Intervention for the dollar?
 

On CNBC, one market strategist suggested Paulson should be making a strong statement of support for the dollar or have the Treasury buy up dollars. Or both.

Something that nations have done, including the US, to prop up their currencies in the past.

Of course, exports are going great right now because of the cheap dollar but some European govts., including Sarkozy who's suppose to be more friendly to the Bush admin. have said the US could trigger an economic war with this currency problem.

Thing is, Bush admin. is probably ideologically against that kind of intervention. Plus, the falling dollar boosts oil prices, which they probably aren't so opposed to. Some have argued that they've deliberately or accidentally have taken actions which boost the oil price, specifically the "risk premium."

In the last quarter GDP report, the rise in exports slightly more than offset the declines in real estate.

So for now, the admin. seems more interested in propping up GDP by stoking exports with the falling dollar.

Of course the consequences could be severe (aside from US citizens traveling to other countries). Europe and other countries could retaliate and more importantly, inflation in commodities we HAVE to import, like oil, could hurt the economy.

They were talking about a "tipping point" for consumer spending being close as oil/gas/heating oil and everything else keeps going up in price.

Bernancke expressed concern about oil prices and inflation expectations possibly becoming "unhinged" in Congressional testimony this morning.

My limited understanding of economics leads my to believe that the exchange rate is not under the control of this government, probably more under control of the Chinese and Japanese gvts, who are the majority owners of the U.S.' treasury bills.

The one thing a gvt can do to increase value of currency is to make the rest of the world want it...which means raising interest rates. If I can earn more from US dollars than Euros, I'll buy your T-Bills. The consequence of that is a hit to the economy, which with the housing crisis would be severe IMHO.

Words from the gvt or Bernanke don't mean much, more of a sales pitch than an action plan.

With trade deficits so huge, hard to see how any currency buyback would make any difference.

curreny manipulation by governments usually ends badly.

See George Soros as an example of someone who has done well by betting against currencies

To get really scared...look up how much of US debt the Chinese and Japanese own. If ever they decided better to buy euro-denominated debt (and they are increasing the amount) it would not bode well for the US$. Similarly there was talk of oil being denominated in euros instead of dollars. That would also be a negative for the currency.

Low currency will benefit manufacturers...if their inputs are not sourced from outside the country. Also great for tourism!

Except that tourism is off the table because of the way we treat visitors as if they were criminals.

The other day I read a horror story about a Japanese man, who spoke no English, who was told (erroneously) by an Amtrak conductor that it was illegal to take photographs on or from a train. Not understanding this, he continued to hold his camera. They stopped the train at the next station and the police took the man off the train, even though a fellow passenger, acting as an interpreter, explained that he spoke no English and was expected at a family gathering in Boston.

You can make all the apologies you want, but that man and another thousand Japanese will never return here, and there are other stories of abuse of foreigners, particularly at immigration desks in airports. This country has sadly turned rabidly xenophobic, even against our friends, and is resorting to police state tactics to feed that demon. The Amtrak conductor shows that the general population is willing, in fact eager, to cooperate -- perhaps more eager than the police themselves are.

Now that we're treating even our Canadian neighbors as if they are all potential terrorists, our tourism industry is suffering, right when it should be exploding.

So the police assumed it was illegal to take photographs too?

And then - presumably - ilegally detained him? If all that's true (I'm not doubting fnarf, but even he knows how easily these things get distorted), does that mean that, having been arrested in the US, this chap now needs a visa - ie to fork out cash to the US government - to visit the US again?

Whom the gods wish to destroy, they first make mad.

I believe the police's response was "we don't decide; if the conductor asks us to remove him, we remove him. If we determine that a crime has been committed, we'll arrest him, otherwise we'll put him back on a later train".

He wasn't arrested -- he had not in fact committed any crime -- nor even a violation of Amtrak rules or policies (the conductor was just flat out wrong, but almost all uniformed people in America believe today that photography is always illegal).

The problem is, the later train ruined this guy's trip, and worried his family for hours FOR NO REASON AT ALL. I'm sure the guy was comforted by the fact that he was not taken to Guantanamo Bay, but I'm sure he was terrified at the time. Of course, most Americans believe that occassionally terrifying people is a good thing, just to show 'em who's boss.

To me, the worrying thing, and the thing likely to have wide-ranging effects on tourism (and business travel) is the impression that too many of my countrymen give, that we're NOT ENOUGH of a police state -- we seem to have reached the point where we WANT to be spied on and ordered around by people who haven't graduated high school. We WANT to give up our rights, as quickly as possible. Photography? Sure, ban it. I think my neighbor is a terrorist, by the way. And that elderly Japanese guy over there -- are you sure he's not IRANIAN? Or MEXICAN? (These are both swear words in common parlance these days).

My fellow citizens often worry me more than the police.

Story here: http://www.episcopalcafe.com/daily/w..._diplomacy.php

I don't think the US government wants to help the dollar. Making our goods cheaper overseas increases our exports and ability of US companies to capture bids abroad.
Our government doesn't care if you go to Europe for vacation, they'd rather we stay in the US and spend our money.

The converse is...if the US gvt does not maintain some base value, foreign purchasers of US debt may decide better returns and/or less risk buying something else...which makes it harder for US Treasury to borrow money to keep the country running. This is one danger...

The only thing that's going to keep foreign investors interested in the dollar is higher interest rates. MUCH higher interest rates. Hmm, I wonder if anyone in the government has any interest in balancing the budget? Nope, guess not.

How high to interest rates have to go, when you're not sure if you ever get you money back? ("subprime" mortgages)

Countries don't go bankrupt like home loan borrowers do.

But would you lend money to a country any longer where people are broke and out of work?
They can pay you back with their homemade paper with nice pictures of former presidents. And they can deliver as much as you'd like. You'd take that in exchange for your hard earned money?

"But would you lend money to a country any longer where people are broke and out of work?
They can pay you back with their homemade paper with nice pictures of former presidents. And they can deliver as much as you'd like. You'd take that in exchange for your hard earned money? "

No offense, but how, exactly, are you getting from a temporary decline in the fx rate to unemployment. To say it isn't exactly a direct line is being generous.

>temporary decline in the fx rate to unemployment
Read what has been posted by serveral people here the last few days. You may not believe in it. A temporary decline, it is not, it's just the beginning.

"Read what has been posted by serveral people here the last few days. You may not believe in it. A temporary decline, it is not, it's just the beginning."

I've been reading. And frankly, most of it is nonsense. I am more than confident that we will see a correction within the year. The Europeans don't want a weak dollar any more than you do.

But even if it is longer term, your premise that a declining dollar is bad for employment is just not true.

One year from now we'll see. I'd make a bet, the $ will be worth well below 50 Eurocent.

Sounds like we're on the verge of the Great Depression 2. I'll bet the dollar rebounds & China owns even more dollar denominated assets 1 yr from now.

Mighty big talk*, but the real test is, what currency is your bet in?

* I'm joking here, not attacking, for the humor-impaired.

I'll bet 5,000 Eastern Airline miles

>what currency is your bet in?
I'd buy gold and keep my Swiss Francs. :-)

Buying gold may not be a bad idea.

But apparently for most people you have to buy stocks in gold mining companies or funds which invest in them.

Not easy to store Krugerrand much less bullion.

Buying gold has traditionally been the worst investment of all time.

"Buying gold has traditionally been the worst investment of all time."

Are you talking gold jewellry or coins, say, or stocks in gold mines/mutuals? (I'm guessing the former).

I wouldn't see it as an investment, but as a safe haven for some time. Most folks I know are buying stocks in gold mines right now but I wouldn't bet on one horse only but diversify.

"Are you talking gold jewellry or coins, say, or stocks in gold mines/mutuals? (I'm guessing the former)."

I think he is speaking of buying gold itself. During the 70's, the price of Gold (and other precious metals) rose steadily and it gained a reputation as a good hedge against inflation. This hasn't been true for probably 20 years, which makes sense as inflation has been relatively low during that time.

Now stocks in mining operations are another question entirely. I wouldn't invest in a strict Gold mining company, but mining companies in general have been riding a wave of surging commodities prices (copper and other non-precious metals, especially). This surge in demand is largely being driven by Asia's rapid industrialization. It is this same surge in commodity prices that has driven the Canadian and Australian currencies to such heights.

During the Major government the UK tried to back sterling by buying pounds.
This was after they had tried to peg the pound at (in the ERM) at a rate the city thought too high, causing interest rates to soar.
The result - champagne time in the city as they simply sold and sold to the gov at this silly rate.
Eventually they had to stop, the pound fell and the gov was left with a huge debt.
You can't buck the market.

It is interesting to note that in September 1939, a British pound was worth $4.20 US.

"It is this same surge in commodity prices that has driven the Canadian and Australian currencies to such heights."
I am not sure of the Australian dollar, but the Canadian dollar has really only surged in comparison to the US dollar... or if you like, the Canadian dollar looks strong compared to the US dollar.
Check out a historical comparison of the loonie to the euro or pound or yen.

Gold is not an investment that provides a positive return; it is simply an investment that holds its value.

If the Chinese and others decide to stop buying U.S. debt, the U.S. will be in very serious trouble.

Nations can indeed go bankrupt, and it has historically happened many times.

Of course countries can go bankrupt, why couldn't they. Cities can go bankrupt, also. Just to name an obvious example, the Weimar Republic was bankrupt after WWII. Argentina was bankrupt in 2002.

Isn't Pakistan bankrupt? I think it also was about the time of Argentina.

No, Pakistan is not in default. Yes, Argentina defaulted on its foreign-currency debt but they're no longer in default.

It is quite interesting to note that several US states--Florida, Mississippi, Louisiana, Indiana, Michigan, Maryland and Pennsylvania--defaulted in early 1840s.

>The only thing that's going to keep foreign investors interested in the dollar is higher interest rates. <

If you owe the bank $100,000, the bank owns you.

If you owe the bank $100,000,000,000, you own the bank.

The Chinese, Japanese, Europeans and even the Arabs have no interest in seeing the US economy collapse.

((I))

It's better to get something back, than nothing at all, but if the choice is "us" or "them"? I wouldn't bet on other countries to see their $$ assets vanish without at least trying to cash in.

Hi L,

It isn't a choice of "us or them".

If the US goes into a major recession, the rest of the world goes into a major depression.

It is in their interest to prop us up.

((I))

If I had a trillon $ losing value every day, I wouldn't just stand and wait when I see others cashing in. I would want to get as much in return as possible. And in the end there still are other economies on the planet where I could sell my stuff. (And I wouldn't "only" get $$ in return.) China surely isn't afraid of recession. So I'm not sure if depression is a consideration at all?

"If I had a trillon $ losing value every day, I wouldn't just stand and wait when I see others cashing in. I would want to get as much in return as possible."

Ever heard of buy and hold? The world is not made up of day traders. I'm sure there are a fair number of really smart people - folks who do this for a living, rather than just prattling on at Fodors.com - that tend to look at this as a buying opportunity.

Buy some more and catch the falling knife :D. We'll love you for it!