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C:\THE PAPER ARISTOCRACY, MEXICO 10.000 PESOS!

THE NEW ELITE COUNTRY THAT CONTROLS AMERICA'S MONEY SYSTEM.

A SIMPLE EXPLANATION OF WHAT'S HAPPENING TO THE U. S. BUDGET DOLLAR MONEY.

FOR THE FIRST TIME EVER, PAPER MONEY INFLATION MAKES THE POOR POORER AND THE RICHER RICHER.

_Institute For Monetary Policy Research Inc.
_Washington D. C. C:/

SERÁ QUE O GOVERNO QUER ESCONDER OS LUCROS DOS BANCOS... Para justificar e ao mesmo tempo esconder os fabulosos lucros dos Bancos,prestadores de serviços, com a maior rentabilidade do mundo, em relação ao patrimonio líquido, o Banco Central já busca criar, conforme noticiou a imprensa, um Fundo de Reserva, nos Bancos, para suposto RISCO ...E essas reservas, embora continuassem gerando riquezas no próprio sistema, seriam deduzidas dos Lucros e, portanto, do Imposto de Renda a pagar ao Tesouro.E olha, se realmente for adotada essa medida protecionista e incabível, que pode causar bilhões de reais em prejuizo ao Tesouro ( ao povo) Nacional, seria o caso de se analisar até a criação de uma CPI do Sistema Financeiro,mas que apresentasse resultado em defesa dos interesses maiores da Nação. Os abusos já passaram do limite e o povo é frágil e tem ferramenta da época da pedra lascada para reagir contra tudo isso de sofisticação, aprimporamento e capacidade de descapitalizar um país. Para todas as medidas que beneficiam Bancos e com iniciativa do BC, os resultados sempre foram imediatos. Já as medidas que poderiam beneficiar correntistas, investidores,como redução nas taxas de juros e de serviços bancários, etc.,precisam de longa maturação, como sempre diz o mesmo Banco Central, nós acreditamos e porque ? Será que com uma estrutura tão cara e mantida com suados recursos do Povo, o Banco Central e mais algumas Agências Reguladoras irão continuar esquecendo de cumprir o seu verdadeiro papel ? Apresentando tanto lucro e pouca responsabilidade com o social, o sistema financeiro nacional deve estar sendo, nesse momento, o grande atrativo e cobiça para o capital especulativo internacional aportar aquí no Brasil. Porque EUA, UE e Ásia, não tem mais espaço e ágio criminoso para esse capital volátil que a cada dia e através da imprensa mundial e especializada, vem implantando uma série de notícias, para a fabulosa colheita de ganhos nunca vistos. Será que o Governo está realmente enxergando isso ou a miopia é nossa?. E a selic de 11,25% já não está mais agradando a esse capital voraz e APÁTRIDA, embora o BC não torne público os juros que hoje está pagando para a rolagem de dívida. Já pagamos, através do Tesouro Nacional, nos últimos cinco anos, mais de 700 bilhões de reais em juros e mais de R$ 500 milhões de reais ao dia, em 2007, para alimentar esse capital que não trás produtividade, emprego, renda e consumo.E esse desembolso diário, é sòmente com a dívida de R$ 1,3 trilhões. E o Banco Central já esclarece que a dívida irá crescer entre R$ 180 a 240 bilhões em 2008, passando para R$ 1,48 a 1,54 trilhões. E os juros diários passarão para mais de 600 milhões de reais. Porque continuar culpando o Arroz, o Feijão, o funcionalismo, os aposentados e as justas correções salárias, se o culpado está bem visível e trabalhando na impunidade absoluta? Presidente Luiz Inácio Lula da Silva, já está pasando da hora de um basta em tantos privilégios aos sistema financeiro e que só direciona recursos para os financiamentos de Curto Prazo, incluindo os papéis do Governo,como a principal mina de ouro.Presidente, pense no País, como sempre o fez.Não deixe que o Brasil se torne no grande e imenso paraiso fiscal para o deleite da agiotagem internacional. Poder, o senhor tem.E que DEUS continue a nos abendiçoar.

PAPER MONEY: Thank you for your excellent, detailed explanation.

One point caught my attention: the way foreigners' confidence on the dollar's long term value has contributed to its relatively slow fall.

How long will this confidence last? Does current exchange rates mean that people no longer trust the dollar and have already moved their reserves to other currencies?

The main emotion for the middle class is FEAR. Their retirement is vanishing, their home values dropping, the purchasing power of their salary dropping, the medical insurance is skyrocketing while providing less and less coverage, and bankruptcy is more punitive.

We are close to the point where people quit buying or even saving, but just start hoarding and stockpiling FOOD.

Re: the Swiss recycling guide, that's wonderful advice (though of course very subversive in the US). But let's publish it in the USA in paperback and get it on Oprah. Who knows, it might catch on.

Back to the Bill's column. I'm afraid time will probably prove you right - a falling dollar has to help exports and ultimately create a stronger US economy. But there's a rub (there always is). The falling dollar and expensive travel will mean that more of us Americans will have to stay home. And this at a time when getting more Americans out of our isolated and myopic island is more important than ever. Not just for the US, but also for a world that badly needs mutual understanding and wise cosmopolitan leadership. Of course, you could take George Bush everywhere including Timbuktu and he still wouldn't learn a thing. But a falling dollar will mean that many able Americans won't get a chance to experience the world outside their borders. If this happens, it will be a sad thing.

The fall in dollar may be a good thing in that, as you say, it boosts exports, however, the long-run implications of this thing are that the US dollar will lose its standing as a world-currency. First signs of this happening is that large countries such as China have already begun to switch from Dollar to Euro in their foreing reserves.

But I see some more profound risks associated with a weak dollar: that of investors' confidence on the currency. If these people continue to believe that the dollar will no longer hold to the rising Euro, which is increasingly becoming a world currency, then the dollar is in for a long and painful retreat into a second tier currency.

Again, the latest development may be good temporary for American exporters, but the long-term consequences are far more serious.

The fall in dollar may be a good thing in that, as you say, it boosts exports, however, the long-run implications of this thing are that the US dollar will lose its standing as a world-currency. First signs of this happening is that large countries such as China have already begun to switch from Dollar to Euro in their foreing reserves.

But I see some more profound risks associated with a weak dollar: that of investors' confidence on the currency. If these people continue to believe that the dollar will no longer hold to the rising Euro, which is increasingly becoming a world currency, then the dollar is in for a long and painful retreat into a second tier currency.

Again, the latest development may be good temporary for American exporters, but the long-term consequences are far more serious.

With the true increases in oil and corn/ethanol yet to be fully felt through our economy, I suspect we are in for a very very rocky ride.... and people are still buying SUVs.

Of course the dollar is falling. Mostly, I'm surprised that it stayed as strong as it did as long as it did. The question now is how much further, and how fast? I'm worried about a precipitous drop if other countries start abandoning their dollar pegs and oil exporters start dealing in other currencies. Hopefully the decline will be graceful, and not a rout.

One problem with counting on exports to arrest the fall is that about a quarter of our total imports are in the form of oil. It's only getting more expensive as the dollar drops, and elasticity is so low (at least in the short- to medium-term) that we aren't reducing our quantity. So a significant portion of our imports

peace,
lilnev

I give up, you're right, the economy is horrible, the stock market is in shambles, we have 10% unemployment, and the only thing we can stand in long lines for and buy with our weak dollar and horrible economy is ipods....I mean bread.

Really folks, have you not been reading the same articles that I have for the past 6-7 years that predict a coming recession? I ask again, at what point do you think the authors are talking out their behinds? 6-7 years of recession prediction. At your job, if you endlessly predicted something for 6-7 years that didn't happen, would you not be fired?

Talk about a glass half-full type of outlook.

I'm not sure I understand how the weak dollar and a US economy in recession is a good thing. By any standard, isn't a strong dollar and a strong US economy a better way to go?

This is simply another crazy way of justifying the last seven years of awful fiscal policy, bad tax cuts and insane corporate giveaways that were supposed to prop up the economy. Now that it hasn't done that, let's just call the failures success and say we were right. That's the idea, isn't it?

Emmott's former employer completely disagrees with him, and puts the US risk of a recession at 30% and the risk of a severe recession at only 10%, with a 60% chance of the US just experiencing a slowdown.

His example of Japan is ridiculous, since the Japanese recession was a systematic shut down, not the problem with one sector. Japan had been growing for decades since WWII based on an export driven economy, and the Recession in the 1990s showed the problems with their entire infrastructure. There is no evidence that the US economic infrastructure is fundamentally unsound.

The dollar's fall this past month is more triggered by the fall in interest rates and the oil bubble that many economists expect to collapse by Xmas. Citing The Economist again, they state that oil should be at $58/barrel, and yesterday it hit $95. This is all speculation and they think $80 oil by New Year is more likely than $100. If oil tumbles, then the US dollar will rebound. Even the Bank of Canada states that the US dollar is undervalued and the Canadian dollar should be at $.95, not $1.06.

It takes twisted logic to try convince people that the drop in value of something they own, in this case US dollars, by more than 40% is a good thing for them.

Image if the value of your house dropped 40% and they tried to convince you that the bright side is that your property tax would be less next year.

The Bush administration has financed their wars the old fashioned way of printing money and then double downed by dropping taxes.

American industry has exported their manufacturing base to cheap overseas labor pools and fired their American workers thus turning their profits (and the nation's GNP) into imports. The low dollar policy will backfire- gains made through the use of cheap labor will overseas will be countered by higher costs.

The next step will be higher import tariffs thus freezing them out of their own domestic markets.

With the average American now putting those mortgage payments on credit cards with one hand, while the other hand is writing checks against retirement savings and 401(k)s, not only will there be a recession, there will be a large recession, I'd say.

The large banks and investment firms have a definite interest in withholding pertinent accounting information, aka Merrill Lynch, in order to keep those stock values high, but sooner or later market results should be measured objectively.

Whatever happened to the culture of 'saving and spendthrift' in America? Whatever happened to both personal and fiscal conservatism? The only good news that I see coming out of this mess is that maybe some of those low wage maufacturing jobs will soon be returning back to the US. Hooray for us!

The falling dollar has actually made the biggest holders in CHINA AND INDIA( the State controlled foreign exchange holders), the suckers. they are actually loosing money and allowing america to get away with defecit financing.
A smart private banker would have switched currency long time back to Euro,Rinbi etc.

What rubbish! The Swiss has a strong currency and a strong export market as do the Norwegians. Individual countries in the Euro zone also have strong exports even as their currency escalates. (The printing presses for our dollars are probably going to come from Germany no matter the cost).

I have been saving money for years and I have been working since I was 14. My dollar savings have been destroyed by the dollar devaluation. The fed has stolen my money and for what? To pay for subprime mistakes and over consumption by credit deficient people.

I would like to see someone like Paul Volcker back at the helm. He put inflation to rest. Now we need someone to put cheap consumer debt and risky hedge funds to rest.

I have tremendous respect for The Economist but it's former editor has it a bit backwards when he touts the decline of the dollar as the cure for our trade deficit. Whatever happened to the brand "Made in the USA"? That used to represent a gold standard of its own and a basis upon which our past successful trade policy was based. Quality goods, innovation, artistic creativty, all these and more demonstrated the inherent and true value of American products. Now, we are left to lame dollar manipulations that artificially cheapen our exports to produce the illusion of a gain in the trade wars. Where we once sold quality we now proudly hawk cheapness? And the formerly almight Greenback, now green only because it's envious of the Euro. And Looney, indeed it is, when Canada's currency matches the value of the US Dollar. America, to restore its trade standing must reclaim its branding through quality and innovation not the smoke and mirrors of an artifically weakened dollar.

As for why the dollar has fallen in value while the Euro, Canadian dollar, rupee, and most other currencies have not.

The value of any currency is based on the value of goods / services that can be bought with that currency. Usually, the value of a currency is backed by the goods and services that a country’s economy produces. Think of a balancing scale with all the goods and services of a given economy on one side and the supply of money of that country’s currency on the other. So long as the ratio of goods to unit of currency remains balanced, the value of the currency should remain stable. Some of the currencies that have strengthened against the dollar (Euro, Canadian Dollar, Australian Dollar) exhibit such a balanced scale – their economies all produce goods generally demanded by other countries and they have maintained tight monetary policies that track monetary expansion with GDP expansion.

A country’s money supply is controlled by the rate of interest. Interest rate is the cost of borrowing, also known as the price of money. If interest rate is low, borrowing is cheap and a given economy will have lots of cash flowing into the economy. In places like China and India, interest rates have been low so the money supply has been growing. But the added cash in those economies are backed by growth in the output of goods and services generated by their economies. Those countries both have millions of workers joining the work force each year to produce more goods which soak up the extra money. Until recently, inflation was very low in China despite many years of low interest. In Zimbabwe, however, the economic output has not kept pace with the added money that the government injects into the economy to fund its deficit spending. The result is more money chasing finite goods and higher prices (domestic inflation) and lower rate of exchange against hard currencies (devaluation of the Zimbabwe currency).

Now we come to the U.S. dollar, which is unique in certain respects but ultimately must obey the fundamental rules that apply to all currency. Seven years ago, the Federal Reserve under Alan Greenspan began to cut interest rates very precipitously to bolster a flagging economy after the dotcom bust, 9/11 attacks and Enron collapse. The interest rate cuts made it cheaper to borrow money. Workers earning a fixed income could suddenly afford to take on more debt because interest payments dropped. Thus, home prices rose each time Greenspan cut the rates. Some of the borrowing went into investing in the capacity to produce more economic output, but much of that borrowed cash went straight to consumption. Thanks to zero percent APR, people of all income classes could consume more (and live more comfortably) despite relatively stagnant wages in this country over the same period.

Greenspan did eventually halt his rate cuts and began to raise them in steps. His successor followed. If rate cuts generated such prosperity, why both raising rates? Remember, more money chasing finite goods leads to a higher money-to-goods ratio. The Fed was wary of inflation, which undercuts the value of the dollar. Yet, throughout this whole period, domestic inflation in this country remained remarkably low. How did inflation remain so low, despite the vast expansion of credit (money supply)? One explanation is the strength of the U.S. economy / growth in productivity. That is to say the growth in money supply is balanced by growth in output. But U.S. production has been outstripped by consumption. We have been spending and consuming far more than we have been earning and producing. The savings rate is low and the trade deficit is high. We have been living beyond our means and everything seemed all right!

Here’s where the uniqueness of the dollar comes into play. Unlike the Zimbabwe currency, the U.S. dollar enjoys a special status in the world economy. The U.S. dollar is the standard currency of exchange for certain goods that America does not produce (most notably oil). So any country that needs to buy oil on the world market needs to have dollars. This extra demand for dollars and the fact that the value of the dollar is backed by the world’s foreign traded oil gives the dollar purchasing power far beyond what our economy produces. The U.S. dollar is also a standard bearer of value for many countries to stockpile and shore up the value of their own currencies. When the China’s and the Japan’s of the world stock up on dollars, they help sustain the value of the dollar. These two realities help to account for why the dollar has remained relatively viable despite long periods of deficit spending by the U.S. government and public.

Thus, even as Greenspan was lowering the rate of interest and expanding money supply, the U.S. Treasury did not have to print cash like Zimbabwe. Instead, foreigners who earned dollars through trade lent those dollars back to us at very low rates along with more goods they made. Foreigners chose not to spend what they earned and instead sent it to us for us to spend again. Furthermore, these dollars were backed with imported goods, which kept the goods to money supply scale in relative balance (thus low inflation). One of America’s most important imports is the U.S. dollar. Yes, we import our money!! Without imported money, we’d have to either raise interest rates to raise cash domestically, which would put a damper on credit-driven consumption or print money to fund our spending habit, which would cause inflation to shoot up.

Now you might wonder, why on earth would the foreigners want to save up their hard earned dollars and lend it to us at low rates for us to shop on credit? They have their reasons. Some countries pump dollars out of their economies to keep their currency from rising in value against the dollar. They do this to keep their exports competitive, which keeps their factories running and workers employed. Not all countries are so generous. The Eurozone countries, Canadas and Australias of the world, by and large, have refrained from buying low-yield U.S. treasuries. (In order to get our dollars back, our government sells U.S. treasuries). It’s the Asian countries, the currency manipulators, who are most adept at doing this. This dynamic has gradually reshaped our economy. The Asians specialize in production, and we devote ourselves to consumption. That’s a nice trade-off. We are comparatively advantaged in indulgence and they are better at toil. Other than the loss of some manufacturing jobs, which only the unions complain about, what’s the big deal? Let the good times continue to roll!! And just when our economy appears to slow a bit, the Federal Reserve duly cut interest rates again this fall to send the Dow right back up.

Even this dynamic is unsustainable. To manipulate their currencies, the Asian economies must constantly issue large volumes of their own currency to buy up dollars (at exchange rates favorable to the dollar) to send back to us. As they issue large volumes of their own currency, they risk internal inflation. For a long time, China was able to back up the growth of its money supply with added production thanks to its seemingly inexhaustible labor supply. But starting about two years ago, the Chinese labor supply actually ran dry and employers had to raise wages first time in a very long time. As wages rose, inflation begins to spread in China, the Chinese government has no choice but to let its currency rise, albeit slowly against the dollar. This means fewer Chinese purchases of U.S. treasuries and fewer cheap Chinese dollars being sent back for us to spend.

A drop in the supply of dollars should lead to higher interest rates, but the Federal Reserve has just again cut rates. Where will the Fed actually get the dollars to lend at the new low rates it just set? The international market reacted predictably – sending the value of the dollar lower against the Euro, Loonie, gold, oil, Yuan and just about every other holder of value.

Domestically, Wall Street seems bullish. And Main Street, other than troubles in the real estate market, is really not aware of the changes abroad. Technically speaking, inflation has remained low these last few years, but many goods and services have already gotten more expensive. These are usually goods not imported from Asia or services provided by immigrants. While prices for Tupperware at Wal-Mart and cordless drills at Home Depot have remained steady, we have felt price inflation in real estate, health care, higher education to name a few. Also the price of commodities have shot up -- gasoline, natural gas, steel, gold, along with milk, eggs, flour and coffee. As the Asian currencies now also begin to gain on the dollar, (the South Korean won hit 900, highest level since 1997 and the Chinese Yuan reached 7.46, the highest since at least 1995) watch for more expensive durable goods as well.

Perhaps the most remarkable comparison is Canada. Our North American neighbors are virtually indistinguishable from us in most respects. Yet their currency has shot up against ours. What accounts for the difference? They did not live fat off of low interest rates, spend beyond their means, amass a pile of debt and reorganize their economy for consumption.

Dollar devaluation and inflation will have a beneficial side however. They make it easier to repay debt. So go ahead, take on debt while interest rate is still low and durable goods remain affordable. Conditions probably will not remain this way in the months and years ahead.

As for why the dollar has fallen in value while the Euro, Canadian dollar, rupee, and most other currencies have not.

The value of any currency is based on the value of goods / services that can be bought with that currency. Usually, the value of a currency is backed by the goods and services that a country’s economy produces. Think of a balancing scale with all the goods and services of a given economy on one side and the supply of money of that country’s currency on the other. So long as the ratio of goods to unit of currency remains balanced, the value of the currency should remain stable. Some of the currencies that have strengthened against the dollar (Euro, Canadian Dollar, Australian Dollar) exhibit such a balanced scale – their economies all produce goods generally demanded by other countries and they have maintained tight monetary policies that track monetary expansion with GDP expansion.

A country’s money supply is controlled by the rate of interest. Interest rate is the cost of borrowing, also known as the price of money. If interest rate is low, borrowing is cheap and a given economy will have lots of cash flowing into the economy. In places like China and India, interest rates have been low so the money supply has been growing. But the added cash in those economies are backed by growth in the output of goods and services generated by their economies. Those countries both have millions of workers joining the work force each year to produce more goods which soak up the extra money. Until recently, inflation was very low in China despite many years of low interest. In Zimbabwe, however, the economic output has not kept pace with the added money that the government injects into the economy to fund its deficit spending. The result is more money chasing finite goods and higher prices (domestic inflation) and lower rate of exchange against hard currencies (devaluation of the Zimbabwe currency).

Now we come to the U.S. dollar, which is unique in certain respects but ultimately must obey the fundamental rules that apply to all currency. Seven years ago, the Federal Reserve under Alan Greenspan began to cut interest rates very precipitously to bolster a flagging economy after the dotcom bust, 9/11 attacks and Enron collapse. The interest rate cuts made it cheaper to borrow money. Workers earning a fixed income could suddenly afford to take on more debt because interest payments dropped. Thus, home prices rose each time Greenspan cut the rates. Some of the borrowing went into investing in the capacity to produce more economic output, but much of that borrowed cash went straight to consumption. Thanks to zero percent APR, people of all income classes could consume more (and live more comfortably) despite relatively stagnant wages in this country over the same period.

Greenspan did eventually halt his rate cuts and began to raise them in steps. His successor followed. If rate cuts generated such prosperity, why both raising rates? Remember, more money chasing finite goods leads to a higher money-to-goods ratio. The Fed was wary of inflation, which undercuts the value of the dollar. Yet, throughout this whole period, domestic inflation in this country remained remarkably low. How did inflation remain so low, despite the vast expansion of credit (money supply)? One explanation is the strength of the U.S. economy / growth in productivity. That is to say the growth in money supply is balanced by growth in output. But U.S. production has been outstripped by consumption. We have been spending and consuming far more than we have been earning and producing. The savings rate is low and the trade deficit is high. We have been living beyond our means and everything seemed all right!

Here’s where the uniqueness of the dollar comes into play. Unlike the Zimbabwe currency, the U.S. dollar enjoys a special status in the world economy. The U.S. dollar is the standard currency of exchange for certain goods that America does not produce (most notably oil). So any country that needs to buy oil on the world market needs to have dollars. This extra demand for dollars and the fact that the value of the dollar is backed by the world’s foreign traded oil gives the dollar purchasing power far beyond what our economy produces. The U.S. dollar is also a standard bearer of value for many countries to stockpile and shore up the value of their own currencies. When the China’s and the Japan’s of the world stock up on dollars, they help sustain the value of the dollar. These two realities help to account for why the dollar has remained relatively viable despite long periods of deficit spending by the U.S. government and public.

Thus, even as Greenspan was lowering the rate of interest and expanding money supply, the U.S. Treasury did not have to print cash like Zimbabwe. Instead, foreigners who earned dollars through trade lent those dollars back to us at very low rates along with more goods they made. Foreigners chose not to spend what they earned and instead sent it to us for us to spend again. Furthermore, these dollars were backed with imported goods, which kept the goods to money supply scale in relative balance (thus low inflation). One of America’s most important imports is the U.S. dollar. Yes, we import our money!! Without imported money, we’d have to either raise interest rates to raise cash domestically, which would put a damper on credit-driven consumption or print money to fund our spending habit, which would cause inflation to shoot up.

Now you might wonder, why on earth would the foreigners want to save up their hard earned dollars and lend it to us at low rates for us to shop on credit? They have their reasons. Some countries pump dollars out of their economies to keep their currency from rising in value against the dollar. They do this to keep their exports competitive, which keeps their factories running and workers employed. Not all countries are so generous. The Eurozone countries, Canadas and Australias of the world, by and large, have refrained from buying low-yield U.S. treasuries. (In order to get our dollars back, our government sells U.S. treasuries). It’s the Asian countries, the currency manipulators, who are most adept at doing this. This dynamic has gradually reshaped our economy. The Asians specialize in production, and we devote ourselves to consumption. That’s a nice trade-off. We are comparatively advantaged in indulgence and they are better at toil. Other than the loss of some manufacturing jobs, which only the unions complain about, what’s the big deal? Let the good times continue to roll!! And just when our economy appears to slow a bit, the Federal Reserve duly cut interest rates again this fall to send the Dow right back up.

Even this dynamic is unsustainable. To manipulate their currencies, the Asian economies must constantly issue large volumes of their own currency to buy up dollars (at exchange rates favorable to the dollar) to send back to us. As they issue large volumes of their own currency, they risk internal inflation. For a long time, China was able to back up the growth of its money supply with added production thanks to its seemingly inexhaustible labor supply. But starting about two years ago, the Chinese labor supply actually ran dry and employers had to raise wages first time in a very long time. As wages rose, inflation begins to spread in China, the Chinese government has no choice but to let its currency rise, albeit slowly against the dollar. This means fewer Chinese purchases of U.S. treasuries and fewer cheap Chinese dollars being sent back for us to spend.

A drop in the supply of dollars should lead to higher interest rates, but the Federal Reserve has just again cut rates. Where will the Fed actually get the dollars to lend at the new low rates it just set? The international market reacted predictably – sending the value of the dollar lower against the Euro, Loonie, gold, oil, Yuan and just about every other holder of value.

Domestically, Wall Street seems bullish. And Main Street, other than troubles in the real estate market, is really not aware of the changes abroad. Technically speaking, inflation has remained low these last few years, but many goods and services have already gotten more expensive. These are usually goods not imported from Asia or services provided by immigrants. While prices for Tupperware at Wal-Mart and cordless drills at Home Depot have remained steady, we have felt price inflation in real estate, health care, higher education to name a few. Also the price of commodities have shot up -- gasoline, natural gas, steel, gold, along with milk, eggs, flour and coffee. As the Asian currencies now also begin to gain on the dollar, (the South Korean won hit 900, highest level since 1997 and the Chinese Yuan reached 7.46, the highest since at least 1995) watch for more expensive durable goods as well.

Perhaps the most remarkable comparison is Canada. Our North American neighbors are virtually indistinguishable from us in most respects. Yet their currency has shot up against ours. What accounts for the difference? They did not live fat off of low interest rates, spend beyond their means, amass a pile of debt and reorganize their economy for consumption.

Dollar devaluation and inflation will have a beneficial side however. They make it easier to repay debt. So go ahead, take on debt while interest rate is still low and durable goods remain affordable. Conditions probably will not remain this way in the months and years ahead.

The reason we went to war was to avoid a recession from the Clinton legacy. How soon we forget that Enron, WorldCOMM, and the DotCom bubble all happened on Clinton's watch. Right before everything went downhill he left office. We got left holding the bill for his party.

The vast majority of the war money is going to American contractors, soldiers and companies that make products that protect our soldiers. It's an old formula: 1930s depression, 1940s WWII, 1950s prosperity.

Things like Sarbanes-Oxley are preventing investment in American markets. That is the greatest negative impact to our economy. Hundreds of companies have delisted from the American exchanges and others have opted to seek investment from foreign equity markets.

Yes, politicians have broken our economy, but it started with Clinton.

jive Dadson you hit it hard and right . thanks . sincerly.

Fed interest rate cuts can't do the job at all.
Gold prices will go over $1000. We need a broad corporate tax and a national sales tax to generate revenues for paying down the debt. Otherwise, our political leaders should borrow some books from the library and see what happened in Germany, Austria and Hungary with the hyperinflation in the 1930's.

very well said ms.yerbury

Enough economic gobbletygook. Monetary debasement is theft. When the federal government runs up deficits and the Federal Reserve counterfeits money to "buy" the government debt, the people who get the counterfeit money first benefit. Those are the bankers, the arms dealers, and the politicians' friends. People who have savings denominated in dollars are the victims of the theft. People who work for a fixed wage, or who depend on pensions are victims. Monetary debasement steals from those who can least afford it and gives to those who are well off.

I have done very well as the dollar collapsed, and I expect to continue to do so. These are profits I would happily forfeit if I could put an end to this massacre of the American middle class.

Ron Paul asked Ben Bernanke what moral right he has to debase people's money. Ben Bernanke could do little more than stammer.

So just what are the things we are going to export with this increasingly worthless dollar? Bombs, rockets, RPGs, bullets, and half-baked crusades to remake the Middle East, are all we have been exporting lately. What we get to import is lots of $90/bbl crude oil.

The dollar's fall is horrific for the middle class. I am so sick of pseudo-economists/elitist-economists focusing on one segment of the portfolio (investors/exporters) and ignoring the impact of this very real and dramatic devaluation for the bulk of America. My students want to go abroad with me to Europe to learn, but God forbid we think about our young people for five minutes and the impossible costs we impose upon them and their families or anyone who wants to travel. God forbid we look at the burden such high gas and food prices place on regular people. I am SICK of capitalist excesses and banks not paying for their own bad investments. The Fed needs to stop bailing out particular segments of the economy at the cost of the middle class. HOW MUCH MORE CAN WE SUSTAIN? HOW CAN WE SAVE ANY MONEY? God forbid we have a functioning policy that acknowledges anyone but the super-wealthy. More misguided acts from an utterly misguided government of 8 yrs. But, all of the decision-makers are wealthy -- so they don't really care about what's happening to everyone else, do they? No, they don't.

It is true we need to export more and that is a big , big problem. we are really not able to export because the globalist have made it that way. the rise in manufacturing in other nations lessen the need for american products. we are not that attractive to other countrys . they are absorbing their own products . when natural resource rich nations are on the rise they will export a lot and that is cutting into the american economy ,someone is going to suffer. there will never be a perfect blend of export and import . we are depleting our natural resources to other countrys. but we are losing on the manufacturing side.

"Falling Dollar a Blessing in Disguise" - for whom, that's the question.

The Euro isn't falling because Europe has stable energy resource from Norway to Russia, which can't be attacked and involved in war-zone like Iraq or Iran. Most of American and Asian energy resources come from coal and oil, and oil mostly must be imported, from Arab Saudi, Iraq and Iran by the sea route.

When America claim Iraq's oil as guarantee for the value of the dollar, it has failed to recognize many side effects: The Iraqis resistance made the oil price systematically rising, thus Iranians, Russians, Venezuelans got rich from oil. Then China, Russia and others could sell weapons that are needed to prevent another Iraq.
This creates a pattern that alienate the dollar's role in international trade.

When most economists came to the realization that American currency represents values that no longer current: army that can't fight well enough, nuclear warheads that have no use, law and order that are violated by the ruler itself, future receivables that are no longer receivable in the future,... they will advice their nation accordingly.

Thus economically America should invade and control Iran's oilfield, because this pattern of dollar alienation in the world economy should be break, or else the US economy will be broken because the dollar represents nothing 'brick and mortar'. Only by directing the flow of oil in Iraq, Iran and Saudi that the US can keep the dollar from free-falling.

But militarily America can't. No viagra.

It is pathetic that the American economy has gotten so bad that it is considered a solution that the dollar should become nearly worthless. We are forced to compete by giving our goods away.
We are forced to stay at home and not enjoy the marvelous mind and soul-expanding benefits of visiting other countries.
Our country has become completely isolated. The plunge in the worth of our money only contributes to this unhealthy condition.

It is pathetic that the American economy has gotten so bad that it is considered a solution that the dollar should become nearly worthless. We are forced to compete by giving our goods away.
We are forced to stay at home and not enjoy the marvelous mind and soul-expanding benefits of visiting other countries.
Our country has become conpletely isolated. The plunge in the worth of our money only contributes to this unhealthy condition.

It is pathetic that the American economy has gotten so bad that it is considered a solution that the dollar should become nearly worthless. We are forced to compete by giving our goods away.
We are forced to stay at home and not enjoy the marvelous mind and soul-expanding benefits of visiting other countries.
Our country has become conpletely isolated. The plunge in the worth of our money only contributes to this unhealthy condition.

Mr. Emmott has got it right--the good times are over and pay time is here--it will be painful. The pillar of our solid, economic principles remain in place and the question now becomes--have we learned our lesson of "Irrational exuberance"? Well said Maestro.

MC Comment: “The fundamental flaw in this analysis of Americans' modus operandi -- and the economy that is predicted to pitch headlong downward in the weeks ahead, is that it doesn't allow for the capacity of communities of people to believe in some shared notion and then to act according to the beliefs -- even in the face of what properly prepped rational actors like Mr. Emmott might consider poor information, factual error or demonstrable delusion. Hence religion. But on such weak reeds do many investments lean and an elastic economy of buyers, sellers, investors and order takers is simply a large community, an aggregation of believers willing to act on their faith. Viz: the perception that "all we have to fear is fear itself" moved vast masses of our people to remarkable and illogical actions that produced world-bending successes such as the rescue of dear Britannia, the global defeat of the Axis Powers, their resurrection as viable economies within democratic societies and, more broadly, the regeneration of global progress in most parts of the world not under Soviet hegemony. So Mr. Emmott's foreboding, while great fun for today's Halloween celebration, freighted as it surely is with frightening economic logic, may soon be shown to be a prognosis that failed to predict the pitch of the US economy simply because the analysis is not derived from the record of American behavior.

The fundamental flaw in this analysis of Amercians' modus operandi -- and the economy that is predicted to pitch headlong downward in the weeks ahead, is that it doesn't allow for the capacity of communities of people to believe in some shared notion and then to act according to the beliefs -- even in the face of what properly prepped rational actors like Mr Emmott might consider poor information, factual error or demonstrable delusion. Hence religion. But on such weak reeds do many investments lean and an elastic economy of buyers, sellers, investors and order takers is simply a large community, an aggregation of believers willing to act on their faith. Viz: the perception that "all we have to fear is fear itself" moved vast masses of our people to remarkable and illogical actions that produced world-bending successes such as the rescue of dear Britania, the global defeat of the Axis Powers, their resurrection as viable economies within democratic societies and, more broadly, the regeneration of global progress in most parts of the world not under Soviet hegemony. So Mr. Emmott's foreboding, while great fun for today's Halloween celebration, freighted as it surely is with frightening economic logic, may soon be shown to be a prognosis that failed to predict the pitch of the US economy simply because the analysis is not derived from the record of American behavior.

We don’t need to be an economist to know that we can profit, or lose our shirt, with a depreciated dollar. The question is to act with responsibility, and as lay men and women, most of us don’t know how. But America is not short of the brightest minds in the field. They should serve as the guiding light to the lay public, instead of being led by the nose by the later to gain their votes when the elections come.

It's entertaining to read the blatantly partisan allegories of doom and gloom in this "discussion". Wall Street, the Executive Branch, oil companies, the IMF, and China are all conspiring to impoverish the little man!

Thank you very much for the advice. It makes a lot of sense.

Going back to the article, I agree with Herndon, VA, that Mr. Emmott didn't explain why the dollar is falling against other currencies such as the Pound, the Euro and the Canadian Dollar. He says "the dollar’s fall does indeed reflect serious weaknesses in the American economy", but doesn't mention which ones.

If we stop the spending on the war,and focus in intelligence we can get more done ,with less money.This is one way to recover the economy, and develop new markets with a weak dollar. I am agree about how the weak dollar will help company's to create new exports , at least is hope at the end of this money madness.

john

The fall of the dollar is a good thing if one is in the domestic manufacturing or export business, but for the vast majority of us who are in service industries or on fixed budgets it's a disaster. We're paying more for manufactured items and far more for international travel. We are coasting on the cost of services because immigration and the decline of unions keeps wages pitifully low. Unfortunately, the flip side of that coin is, our wages are lower to the extent that many of us are falling out of the middle class.

We are an oligarchy controlled by big money structured to help the big business and the very wealthy. Our politicans are bought and paid for because we've been convinced that money spent on political advertising is equivalent to free speech. As an aside,the Canadians laugh at our having bought that bill of goods. In Canada only individuals can contribute to political campaigns and political financing is regulated to ensure a more fair one-person-one-vote system.

Class warfare cuts both ways. Don't try to convince me that a weak dollar is in the best interest of most of us whose earnings are in the middle and lower socio-economic level. Because of lower inflation adjusted wages and the increased cost of foreign manufactored products, our purchasing power has declined precipitously.

We are no longer primarily a manufacturing nation (an exception is weapons of war). Consequently, the declining dollar may be good for some, but it's certainly not good for me and the vast majority of folks like me.

Well put, Bill. You mixed British eloquence with an American bluntness and summed up the bottom-line nicely. Will any of us dumb-Yanks listen? I'm not holding my breath.

Asia ex-Japan ETF. Just don't buy it right now. Wait until next spring after the credit woes wash through the global economy and the Hong Kong rush wanes a bit.

If you are investing long-term ask yourself where you see the strongest economic growth over the next ten years. Asia.

The dollar's unrelenting plunge has been great for me. So far. Months ago I traded my dollars for gold and silver, and foreign currency denominated bond funds. But woe is to those who do not have hard money, people who work for a wage, and those who expect their social security and retirement accounts to be worth something. The US will become a third world nation. Services and lodging will be inexpensive for those who made money and protected it before the collapse. Everything foreign will be very expensive.

The vanishing middle class will disappear entirely. A few will become well-to-do. Most will descend into poverty.

These events are inevitable if the US government and the Fed continue to run huge deficits funded by foreign loans and money printed from thin air. Every empire ends with monetary collapse.

I agree in general that a cheap US dollar would help our export business. I am not so sure that the cheaper the US dollar the better for the US and the American people. At some point there should be a equilibrium bottom to be reached. Beyond that it could be a disaster for US and the world. Sooner or later we should recognize that we are only a part of a growing world economy, based upon supply and demand and fair trade.(not a free trade) We are good in doing something, other countries are good in doing other things. We want to trade not because we are doing some other country a favor. We want to trade because it is good for us, let us not forget that. We can not force China to raise their exchange rate, so we can lower our exchange rate, the end result is the same. Let just assume that we keep on lower our US dollar exchange rate as the Japanese did with their Yeng in seventieth and we all know what happened to their economy and the implications to that country. Let us not treat the fair trade as an economy war, let us treat trade as an economy necessity. Shall we say live and let live.

At one time rising exports would be the catalyst for avoiding recession. But a rise in exports of soybeans, waste paper and scrap steel while importing autos, electronics and machined goods makes no progress towards addressing the cause of dollar weakness.

At one time rising exports would be the catalyst for avoiding recession. But a rise in exports of soybeans, waste paper and scrap steel while importing autos, electronics and machined goods makes no progress towards addressing the cause of dollar weakness.

What utter rubbish.
As the dollar falls in value the price of oil goes up and viceversa.
If the dollar continues to fall the price of oil will be so high that the average American will not be able to go to work or even go shopping for food.
Yeah, a falling dollar and a starving nation of unemployeds is a great idea!

It would be nice if american exports somehow saved us from a coming recession but its seems unlikely since the cost of labor will still be higher here. The opinion fails to mention that a falling dollar literally makes us proportionally poorer because we compete for most goods on the international market. We are in a position, and have been for a while, where we simply cannot pay for what we spend, even despite . The best move for this country at this point is to get more efficient. Dump the corruption we call the war on terror. Overcome corporate lobbies and allow efficient methods to be put in practice, such as mass transit and transport. a very obvious example of where this happened is western europe.There is plenty of room to build an economy around being green.

good article

good article

Sure its great that we can export more but the fact is WE DON'T MAKE ANYTHING any more in this country! We are a consumer base economy and we are going to be screwed!! Lets not forget we are way over our heads in national debt, over 13 trillion dollars. And guess who owns our debt...it not us!! The dollar is worth crap. Gas is about to go nuts. Houses are gaining no ground. The poor and the middle class are getting poorer and left further behind. We are in a war with no end and the only thing we build is high tech bullets and bombs that only kill and create more of the same and worse problems. Sure the stock market is going up, but thats only because the foreigners (Saudis, China) are buying our cheap ass penny stocks and owning our ass!! We are in for a rude awakening!!!

BTW, my last post was not directed at Mr. Emmott. He has proven his expertise over many years, and I agree with him. I think the Economist is the best magazine out there if you really wants to know what is going on in the world and why.

You might want to read your own newspaper:
http://www.washingtonpost.com/wp-dyn/content/article/2007/10/31/AR2007103100859.html

Economic growth is still chugging along thanks to productivity gains. As someone who works in the economy, as opposed to writing about it, I see continued growth ahead. Of course, if you get enough people on your recession train you can indeed derail things. It's amusing how most of the media actually wants a recession. I think it's because they like screwing over poor people.

Where to invest $50k? Depends. First off, keep cash to the tune of a couple of months' expenses in a good savings account, earning more than 4%. The rest should go into equity index funds. Which ones? Depends - do you think the dollar is near its bottom, or do you think it has much further to go? If you think the dollar's got further to drop, put it all into one or more foreign stock index funds or ETFs; the Vanguard Total Fund (VGTSX) is a good one-stop shop for this. If you think the dollar's bottomed out, put it into a domestic index fund such as Vanguard's S&P 500 fund. [Note, I don't work for Vanguard, they just have excellent low-fee index funds.] If you pick right, you will gain (1) from corporate profits and (2) from currency arbitrage.

Not sure which play is right? Then do both - half in the domestic index fund, half in the international. You'll be fully hedged against currency fluctuations and will gain through the growth of the world economy. This is pretty much the correct strategy regardless of the amount to be invested, but at much higher dollar levels investors should buy individual stocks rather than index funds or ETFs.

Oh yeah, and don't do it all at once, but rather buy in several installments to dollar-cost-average your way in.

.

I think some of the posters here are stomping the Anti-American sour grapes a little early. We are spending more than we take in, on a personal level as well as on a governmental level. Corrections will happen (they always do), but most experts agree our economy is too resilient to collapse (much to the chagrin of the feverish Bush Derangement Syndrome sufferers). We need to rein ourselves in, starting will a complete military exit from Old Europe; that would save a few billion per year at least. The Euros can solve their next crisis by using their anti-American disdain. They don't need us anyway, like they didn't need us when the Balkans were burning and they were busy dithering.

'Bill Emmott is the former editor of The Economist magazine, a leading international current affairs publication from England.'

Why do Americans talk about England as if it were a separate country? Haven't you guys heard about the UK yet?

Brian Berry has a very nice book in which, by applying chaos theory, he recovers evidence of the persistence of ~50 year Kondratieff waves from the statistical abuses of econometricians.

Kondratieffs, he specifies, are cycles in the RATE of price change (as such, they are a quarter-cycle ahead of price levels).

Many have sought to find Kontratieffs in economic growth as measured by statistics such as the GNP. Berry finds that the rate of change in GNP varies by the ~25y Kuznets cycle.

There are two Kuznets to a Kondratieff, synced by the strong signal of a depression, with the lowest rates of growth in both prices and production. The rate of price increases peaks near the end of the following Kuznets, i.e., as production rate changes reach another minima - a stagflation crisis.

The last staglation crisis peaked about 1981. 1981 + 25y = 2006. By long wave theory, we are due for a recession/depression.

Of course, we have a better handle on policy these days, and several trading partners heavily dependent on sales to US consumers. Expect action to avert a real depression - but it is not clear if policy tools are powerful enough to overcome the downhill momentum.

Bill,

Of course you're right, and only the morons at the IMF can still think that there are worse morons than them out there to beleive what they say.

But you tell me: when are we going to have a reserve currency other than the US dollar. Apparently, it won't be the Yuan because China is vulnerable to an aging population, faces worse skills shrtages than the West, is fast running out of domestically-sourced natural resources, is already turning into a major food importer, and is not militarily and/or psychologically prepared (yet! but that won't take long) to raid other countries to make up for its shortages. It won't be the EURO because the mechanisms of macroeconomic convergence are imperfect still, there is not yet a European NATO that can aspire to rading other countries for resources when circumstances turn dire (but, apparently, that may not take long either, as is the case for Asian NATO). It won't be the Indian Rupee either, however strong has been its recent appreciation, because the BJP will apparently soon be back at the helm. The Yen has too weak a geo-strategic space to back up a worldclass reserve currency.

So, has Mumbo Jumbo conquered the financial world also, and even Strauss Kahn was only kidding when he said that he had his own Plan B?

Unforunately, Mr Emmott fails to mention some of the following issues:
a. OPEC oil is based on the dollar - if the dollar continues to fall OPEC may switch to EUROS as its base - welcome 6 dollars a gallon ladies and gentlemen if that happens.
b. A falling dollar will not necessarily cause the trade deficit to vanish because the US no longer makes many of the items we used to - we are a service based economy and would have to change to a manufacturing based economy to eliminate the deficit. However, local business would want a guarantee of a good ROI - hello closed/protected markets.
c. If the dollar falls and much of the trade deficit were to disappear it will not only cause a recession in America it could cause a world wide recession since around 28 to 33 million foreign jobs depend on the American demand generated from America's trade deficit.
d. China will suddenly have billions of dollars that are worthless - will they be happy - I think not!
I could go on but Mr. Emmott article is simply inadequate to describe the full reprecussions of a run on the dollar. Sounds more like something he rambled off the top of his head.

We have the highest poverty rate ever, so imagine this, you get a minimum wage job, you have a wife and two kids, say you make 7.50 an hour, full-time job you have to drive to, that's $1,200 a month BEFORE TAXES, you're too broke to afford a home so you rent, rent has gone up because the housing market sucks so say you pay $750 a month for a 2 bedroom apartment, you have to pay for your USED car, say $200 a month, you have to pay for auto insurance, say $50 a month, then there's gasoline which is now close to $3.10 for NINE TENTHS a gallon, you spend your money on gas driving to work, then are supposed to pay utilities, change the oil in your car, tires and still buy your kids clothes and food--wait--this is nuts! Who cares if the dollar deflates? People like this do and so do I.

I have a question for the forum:

Let's imagine a middle-class guy out there, who has managed to stay away from the current financial mess. At the age of forty he has no debts at all: his home mortgage was already fully paid five years ago; he has no retirement fund, no stocks, no bonds, no derivatives; and he has 50,000 dollars sitting idly in a Citibank savings account.

What would you recommend this person to do with his savings, given the dollar's fall?

Since I could read there has been no shortage of people predicting the US economy will collapse. Remember the Yen in the 80s? Anybody? Remember Japan was going to replace the US? Then Germany? Now who is it, China? You'd think those same people could work that theory into a financial strategy but they don't, cause they don't know it for sure themselves.

The first paragraph in the Swiss recycling guide says "before you buy anything please ask yourself,
do I really, really, REALLY need it?". If Aericans would apply this mantra to their daily lives the trade deficit would surely shrink and life would go on. On balance I think that a falling dollar is good for America, if not for its international tourists. It might be good to learn to live on less.

When I was living in America virtually all of my costs were dollar costs and it didn't make much difference what the Euro was doing. My food was local, my shoes were local, and my clothes and electronics came from Asia where the dollar hasn't lost much value.

It is unfortunate that Europe will bare the brunt
of the falling dollar as Asian goods will become
much cheaper but I am sure that the EU will find
regulations to deal with the problem.

Being old enough, I can remember when the French
Franc was at 3 to the dollar and when it was about
10 to the dollar; when the pound was at 1.7 and 1 to 1. The world didn't end and life went on quite
comfortably. I just have a few extra baubles to show for the days when the dollar was strong.

Why is it that whenever I look at reader comments posted on any topic they inevitably degenerate into tirades about Iraq, George W. Bush and Global Warming? Give it a rest -- or stick to the topic!

More craptacular nonsense because it does not mention mention America's $9 trillion debt. The dollar is worth less because, simply put, US is nearly broke and has been printing paper money like crazy. Nobody has any confidence in the GOP's house of cards, and discussion of the dollars fall without mentioning the deficit are yet another terrifying exercise in fantasy and deception. There is a lot more fear out there right now than compared to Y2K as people realize that NOTHING is being done to avert what seems to be onrushing disaster.

For 6-7 years now I've been hearing about the coming recession. How long does this have to go on before you just don't believe it anymore? I laugh now everytime I read it. Yup, heard that before. Eventually we will have a recession and they'll say "told ya!!" Bravo, I trust those predicting hurricanes, who are horrible, more than those predicting recessions.

The dollar falling is like free trade, it benefits those making millions and hundreds of millions, but it does not improve the lot of the US workers, those forgotten folks who have not had a raise in 30 years, ignored all the time Bill Emmott was editor of the Economist and when the Economist was backing the invasion of Iraq. Working people only matter to Economist when they get uppity and want to work less than 51 weeks a year or want a raise. The falling dollar will not support the industries in the US that require skilled labor or college graduates in math or science; those skills will always be less costly abroad, or by bring in workers from China and India.Boosting US exports will not do a thing for workers, and the rise in fuel prices from the falling dollar will hurt them.

Well, weel, the chickens are coming home to roost!

George's legacy will be the fall of America! In manner similar to the USSR we have borrowed and spent our wealth and resources on weapons and other consumables! There is little capability left to increase exports because of the incredibly shrinking dollar; our infrastructure and manufacturing capability is rapidly approaching zero; our cars for example, would be shunnned by other nations, what else do we manufacture besides weapons?

Our appetite for foreign commodities remains huge; weaning Americans to live within their means will be a devastating process! How long can we buy oil, steel, vital metals, etc. as dollar costs skyrocket? How long before the frightened citizens force politicians to use our massive destructive capabilities to steal what is needed? How long will our military wait as the needed resources to power their toys becomes less and less available? What will happen to our government as it fails to ensure Americans the life style it has come to expect?

The policies of the Republicans aided and abetted by the Democrats driven by the Corporate greed and relentless drive for power and "earnings" will bring the nation to its knees! Any fool could see this coming; the fools persisted anyway for their short-term rewards...time to pay the piper!

The author merely states the obvious that falling dollar means lowering the price of the U.S. made goods in terms of foreign currencies and hence more demand for exports from the United States. The reason that the U.S. can have such a large deficit in the current account year after year is that the dollar is accepted as means of payment. Just imagine if that wasn't the case.

I understand why the dollar must fall, but why is it falling so hard against currencies outside of Japan and China, such as the pound, the euro, and the Canadian dollar? Do we have growing trade deficits with these countries? Or is it because these countries don't have the same trade imbalances with Japan and China, etc.?

The economy is a summary of the psychiatric state of the nation. Bush is, as he said: PROOF THAT A "C" STUDENT CAN BE PRESIDENT. But he is also proof of what a "C" student president can do to a country. He asked himself: when did I love "Poppy and Mommy" most? Answer, when they violated all rules of logic, fairness and good sense and spoiled me rooten, giving me everything I wanted. So, since that's how they made me love them, I'm going to make all the slimes that contributed to my campaign love me by giving them everything that makes no sense, is not fair and even breaks the law. So here we are with America in the hands of "hedge fund" robber barons and short-sighted "C" students like George. They talk people into all sorts of stupid investments, taking their "commissions" off the top, because people just assume no one could be so stupid so they must know something that physicists and cosmologists don't know about the law of conservation of energy. So now the $ is shrinking in value because little theives are making $billions off the avarice of Viagra-kept-up geriatric America. No one is asking what will happen to the dollar if $3 trillions after we give up Iraq we still have not stolen all its oil. Afterall, Bush thinks that no matter how much blood and treasure he wastes trying to steal Iraq's oil, once people can fill-er-up their SUVs with cheap gas, they will remember him as a great president. Sooooo, we now have a "C" president and a "C" dollar. The concequences are obvious when you ask yourself: what do we in America produce so we don't have to buy it from abroad? China has more $ than we do; so if it decides to replace George Washington with Mao o the bill there's nothing was can do. We even have to import scientists and engineers because Americans concluded that since a dummy can be president, a dummy can get rich. So why bother studying math and science...you can always quell your doubts and fears with Bibble-babble!

Bush and the other republicrats running the politics and policies in our country have pretty much screwed us all into the ground. The base their economic policy on idealogies and expect them to work! I guess somehow their god is going to watch out for them. We now have a government of idiots, by idiots , and for idiots. How else can you explain the reelection? A bunch of frightened children willing to lose all their freedoms and all their money just so they could feel less afraid.

I'm leaving the US for 3-4 years to work in Europe early next year, I can only wonder how many euros (or levas) my dollars will be worth when I get there. I wonder if I'm going to bother coming back.
I can certainly say this: uncle sam, keep your hands off my euros. no taxes for you!

Good observations. And let us note that:

a. U.S. exporters are relatively few companies in USA and the general export trade mentality is not like Germany or Italy or even Turkey or Spain where every small and medium-sized company has a diverse portfolio of customers around the world.

b. The asset pool proposal of Citibank and other big banks is an accounting gimmick.
These assets are not traded any longer and this means there is no market value. They have a nominal value on the books and must be marked down to market by the end of the year to market value. To get any auditor to certify the books, and comply with Sarbanes-Oxley Act, there will be a significant mark-down and that will translate to a BIG loss by banks. So, they are throwing it all in a pit and accepting "paper" (i.e. future receivables). The fresh paper on the books can be kept at face value until next year's audit. The $75 bil. face value can hardly fetch $20 bil. in todays market and these big banks are not prepared to take a $55 bil. hit (they are only 6-7 banks in this pool).

c. This pool deal might breach laws, about collusion, anti-trust and setting up a cartel to rig markets.

d. The unregulated derivative markets has many skeletons in the closet. Others will follow when the mortgage mess pans out a bit wider. Recession is coming. Count on it!

Why is this happening now? Bush & Co. had a stradegy for the withdrawal from Iraq. We'll have a few troops, to protect British Petroleum, Exxon, and Royal Dutch Shell, as they will sell that black gold and even repay America for the cost of war. Greed has cost this country. All assets are at risk. Bush is an oil man. What more did you expect?

JRLR:

Why it is happening now is not all that hard a question:

When Mr O'Neil was Secretary of the Treasury he asked for an analysis of inter-generational transfer requisites [of the USA]. The results were so frightening that the report got buried but the results slowly seeped out.
Then the idiots started wars, printing presses and uncontroled financial sector.

the Sole Superpower decided to go for broke in the name of national interest, under the leadership of the Chimp and his boss dicky boy. Umilaterism is great if your have the wealth [not applicable to USA], the moral stature [similarly missing in USA] or strong power [assymetrical warfare sapped the energy of USA armed Forces].
Finally the world has seen that instead of SUPERPOWER the world is faced with a homeless hobo with grandiaose dreams of HEGEMONY, without financial, moral or physical power. They got fed up, and decided that the piper has to be paid.

IT was in 1982 the last time that the USA had a positive balance of payments and it was during the Clinton years that there was a federal surplus [if unfunded liabilies as Social Security etc were uncounted] for a period of 2 years out of 25.

Thus, the shoe has dropped: lecturing by Uncle Sam is over, any action against any other power will just make things worse. the Purse strings are in OPEC, Russia, China and JApan etc, and there are at least 2 powers who can vie with USA via WMD-s, Russia and China.

So good luck USA citizens, Vote smartly, for you can not take another IDIOT in White House, nor anyone who changes her philosophy according to the latest winds, such as Ms. Clinton.

What we need to hear is, as in the case of so many questions put to readers by WP: WHY this is happening? WHY is this happening now? WHY?

The rest... we had figured out ourselves, just by keeping our eyes opened and relying on our experience of world economy.

A currency depreciation is essentially an across-the-board discount on all of the products a country exports, because it make all of those products cheaper in terms of foreign currency.

What's more, it simultaneously increase the price of products that are imported from other countries. So it provides a two edged trade advantage - it makes the country's products cheaper to foreign customers, and it makes foreign products more expensive to domestic customers.

It has the same effect as putting a tax on foreign products while simultaneously subsidizing domestic producers.

In the years before World War II, countries of Europe managed to ensnare themselves in the vicious circle of competitive depreciation that led to trade protectionism and helped set the stage for violent conflict.

https://www.blogger.com/comment.g?blogID=18675105&postID=91405794852877019

A currency depreciation is essentially an across-the-board discount on all of the products a country exports, because it make all of those products cheaper in terms of foreign currency.

What's more, it simultaneously increase the price of products that are imported from other countries. So it provides a two edged trade advantage - it makes the country's products cheaper to foreign customers, and it makes foreign products more expensive to domestic customers.

It has the same effect as putting a tax on foreign products while simultaneously subsidizing domestic producers.

In the years before World War II, countries of Europe managed to ensnare themselves in the vicious circle of competitive depreciation that led to trade protectionism and helped set the stage for violent conflict.

https://www.blogger.com/comment.g?blogID=18675105&postID=91405794852877019

Mr. Emmott is right, the fall in the value of USD is inevitable, the question arises can the export business pick up when the dollar depreciates to save the USA economy.

I have my doubts, for about 20%of GDP is finanacial system, which will not recover fully for years [e.g. little if any profit, but lots of lay-offs affecting high priced help]. Further the USA managed to outsource too much industry, loosing edge in software development, loosing edge in innovation [discounting the financial ones, the source of all recent troubles]; and the USA has a very extrensive case of xenophobia regarding Sovereign Funds encroaching on USA business.

Were another month of NEGATIVE FOREIGN INVESTMENT [such as August or was it Sept] to occur, the USA will be without funds to pursue its ENDLESS and USELESS wars, its bottomless thirst for oil and other commodities, at a time that food inflation is accelerating due to misplaced measures regarding bio-fuel. With falling prices in housing, with rising interest rates in the mortgage feld, with lack of business loans due to irresponsible past efforts of US Treasury and US Federal Reserve, the ability of the little people to keep the 70% GDP consumption going is of questioanble assumption.

So there is a recession coming. When the requisite of infrastructure [from bridges to deep water drilling rigs [made in Korea] the rising health care costs, the growth inSocial Security payments is added in, then the Federal/State Governments are running out of "relief funds".

Concluding remarks: USA can not be saved by Soverign Funds [attitude], Cannot be saved by export growth, does not have topo much laft in manufaturing, cannot be saved by software, by innovation [as lost all edges to foreign competitors] and still needs commodities whose prioces are risng in step with the falling value of the dollar.

If anything can save a new recession/depression is in the political arena consisting of:
1., pulling back m ost troops from foreign l;ands [Iraq/Afganistan included]
2., loosening the restriction on Sovereign funds
3., Maajor effort in energy conservation started yesterday]
4., Cancelling all recent taxbreaks to GROSS incomes over $200 000, and serious redistribution, fror the masses so they can spend.
5,m extreme measures to stop tax-evasion via "offshore tax haven legal recourxszes] from the Uk to Bermuda, from Luxenburg to all ISLAND NATIONS.

6., the Federal Reserve's printing presses WILL NOT SOLVE ANY PROBLEMS, but make them worse.

The converse of the above steps will be too great to bear, especially with GLOBAL WARMING affecting all areas of the economy.