naked capitalism

AlanM says:

AT’s Spengler has an interesting take on currency values.

Spengler: “The silliest thing that clever people are saying about the world economic crisis is that the United States will lose its position as the dominant world superpower in consequence. On the contrary: the crisis strengthens the relative position of the United States and exposes the far graver weaknesses of all prospective competitors. It makes the debt of the American government the world’s most desirable asset.”

http://www.atimes.com/atimes/Global_Economy/KB18Dj05.html

Think about it. $50 trillion of wealth has been eliminated from the world due to a crisis that originated in the US, and how’s the dollar doing? Europe is toast. East Asia’s only hope is our markets.

The real problem is that the same people who couldn’t manage the money over the past 10 years are still managing the money.

BTW William Dudley (ex-GS of course), the new governor of the NY Fed, gave an interesting speech Saturday at CFR (h/t Economics of Contempt).

http://economicsofcontempt.blogspot.com/2009/03/talf-20-here-there-be-dragons.html

http://www.newyorkfed.org/newsevents/speeches/2009/dud090306.html

bg says:

Thanks Yves.

I have become more bearish on the dollar as it has become clear how deep the crisis is cutting. My problem as a trader (5 years might as well be when we are all dead) is finding the arguments for capital movement and the amount of currencies printed. It is hard to get bullish on the Euro with their banks and their denial. The RMB should strengthen, but looks whats happening to the Yen. Exports are cratering across asia, and all currencies are falling (except the RMB).

Perhaps when the fed starts buying treasuries en-masse that will tip the balance against the dollar.

I heard a recent quote I found new:

“complexity favors the powerful”. financial crisis are complex, the dollar is powerful. Perhaps when we see the depression abate it will be time to move to other currencies.

Minh says:

YS,
5 years isn’t that long as Orlov has put it. But i think the propagation of the money base through the banking system will take less time.

The EU also has some big printing too. Somehow I haven’t seen any comparative study of this sensitive issue.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/3191459/Europe-stuns-with-1.5-trillion-bank-rescue-as-France-plays-role-of-saviour.html

It seems to me every one is playing the game China was playing: debase the currency to gain competitive advantage. Currency manipulators as Geithner has put it. We’re all currency manipulators now.

Alfred says:

I don’t want to comment on the Telegraph article. I think it’s shallow, the facts are known. What surprises me though is this persistant criticism of the EZB, which has done an excellent job in my opinion. It is time for American and global finance to accept the undeniable fact that this crisis is the direct result of failed Federal Reserve politics. What we have here is years and years of mismanagement by appointed officials at the Fed, who have always favored speculation over savings despite the looming danger of macroeconomic instability. It is time for change and the EZB has to be the model for modern central banking: Favor pragmatism over speculation, the right medicine for macroeconomic stability. Of course this will not cure the disease now but it will help future generations to stay healthy.

Purple says:

Pure power comes into play during a crisis, where people are looking for a safe haven. U.S. military dominance plays a larger role in dollar supremacy than often acknowledged.

Minh says:

On Bloomberg, Marc Faber was pressing on the printing press ability to pump share price. And he’s saying that the weakening status of the US$ is a signal of increased liquidity in the system.

Funny that, considering the system is already full of cash, and the Fed is pumping more in to rescue the bondholders unwittingly became the victim of the banksters and us consumers.

Marc Faber forgot about the earning reports of the firm in the NYSE that is a-coming.

bb says:

fundamentals do not work, technicals do not work. what shakes currency markets these days is margin calls.

but besides that, it is funny how things seem to decouple over the past couple of weeks and since the equity markets hit another low (13% below november) and oil is further down, the euro has not retested the 1.23s, all the while bets against it increase and despite its relatively positive correlation with stocks and oil. this correlation is weakening by the day. expect a trampoline jump from here on the 1st piece of news of low treasuries bid to cover ratio.

Anonymous says:

EVERY fiat currency EVER introduced has failed!!! EVERY SINGLE ONE! Do a little research and take a look back at history.

This talk about whether or not the dollar will collapse is comical.

IT IS GOING TO COLLAPSE! Jeez….open a history book and take a look back in time over the last 5000 years….

The real question is WHEN.

Next week? Next Month? Next decade?

I don’t know…..but there are OBVIOUS storm clouds gathering….no? If you don’t see this storm approaching then you have your head stuck somewhere and you need to pull it out and open your eyes.

Historically, humanity has ALWAYS used gold and silver has a store of value.

You need to own gold and silver has a hedge against the coming dollar collapse.

I am not saying we need to hoard gold and silver, food, water, and guns and head for the hills……but not owning some physical gold and silver in this environment is just plain silly.

Anonymous says:

Dan Duncan, thank you for asking the question that no one answers, other than "glod". No doubt when dollar finally falls, there will be many who say "I told you so", but few actually preict what it will fall against. Another scenario is widespread depreciation, which I intepret to mean inflation/interest rates, but again if the dollar stays same relative to all other currencies & asset classes, this is not the same as "dollar collapse". I am making statements but really asking questions.

Thomas says:

As for inflation: Currently, there is strong deflationary pressure in the US. In Euroland, deflationary pressure is much lower because of all sorts of price and wage rigidities (for instance, recent German wage deals have seen 2-3 % wage hikes in various industries). So the US is currently gaining competitiveness if the exchange-rate stays constant.

Sure, current US policies might lead to massive US inflation in the mid-term. But that doesn’t change the fact that US prices are falling, whereas Euroland prices are essentially flat (and would still be rising if it weren’t for the massively cheaper oil).

Anonymous says:

“Fast forward to 2009 and I’m living in Austria. We still have industry here and recorded a 12 billion euro current account surplus. I know the long story about banking in eastern Europe and it’s partly true, however I’ll tell you this….”

Oh please do tell. Let me see, what all those Eastern European ‘emerging’ countries are doing right now is getting ready to stick it to you Austrians for the stupid loans to you made to them.

Yea, I can hardly wait to see how much better you do than the U.S. alright.

AM

Anonymous says:

Speaking of decoupling. I don’t hear many here speak of the decoupling of the European Union. Or, the break up of it. They failed twice to pass a constitution, and the current treaty is weak, perhaps too weak to make it through this crises. If Germany manages to switch from an export-dependent economy (tough job, I know), then why would they want to be part of the Euro Zone anymore? There are no real benefit for being in a monetary union with places like Spain, Portugal, Greeece, and Italy, when beach property is nicer and cheaper in Florida.

Vinny Goldberg

AlanM says:

Jonathan makes excellent points about the fundamentals of Austria, which apply to much of Europe more or less. “Europe is toast” but people won’t be knifing one another over rabbit skins. In addition to the sensible infrastructure there is a deep social cohesion (thus the broad appeal of the anti-immigrant right).

Vinny: “[Europe's south] are almost third world places, more backward than Eastern Europe.”

From several perspectives this is also true of a large portion of the US, but Europe’s south has many hundreds years of shared experience, withered but living small-holder agrarian roots, and relatively recent experience of economic chaos in the post-war years as Jonathan points out.

All of Europe, aside from the giant metropolises of Paris and London, will continue to be good places to raise a family.

Nevertheless Europe will be subject to tremendous economic chaos. America will be the anchor in the storm, not a firm anchor as it drags and catches but the anchor even so. And the essential will continue to be the East Asia/US dynamic.

Thomas says:

Quote from above: “How about Southern Italy, Southern Spain, large parts of France? … Those are almost third world places, more backward than Eastern Europe.”

I somehow doubt that you have ever been to Southern Spain or those unspecified “large parts” of France. And even Napoli, for all its obvious faults, is certainly not Bulgaria or the Ukraine.

Anonymous says:

As an American expat who’s lived in Belgium for 10 years and in some neighboring countries for a year or so, Jonathan’s post and its answers are interesting. For an American, one mind-blowing thing about Europe is how it’s really a collection of different cultures, sometimes only a few miles apart. Even though I’ve been here 12 years in total, I could hardly generalize about where I am, much less about places like Italy or Poland.

America seems much more uniform in products, attitudes, and customs. It will stand or fall as a unit. Europe’s strength (or weakness) is in its decentralization of power. The individual states still control their own countries, unlike the U.S. states, which long ago became merely another layer of bureaucracy.