Fed Euthanises The Dollar

[J]

The price of oil alone is going to royally fuck over the US if the dollar remains stable, never mind keep falling in value.

Speaking of which, despite gasoline futures going up well over 5% in the last couple days and oil hitting all-time highs, gasoline prices around here have budged a measly 0.3% or so. Normally, gasoline prices here will track oil & gasoline future quite closely in terms of percentages gained & lost, but not this time. The plummeting USD has effectively wiped out the gains.

[Broomstick]

So any one have suggestions on how to "survive" or even thrive in this current economic climate.

Well, my paternal grandparents survived the Great Depression of the early 1930's by making a living via burying people. Undertaking may not be the oldest profession, but it will assuredly be the last.

1) Be flexible - adaption is what gets you through a crisis. You may have to work a shit job to put food on the table, but if that's what it takes, that's what you do.

2) Stay healthy - strong healthy people have more options for employment.

3) Maintain social networks - those who can draw on family and friends survive better.

4) Be willing to downsize/let go - you may need to give up some expensive parts of your lifestyle, move to a smaller place to live, buy a smaller/more fuel efficient car that's not so sexy, etc.

[White Cat]

Am I missing something, or did you link to the wrong page? It shows the Dow Jones steadily rising for the last two years...

Correct. This is wealth. Or rather, it is the illusion of wealth. While the Dow has been a real bully beast recently, breaking all time records at least twice in a year, the value of the money is falling. The value of the companies is exploding, but the buying power or worth of the dollar is falling. So are you gaining anything or losing it? If the dollar falls faster than the market growth occurs, then really you're at a loss and inflation takes off.

That's all well and good, but don't you think it's rather dubious to point to an indicator of The Illusion Of Wealth and proclaim "Oh wow, the US is so fucked now"? Shouldn't that revelation be the result of an indicator of The Reality Of Doomitude?

[Stuart Mackey]

You been watching fight club?

Why would you think that?

Oh, nothing..nothing at all..you havent been waking up exhausted and not knowing why?

[mr friendly guy]

Using public transportation as opposed to driving whenever possible will save a considerable amount of money as well, and help avoid that nasty debt thing. I don't drive anymore and I'm saving hundreds on insurance and gas costs alone. (Thanks to being in a city with a decent public transportation system).

I haven't considered that simply because I find the public transport system in Perth is at best average, or sometimes just sucks. Sure if we had Singapore style public transport, then its good, otherwise, I would prefer to drive to most places.

I guess that leaves me the option of buying a cheap car once I have milked my current car for all its worth. And I wouldn't be too worried about going into debt from buying a car. I have enough cash on hand to afford most "average" cars. It will only become a problem if at that same time I decide to buy property.

Well, my paternal grandparents survived the Great Depression of the early 1930's by making a living via burying people. Undertaking may not be the oldest profession, but it will assuredly be the last.

Well I treat people for a living. Until we develop Culture like technology, there will always be a need and demand for doctors. Coupled that with an aging and increasing population, I think there is going to be plenty for me to do.

1) Be flexible - adaption is what gets you through a crisis. You may have to work a shit job to put food on the table, but if that's what it takes, that's what you do.

I work whatever the hospital administration rosters me to do. I have observed that a lot of junior medical registrars have been rostered to numerous reliever terms. But whatever it takes.

2) Stay healthy - strong healthy people have more options for employment.

3) Maintain social networks - those who can draw on family and friends survive better.

I must admit, I didn't think of it this way. I was more focus on financial aspects that I guess I downplayed the non financial ones. Thanks for the advice.

4) Be willing to downsize/let go - you may need to give up some expensive parts of your lifestyle, move to a smaller place to live, buy a smaller/more fuel efficient car that's not so sexy, etc.

I might very well have to buy a smaller house. The market over here looks like its going down, but it was crazy, with people buying things for ridiculous prices managing to come up with like < 5% of the total price up front. I had close to 30% of the land price at an auction last year with the bank offering to lend me half a million, and I wasn't willing to bid because the prices was ridiculous.

Otherwise, besides my spending on amazon and e-bay, I generally am pretty frugal. Yes its hard to believe when you see my collection of dvds, books, sci fi merchandise, gothic dragons etc. But if you look at percentage of take home pay I save, its actually quite high. I don't smoke, I don't drink except rarely on social occasions, and I don't care about expensive clothes or cars. The only other weakness I have is that I prefer to buy lunch rather than make it and bring it from home.

On another note, I have observed there is pressure for people in "higher class" jobs to look the part. That is they get expensive cars, houses etc. In other words, its exactly the opposite of what you find if you read the American book "The millionaire next door". Some of the medical interns have bought $50 k "classy" cars. I am earning more than them, don't have government debt and am not willing to spend that much on a car even though I can pay for it up front in cash.

[Bounty]

The newspaper headline today was "Dollar melts away". It's reached it's lowest value compared to the Euro since the Carter days (0.71252 to 1).

On the plus side, the article also said the crashing dollar will make it easier for the Eurozone to buy oil and resources, even if the economy slumps.

[Starglider]

The newspaper headline today was "Dollar melts away". It's reached it's lowest value compared to the Euro since the Carter days (0.71252 to 1).

The Euro was only created in 1999 and implemented in 2002. The forerunner (the ECU, which was a government accounting tool only) dates back to 1992. Are they doing some sort of weighted comparison to all the old European currencies (including the Eastern European ones) that turned into the Euro? I'd have thought the Yen or even the Pound would be a better comparison.

[Natorgator]

The price of oil alone is going to royally fuck over the US if the dollar remains stable, never mind keep falling in value.

Speaking of which, despite gasoline futures going up well over 5% in the last couple days and oil hitting all-time highs, gasoline prices around here have budged a measly 0.3% or so. Normally, gasoline prices here will track oil & gasoline future quite closely in terms of percentages gained & lost, but not this time. The plummeting USD has effectively wiped out the gains.

Gasoline prices haven't moved as much because demand for it is a lot lower, since summer is over. They haven't really moved at all in my area either.

[Darth Wong]

The newspaper headline today was "Dollar melts away". It's reached it's lowest value compared to the Euro since the Carter days (0.71252 to 1).

The Euro was only created in 1999 and implemented in 2002. The forerunner (the ECU, which was a government accounting tool only) dates back to 1992. Are they doing some sort of weighted comparison to all the old European currencies (including the Eastern European ones) that turned into the Euro? I'd have thought the Yen or even the Pound would be a better comparison.

I remember when it cost almost a buck and a half Canadian to buy one American dollar. Today, it costs around one dollar Canadian to buy one American dollar. That's a huge difference.

[Bounty]

The newspaper headline today was "Dollar melts away". It's reached it's lowest value compared to the Euro since the Carter days (0.71252 to 1).

The Euro was only created in 1999 and implemented in 2002. The forerunner (the ECU, which was a government accounting tool only) dates back to 1992. Are they doing some sort of weighted comparison to all the old European currencies (including the Eastern European ones) that turned into the Euro? I'd have thought the Yen or even the Pound would be a better comparison.

The graph was by Bloomberg, there was no further explanation. Either they used a weighted average or they're converting through the Franc.

[General Zod]

I haven't considered that simply because I find the public transport system in Perth is at best average, or sometimes just sucks. Sure if we had Singapore style public transport, then its good, otherwise, I would prefer to drive to most places.

I guess that leaves me the option of buying a cheap car once I have milked my current car for all its worth. And I wouldn't be too worried about going into debt from buying a car. I have enough cash on hand to afford most "average" cars. It will only become a problem if at that same time I decide to buy property.

Yeah, I know it's not so hot when you're in a city with crappy transportation. But for the barely middle-class like me in a city with a decent system, it's a great way to save a few hundred each month even if you could technically afford to drive.

[Admiral Valdemar]

That's all well and good, but don't you think it's rather dubious to point to an indicator of The Illusion Of Wealth and proclaim "Oh wow, the US is so fucked now"? Shouldn't that revelation be the result of an indicator of The Reality Of Doomitude?

The wealth factor is just one of many aspects of American society that are culminating in a serious crunch somewhere down the line. The dollar losing some value in itself isn't as serious as some would have you believe, though still not something to shrug off. The rising prices of certain fundamental commodities such as food and energy (both of which the Fed hates reporting in their stats.) and banking system set-up are going to show our generation that this rather anomalous era of cheap, plentiful goods and economic expansion isn't going to last forever. Many people don't realise that even 50 years ago, food bills were a large chunk of your salary, so the dairy and wheat prices the Italians are getting pissed about are not all that amazing, historically speaking.

Though in the past we didn't have as many mouths, as little water and top soil and the ever chaotic effects of climate change to contend with.

[aerius]

I remember when it cost almost a buck and a half Canadian to buy one American dollar. Today, it costs around one dollar Canadian to buy one American dollar. That's a huge difference.

Canadian dollar currently trading at 99.83 cents US according to xe.com. At this rate we'll probably have parity by tomorrow. It was around what, 95 cents or so at the beginning of the week, that's like a cent a day.

[Masami von Weizegger]

The Canadian Dollar achieving parity (well, nearly, but I'm counting my chickens here) with the U S Dollar after all this time is something I still can't quite wrap my head around. It's just surreal. But I guess for those reading the signs correctly it was a long time coming.

[aerius]

That's right America, next week, I'll be the one making jokes about the worthless US peso!

[J]

More happy news for the US dollira!

Link

Fears of dollar collapse as Saudis take fright
By Ambrose Evans-Pritchard, International Business Editor
Last Updated: 8:39am BST 20/09/2007



Saudi Arabia has refused to cut interest rates in lockstep with the US Federal Reserve for the first time, signalling that the oil-rich Gulf kingdom is preparing to break the dollar currency peg in a move that risks setting off a stampede out of the dollar across the Middle East.

"This is a very dangerous situation for the dollar," said Hans Redeker, currency chief at BNP Paribas.

"Saudi Arabia has $800bn (£400bn) in their future generation fund, and the entire region has $3,500bn under management. They face an inflationary threat and do not want to import an interest rate policy set for the recessionary conditions in the United States," he said.

The Saudi central bank said today that it would take "appropriate measures" to halt huge capital inflows into the country, but analysts say this policy is unsustainable and will inevitably lead to the collapse of the dollar peg.

As a close ally of the US, Riyadh has so far tried to stick to the peg, but the link is now destabilising its own economy.

The Fed's dramatic half point cut to 4.75pc yesterday has already caused a plunge in the world dollar index to a fifteen year low, touching with weakest level ever against the mighty euro at just under $1.40.

There is now a growing danger that global investors will start to shun the US bond markets. The latest US government data on foreign holdings released this week show a collapse in purchases of US bonds from $97bn to just $19bn in July, with outright net sales of US Treasuries.

The danger is that this could now accelerate as the yield gap between the United States and the rest of the world narrows rapidly, leaving America starved of foreign capital flows needed to cover its current account deficit - expected to reach $850bn this year, or 6.5pc of GDP.

Mr Redeker said foreign investors have been gradually pulling out of the long-term US debt markets, leaving the dollar dependent on short-term funding. Foreigners have funded 25pc to 30pc of America's credit and short-term paper markets over the last two years.

"They were willing to provide the money when rates were paying nicely, but why bear the risk in these dramatically changed circumstances? We think that a fall in dollar to $1.50 against the euro is not out of the question at all by the first quarter of 2008," he said.

"This is nothing like the situation in 1998 when the crisis was in Asia, but the US was booming. This time the US itself is the problem," he said.

Mr Redeker said the biggest danger for the dollar is that falling US rates will at some point trigger a reversal yen "carry trade", causing massive flows from the US back to Japan.

Jim Rogers, the commodity king and former partner of George Soros, said the Federal Reserve was playing with fire by cutting rates so aggressively at a time when the dollar was already under pressure.

The risk is that flight from US bonds could push up the long-term yields that form the base price of credit for most mortgages, the driving the property market into even deeper crisis.

"If Ben Bernanke starts running those printing presses even faster than he's already doing, we are going to have a serious recession. The dollar's going to collapse, the bond market's going to collapse. There's going to be a lot of problems," he said.

The Federal Reserve, however, clearly calculates the risk of a sudden downturn is now so great that the it outweighs dangers of a dollar slide.

Former Fed chief Alan Greenspan said this week that house prices may fall by "double digits" as the subprime crisis bites harder, prompting households to cut back sharply on spending.

For Saudi Arabia, the dollar peg has clearly become a liability. Inflation has risen to 4pc and the M3 broad money supply is surging at 22pc.

The pressures are even worse in other parts of the Gulf. The United Arab Emirates now faces inflation of 9.3pc, a 20-year high. In Qatar it has reached 13pc.

Kuwait became the first of the oil sheikhdoms to break its dollar peg in May, a move that has begun to rein in rampant money supply growth.

[Admiral Valdemar]

Check the Fed's posting of inflation rates for the past several years. See if you can spot the hiccups in their numbers.

The dollar is going down hard. I remember when they were talking about £2 to the dollar as being a possible future scenario some years off still. That was achieved and maintained this year again, and now we're seeing the loonie and euro get more appetising.

If the KSA ditches the dollar, you can bet the jig is up then, no matter how cushy the US may get with the House of Saud.

[Andrew J.]

That's right America, next week, I'll be the one making jokes about the worthless US peso!

And we'll be making jokes about how everything in Canada is suddenly way more expensive than here.

[Gil Hamilton]

The Canadian Dollar achieving parity (well, nearly, but I'm counting my chickens here) with the U S Dollar after all this time is something I still can't quite wrap my head around. It's just surreal. But I guess for those reading the signs correctly it was a long time coming.

Well, it happened today.
Loonie and Dollar reach Parity

TORONTO (AP) -- The Canadian dollar reached parity with the U.S. dollar on Thursday for the first time since November 1976.

Known as the loonie because of the bird pictured on the one-dollar coin, the Canadian dollar has been gaining ground on its American counterpart since hitting an all-time low of 61.79 U.S. cents on Jan. 21, 2002.

This week the loonie rose sharply against its U.S. counterpart after the Federal Reserve announced a dramatic half-point cut in its benchmark interest rates. The Bank of Canada, meanwhile, has kept its equivalent rates stable.

As a result, the spread between U.S. and Canadian interest rates widened, making Canada a more attractive place for German, Japanese, American and other foreign investors to put their money.

The soaring loonie also reflects the strong fundamentals of the Canadian economy, which has benefited from record world crude oil prices and strong demand for metals, coal, chemicals and grain.

At the same time, the United States has been squeezed by a collapse of a big chunk of its housing market and a worsening credit crunch.

"Canadians are getting a lot richer relative to Americans. The parity exchange rate is just one example of that," said Jeff Rubin, Chief Economist and Strategist at CIBC World Markets.

"It really reflects the rise of the resource economy in Canada and the rise of western Canada and the decline of the manufacturing sector and the manufacturing heartland of Canada in Ontario," Rubin said.

The western Canadian province of Alberta is home to vast reserves of oil sands, a tar-like bitumen that is extracted using mining techniques. Industry officials estimate the oil sands will yield as much as 175 billion barrels of oil, making Canada second only to Saudi Arabia in crude oil reserves.

"The Canadian economy that once use to be the sleepy little resource backwater of the North American economy, is certainly turning the tables on its big brother in a hurry," Rubin said.

The high Canadian dollar will increase the number of cross-border shopping trips as Canadian consumers come to the U.S. to buy clothes, shoes and electronic gear. Many goods in Canada haven't been reduced yet to reflect the rising Canadian dollar.

"It's going to take some time before it trickles down to us," said Linda An, who calls herself a shopaholic. "Shopping, especially for big ticket items is great now in the U.S."

The high dollar will hurt Canadian manufacturers who sell goods in the U.S. Canadian Auto Workers economist Jim Stanford warned that the sector, largely based in Ontario, will lose hundreds of thousands more jobs if the dollar remains at current levels.

[Admiral Valdemar]

The way this is going, by next week we'll be at all time highs. That's all time as in 1980 Iranian revolution highs.

Even Pickens isn't this pessimistic. $85 dollar by next year likely. Now, it's probably tomorrow!

[Adrian Laguna]

Man, such great times to be speculating on commodities and I've got no dough. Or the balls to spend if I had it. Might be for the best though, had I the money and the balls I'd likely not have the first shortly thereafter.

[Uraniun235]

More happy news for the US dollira!

Link

And for your Canadian manufacturing jobs, apparently:

The high dollar will hurt Canadian manufacturers who sell goods in the U.S. Canadian Auto Workers economist Jim Stanford warned that the sector, largely based in Ontario, will lose hundreds of thousands more jobs if the dollar remains at current levels.

How's that going to impact Canada as a whole?

[J]

The way this is going, by next week we'll be at all time highs. That's all time as in 1980 Iranian revolution highs.

Even Pickens isn't this pessimistic. $85 dollar by next year likely. Now, it's probably tomorrow!

Maybe it's finally starting to sink in that oil doesn't grow on trees.

[Admiral Valdemar]

For the first time in years, the EIA's International Petroleum Monthly report has been delayed, almost as if they had to double-check the numbers.

The results aren't good. Production for June 2007 (CO&LC) was at 72.8 mbpd, or the lowest since around the same time in 2004. We have also, yet again, not broken the peak production limit set in summer of 2005 (1.8% off the peak value).

OPEC reckons this price range can't last, yet it already seems to have a floor of $82 even as we hit the October contract and lose a couple of bucks, it will make up for it tomorrow as trading starts I expect.

I think the realisation is definitely dawning on people now that production isn't going up and demand is.

[Broomstick]

The price of oil alone is going to royally fuck over the US if the dollar remains stable, never mind keep falling in value.

Speaking of which, despite gasoline futures going up well over 5% in the last couple days and oil hitting all-time highs, gasoline prices around here have budged a measly 0.3% or so. Normally, gasoline prices here will track oil & gasoline future quite closely in terms of percentages gained & lost, but not this time. The plummeting USD has effectively wiped out the gains.

Gasoline prices haven't moved as much because demand for it is a lot lower, since summer is over. They haven't really moved at all in my area either.

Gas has dropped $0.30/gallon since Monday in my area, from $3.05 to $2.75. Go figger.