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Is This How It Works?
I got this from the pakalert press, and do not know much about the site but thought this was very interesting. What do you all think?
It is true that the dollar has dipped 15 percent since summer, but so what? That just means that people are less scared now then they were after Lehman Bros. collapsed. Here’s a clip from the Economist explaining it all:
“The simplest explanation for the currency’s decline is based on risk aversion. On the days when risky assets fall, the dollar tends to go up. When risky assets rise, the dollar falls. The dollar has fallen fairly steadily since March, a period which has seen stockmarkets enjoy a phenomenal rally. Domestic American investors may be driving the relationship, repatriating funds in 2008 when they were nervous about the state of financial markets and sending the money abroad again this summer because of a perception that the global economy is reviving.” (“Down with the Dollar” The economist, Oct, 2009)
As time goes by, the relationship between stocks and the dollar will change, but for now, the rule is still holds.
So why is this debate about the dollar so important?
Because the majority of people believe that the real problem is the deficits, and not the economy. That’s just flat wrong, and it creates political opposition to more stimulus, which we need. Blame it on the media for convincing people that we are in a recovery and that “green shoots” are sprouting up everywhere. It’s pure fiction. The country could still wind up in a Depression when the stimulus wears off. And it’s wearing off very quickly. (The effects of the stimulus will peak in the Third Quarter)
Consumer credit is contracting at a year-over-year rate of 5 percent. Household balance sheets are in tatters, savings are up, spending is down, and unemployment is headed for 10 percent. Record foreclosures, delinquencies, bankruptcies, and defaults are sucking credit from the system making it harder for the Fed to keep the economy sputtering along. If the Fed cuts off the bloodflow of monetary stimulus, the patient will slip into a deep coma.
Here’s a likely scenario of what could take place in the next few months:
Even though the signs of severe deflation are visible everywhere, investors short the greenback and the dollar plunges to $1.60 per euro. That increases public angst which sets off a firestorm on Capital Hill. The Congress forces the Fed to stop its quantitative easing (QE) program (which has already pumped over $1 trillion into US Treasuries and mortgage-backed securities) and long-term interest rates spike overnight. This puts downward pressure on the housing market and the slump deepens. More jobs are lost, more banks and financial institutions default, perfectly good businesses cannot role over their debt and call it quits, prices fall across the board, the stock market retraces its March lows, and the economy ends up in the ditch.
Think it can’t happen?
Bernanke’s problem, is that all the tools at his disposal are blunt instruments. It’s like performing kidney surgery with a meat cleaver. Dropping interest rates and printing money can stave off deflation, but it also pushes stocks higher than anyone really wants. That leaves traders on the sidelines waiting for a market correction before they jump back in. The same is true of the dollar. Sure, Bernanke wants a cheap greenback to spark exports and reduce household debt, but when the dollar plunges to $1.60 per euro, then the sh** hits the fan and the public outcry forces him to change directions. If the dollar falls any further, the Fed will have to shut down the printing presses altogether and watch while the boat capsizes. The problem is more political than economic.
US policymakers should drop this nonsense about the dollar and deal with the underlying problem itself; lack of demand. That means the focus should be on wage growth and full employment. If that means printing up a couple more trillion; then get to it! Getting people back to work and paying them decently should be job one.
It is true that the dollar has dipped 15 percent since summer, but so what? That just means that people are less scared now then they were after Lehman Bros. collapsed. Here’s a clip from the Economist explaining it all:
“The simplest explanation for the currency’s decline is based on risk aversion. On the days when risky assets fall, the dollar tends to go up. When risky assets rise, the dollar falls. The dollar has fallen fairly steadily since March, a period which has seen stockmarkets enjoy a phenomenal rally. Domestic American investors may be driving the relationship, repatriating funds in 2008 when they were nervous about the state of financial markets and sending the money abroad again this summer because of a perception that the global economy is reviving.” (“Down with the Dollar” The economist, Oct, 2009)
As time goes by, the relationship between stocks and the dollar will change, but for now, the rule is still holds.
So why is this debate about the dollar so important?
Because the majority of people believe that the real problem is the deficits, and not the economy. That’s just flat wrong, and it creates political opposition to more stimulus, which we need. Blame it on the media for convincing people that we are in a recovery and that “green shoots” are sprouting up everywhere. It’s pure fiction. The country could still wind up in a Depression when the stimulus wears off. And it’s wearing off very quickly. (The effects of the stimulus will peak in the Third Quarter)
Consumer credit is contracting at a year-over-year rate of 5 percent. Household balance sheets are in tatters, savings are up, spending is down, and unemployment is headed for 10 percent. Record foreclosures, delinquencies, bankruptcies, and defaults are sucking credit from the system making it harder for the Fed to keep the economy sputtering along. If the Fed cuts off the bloodflow of monetary stimulus, the patient will slip into a deep coma.
Here’s a likely scenario of what could take place in the next few months:
Even though the signs of severe deflation are visible everywhere, investors short the greenback and the dollar plunges to $1.60 per euro. That increases public angst which sets off a firestorm on Capital Hill. The Congress forces the Fed to stop its quantitative easing (QE) program (which has already pumped over $1 trillion into US Treasuries and mortgage-backed securities) and long-term interest rates spike overnight. This puts downward pressure on the housing market and the slump deepens. More jobs are lost, more banks and financial institutions default, perfectly good businesses cannot role over their debt and call it quits, prices fall across the board, the stock market retraces its March lows, and the economy ends up in the ditch.
Think it can’t happen?
Bernanke’s problem, is that all the tools at his disposal are blunt instruments. It’s like performing kidney surgery with a meat cleaver. Dropping interest rates and printing money can stave off deflation, but it also pushes stocks higher than anyone really wants. That leaves traders on the sidelines waiting for a market correction before they jump back in. The same is true of the dollar. Sure, Bernanke wants a cheap greenback to spark exports and reduce household debt, but when the dollar plunges to $1.60 per euro, then the sh** hits the fan and the public outcry forces him to change directions. If the dollar falls any further, the Fed will have to shut down the printing presses altogether and watch while the boat capsizes. The problem is more political than economic.
US policymakers should drop this nonsense about the dollar and deal with the underlying problem itself; lack of demand. That means the focus should be on wage growth and full employment. If that means printing up a couple more trillion; then get to it! Getting people back to work and paying them decently should be job one.
Yes, and as I said, I do not know much about the site itself, just stumbed upon it but, as I said before, it is not aimed at us americans. This is talk by them about us, not to us. It also has some strange stuff on there, like 9/11 being orchestrated by our government and world war three and all that. They do not like us or our president for sure. It is however, interesting.
Lets keep in mind that this came from pakalert. If Wall Street goes down----- everyone will suffer. That's my opinion. As it goes down, many who have the money to spend won't and the general economy slows. Don't know if that is what you are talking about.
Speaking of Wall Street, I also read on that site that when it is fourishing, it is not a good sign for the econemy. I will have to go back and see if I can find that one. It was really interesting. Seems to be all upside down in the way it works as to the way you would think it did. I alwasys thought when stocks were way up, it was a good thing. I will have to see if I can find it or the link to it so ya all can have a look see.
I know, we are all concerned about the debt, but we have got to get out of this mess. Thanks for the nice polite response. :) Maybe when we get on our feet we all can pay a little more than asked to get it down. We need a bunch of fund raisers, like they did for Haiti. Every American pay 5 bucks a week towards our debt. Give up a cappuccino or two. lol I know, I know still gonna take a long time. If we don't get some jobs going, we will all be out on the streets.......except for Wall Street.
It just seems to me that we've been living this way--------- paying the bills later -----for a long time now. At some point, printing up a few more trillion is going to catch up to you. I do worry about how much debt this country is in. What would happen if . . . China for example called in our debt? Spending money you don't have makes you extremely vulnerable. It may end up killing you in the long run. If you are constantly needing emergency care--------- better to get to the root of the problem.
Yeah, the problem is, if no one spends any money the economy crashes. The banks and big business's aren't spending any or hiring any workers. They are afraid. The only one left to inject some money is the government.
This is my example:
Lets say someone is very sick, possibly dieing. They have no money, no way to pay. Should someone call an ambulance or should we let them die. Of course you call the ambulance and take all life saving measures. When they get better they can make payments on the bill. At least they will be alive, right.
Our country needs an ambulance right now. We will have to pay it back later no doubt, but at least we will be alive.
I know this is a very simplistic view, but I'm tired and it's all I've got right now. lol
This is my example:
Lets say someone is very sick, possibly dieing. They have no money, no way to pay. Should someone call an ambulance or should we let them die. Of course you call the ambulance and take all life saving measures. When they get better they can make payments on the bill. At least they will be alive, right.
Our country needs an ambulance right now. We will have to pay it back later no doubt, but at least we will be alive.
I know this is a very simplistic view, but I'm tired and it's all I've got right now. lol
Well, me too, but if we do not get the jobs going no matter what it takes, we are looking a a major depression, or worse, and soon. I also talked about this article to a couple very knowledgable gents in the area and surprisingly they were familiar with how this all works and agreed that this guy was right on.
Anyway, I thought it would be worth a look see, because I did not know how this was to work any more than the average person. I found it interesting and worth checking into.
Anyway, I thought it would be worth a look see, because I did not know how this was to work any more than the average person. I found it interesting and worth checking into.
I think I am suspicious of printing up a couple more trillion as a basis of economic recovery.
Basically, I was browsing and came across this. It is written by someone in another country to pakinstani people about what is going on in the economy of the US. I found it interesting, since you never know what to believe from our own people, that this is someone elses take on what is going on and what may happen if things are not handled very carefully.
I am having trouble understanding it. Could you explain it in your own words?
LOL, Right! You got it! It was getting lost and no one has read it! Or maybe they dont understand it, not sure which. lol
bumping it up.
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