This may be just my babbling abput something on which I am not very well informed - - but I think that the emergence of China (and other Asia as well, I suppose) as an economic superpower over the next several decades is going to shake up all kinds of conventional economic "wisdom".

Entrepreneurship, open availability to markets, fluid movement of natural resources into and out of China means that it is - - and is poised to be ever increasingly - - an energy consumer like the world has never seen. And given that they can make a profit by bringing in raw goods at x and re-selling finished goods at 3x, then the price of energy will be a minor speed bump - - even if it further doubles or more.

As long as we keep buying the things they keep selling, their standard of living is going to rise, and we are going to have pay more for all those things that we don't make anymore.

I'm sure that this is way too over-simplistic, but I can't help but think that it is partly/mostly accurate.

Best wishes,

Rex

But the point will be, surely, whether future economic super-powers (and don't overlook India) realise that they need to run their own economies in a way that continues to enable customer countries to purchase their products. Being thought to force up the price of basic commodities on the world market can be a real turn-off: which will be awkward if/when oil supplies start to decline absolutely.

Hopscotch,
Just because the guy doesn't have money on his view of the dollar versus the euro, don't assume he doesn't believe it.

Every firm places severe restrictions on the ability of their analysts and economists to invest in positions they recommend. The firms that didn't before the troubles caused by whores like Jack Grubman and Henry Blodget, certainly do now.

It is simply more trouble then it is worth to invest in recommended positions and trading strategies.

Rates on Jan 01.
In 1992 the E was valued at $1.33
1996 1.23
2000 1.01
2004 1.26

What has caused the fall in the value of the Euro? Trade deficits? The price of oil? War in Iraq? High interest rates? Currency speculators?

Ryan

I'd like to continue to believe that but my confidence has been badly shaken by Enron, Worldcom and any number of mutual fund scandals. Not to mention the human tendency of people to overestimate their ability to be objective.

Buongiorno, with respect, calling an economist 'well-known' is not as persuasive as naming the individual in question and perhaps quoting a few references.

Definition of wasteful consumer good/service: one that is not made or used by myself, my company, or my community.

Definition of essential consumer good/service: one that is used by or provided by yours truly or her community. Pay no attention to the fact that the jet that will take me to Europe is one honking big SUV with wings....

I think that FX rates are notoriously difficult to predict. At one point (10 years ago?), the dollar weakened to about 80 Yen to the dollar. Was there a good reason for that?

Out of curiosity, I looked up the 1-year forward exchange rate here:

http://www.bmo.com/economic/regular/fxrates.html

It's roughly equal to the spot rate.

The forward rate can be viewed as today's unbiased estimate of a future exchange rate. It can be computed by purely arbitrage considerations (it depends on today's spot rate and the interest rates of the two currencies in consideration). Since the 1-year forward is about the same as the current spot rate, the two interest rates in question must be roughly the same.

>...the jet that will take me to Europe is one honking big SUV with wings....<

Bravo, 111.

Thanks ira. I've decided that I sound intelligent, but I'm really very stupid because I'm not rich. (And I'm stupid because I believe that smart people must be rich. :-) )

For those who're interested, a Google search turns up this lecture on foreign exchange:

http://www.econ.ucdavis.edu/faculty/...0B/lec2160.pdf

By the way, if the dollar interest rate rises, then assuming that the spot rate stays the same, the expectation is that the dollar will actually *decline* in the future (based on the forward rate calculation). In a way, this sounds like a paradox, but I guess this ignores the possibility that spot rate will rise because dollar denominated assets are more attractive.

In any case, it's not easy. Banks deal with this all the time, and that's why some central bank interventions appear to be effective and some not.

>...I'm stupid because I believe that smart people must be rich....<

Did you mean "rich people must be smart"? :)

Well, ira, I'm stupid, but I'm still smart enough to realize that if A then B and if B then A are not equivalent. On the other hand, if A then B is equivalent to not B then not A.

So I guess the proper negation is if poor, then stupid. :-)

But, no, definitely I don't believe in "rich people must be smart." :-)

Uh, ira, that is my honking big SUV if you please, not 111's.

By the way, how did I decide that I'm stupid? Because I'm poor. :-)

Isn't this fun? :-)

Oops -- I guess I claimed credit for something I didn't say. That does make me stupid.

I just checked my favorite economic site but they were discussing restaurants in Paris with about the same clarity as this discussion of economics.

>..ira, that is my honking big SUV if you please, not 111's.<

My sincerest and most humble apologies, Sue.

LOL, jsmith, I guess we need to get back to what we know best then??? :)

Not to worry, 111, no harm done.

Ah, ira, who can resist your charm? :)

> "Very few, Sue", he said with a wicked leer, while twriling the ends of his waxed mustache.

My view: other countries are catching on to the fact that the U. S. government is bankrupt, relying on its waning ability to borrow from other nations to fill its yawning gap between what it spends and what it raises from domestic sources. Thus, to compensate for this credit risk (either perceived or real), foreign sources demand more.

This current oil price bubble is just that -- our main problem is our political unwillingness to address the tidal wave of unfunded entitlements facing America. The coming explosion in pensions for retiring baby boomers is a case in point. Neither party wants to be the one that punches Santa Claus.