you a fruit basket, with my humblest apologies, and much digital grovelling :lol:




If you look at a currency on a trade weighted basis as its overall share of trade goes up or down, so should the currency increase or decrease in purchasing power parity. At least in theory. On a practical level you have domestic inflation and real interest rates that also affect the currency's external value.

So you would expect a country that runs persistent trade and budget deficits that is importing goods as well as capital to have a weaker currency. The larger those deficits become the weaker the currency, unless offset by high real interest rates or domestic productivity increases.

I have been importing food and energy for years and so far it has not hurt me one bit because I have been able to export services to pay for them. I am quite happy to outsource my energy needs for $1000 per year to an oil company that does all the exploration, extraction, refining, transportation and distribution on my behalf. Same as food. Instead of working on the farm for subsistance wages I can offshore that work to someone else for about $4800 per year.

So as long as I can earn at least $5800 per year net I have successfully covered all my imports of food & energy. Anything else I earn over and above that by selling services that someone else wants or needs just adds to my balance sheet and becomes shareholder (me) equity. I do not have to sell my services in Asia or abroad either. So long as I am generating a surplus that is all that counts.

If for example the USA has a $11 trillion GDP it can easily afford to pay for its imports and even run a [url=http://www.marketwatch.com/News/Story/Story.aspx?guid={8DD649F8-A78B-4F53-8D39-15B6F6DD6983}&siteid=mktw&dist=nbi]$800[/url] billion trade deficit. But persistent deficits can become a problem because they are cumulative. $800 becomes $1600 and then $3200 eventually. Usually if a country had persistent deficits the value of its currency would fall until exports and imports came back in line. But that is not happening at the moment due to currency manipulation by Asian central banks and because some OPEC and non-OPEC oil producers have pegged their own currencies to the US dollar.

And in order to maintain those deficits in order to sell more goods or oil, so that their own domestic economies grow quicker, those producers are exporting dollars to help or actually encourage America to run those deficits. That's what happens when the supply of money is cheap? It gets borrowed for investment and/or consumption. It is a symbiotic relationship between debtor and creditor as well as exporter and importer. No one is forcing China to sell its goods for US dollars. And oil exporters do not have to re-invest their profits back in the USA. They can repatriate those profits for use in their own domestic economies, buy real-estate in London or invest in euro, yen or ruble denominated assets.

And that is actually to a large degree what is actually happening. As the US dollar has weakened off against the euro US exports have increased, while the eurozone sucks in more imports from China. China's trade surplus with Europe is growing faster than its trade balance with the USA at the moment. And Boeing is outselling Airbus. However, this shifts the trade imbalances from America to Europe. European exports become more expensive. While high labor costs, in Italy for example, make Italian textiles less competitive with Chinese imitations.

It is a lot easier to steal intellectual property than hardgoods. And once you sell proprietary information it is hard to control its use thereafter. So if your core competence is information technology and/or manufacturing processes then you should be doubly wary of who you lease that technology to or where you build your factories.

But that is all trade related. America is also running budget deficits and those are a lot less easy to forgive. Government is too big, taxes are too low and the costs of unfunded liabilities are being passed onto future generations. That has nothing to do with trade. That is just poor governance and a country that is badly governed deserves to have a weak currency. Which is why I have at least two thirds of my wealth in non-dollar denominated assets and other currencies! ; - )
Last edited by MrBill on Tue 13 Feb 2007, 09:58:26, edited 1 time in total.
The organized state is a wonderful invention whereby everyone can live at someone else's expense.
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