Comments on: Geithner states the obvious; dollar falls http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/ Sat, 21 Nov 2009 16:40:10 -0500 http://wordpress.org/?v=2.8.4 hourly 1 By: Brad Setser: Follow the Money » Blog Archive » A new economic team http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-118487 Brad Setser: Follow the Money » Blog Archive » A new economic team Mon, 24 Nov 2008 01:33:24 +0000 http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-118487 [...] external adjustment try: What Geithner said, and then some; Geithner states the obvious and “Substantial accumulation of dollar reserves masks the impact of [...] [...] external adjustment try: What Geithner said, and then some; Geithner states the obvious and “Substantial accumulation of dollar reserves masks the impact of [...]

]]> By: Charlie http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83854 Charlie Tue, 24 Jan 2006 11:49:57 +0000 http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83854 I don't see much of an adjustment occuring until a substancial number of the poor in India and China (and other countries with low wages) are employed and force wage pressures up. What's happening now is there's a tremendous amount of wealth creation going on and it's being absorbed by the low rung of society. China and India are all for this because they have a huge number of poor and unemployed that need work. Once the current poor demand and get higher wages, then it's party over and everything including borrowing costs will soar, but this may not happen for 20 years. I don’t see much of an adjustment occuring until a substancial number of the poor in India and China (and other countries with low wages) are employed and force wage pressures up. What’s happening now is there’s a tremendous amount of wealth creation going on and it’s being absorbed by the low rung of society. China and India are all for this because they have a huge number of poor and unemployed that need work. Once the current poor demand and get higher wages, then it’s party over and everything including borrowing costs will soar, but this may not happen for 20 years.

]]> By: cranagh http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83853 cranagh Tue, 24 Jan 2006 11:06:22 +0000 http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83853 it is clear to me that united states opinion formers fear a financial day of reckoning, and are lining up china as the political fall guy, in case it happens near the mid term elections. throughout history kings raised taxes to pay for wars. you got it arseways. your king lowered taxes and launched a war. now he wants to launch another and blame china. he told you that he intended to spend his political capital, and he has done. we watch the same news clips as you do. this is not abstruse economics - it is plain country store-keeper common sense. nuclear war in the middle east will cost money. you haven't got it. you plan to bankrupt the united states and blame china. is that the best policy you can think of ? then you have not even begun to think. your brains are softened by television, drugs, and credit. you see the problem, you discuss the problem, and you sit and watch the problem get bigger. future historians will be baffled. it is clear to me that united states opinion formers fear a financial day of reckoning, and are lining up china as the political fall guy, in case it happens near the mid term elections.

throughout history kings raised taxes to pay for wars. you got it arseways. your king lowered taxes and launched a war. now he wants to launch another and blame china. he told you that he intended to spend his political capital, and he has done. we watch the same news clips as you do. this is not abstruse economics – it is plain country store-keeper common sense.

nuclear war in the middle east will cost money. you haven’t got it. you plan to bankrupt the united states and blame china. is that the best policy you can think of ? then you have not even begun to think. your brains are softened by television, drugs, and credit. you see the problem, you discuss the problem, and you sit and watch the problem get bigger. future historians will be baffled.

]]> By: cranagh http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83852 cranagh Tue, 24 Jan 2006 10:46:30 +0000 http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83852 "If the war with Iran starts later this year, do you think China will start dumping US treasuries in retaliation for "messing with their oil"? " china has a stake in the dollar, more than america has, possibly. so 1. why shoot yourself in the (other) foot ? 2 if annoyed, why not threaten-and-bargain rather than pre emptive strike ? 3 hot money moves faster, surely, than central banks - so it could be american hot money or non central bank dealers who triggered a fall if there was one. 4 who upsets the card table ? the guy who is cleaning up ? you must be watching different movies to me. it is the loser who turns nasty. i don't know the detail, but surely if the dollar were going to halve in value, there would be a windfall profit in oil and other stuff denominated in dollars. thus a violent shift from manufacturing (buys commodities) to primary producers of commodities. the holders of other currencies would be sucked in to the commodity spike. now the smart guys move to take their profits - in what ? zlotys again ? how do you take profits if you refuse to buy / hold the dollar ? and look - dollar halves - european exporters to america and other dollar holders are decimated. is the euro now going to stay there, up in the sky, with no exports to over half of the world ? i think the dollar fall would be more like an undersea earthquake. people do not die at the bottom of the sea, but on beaches thousands of miles away. “If the war with Iran starts later this year, do you think China will start dumping US treasuries in retaliation for “messing with their oil”? ”

china has a stake in the dollar, more than america has, possibly. so 1. why shoot yourself in the (other) foot ? 2 if annoyed, why not threaten-and-bargain rather than pre emptive strike ?
3 hot money moves faster, surely, than central banks – so it could be american hot money or non central bank dealers who triggered a fall if there was one. 4 who upsets the card table ? the guy who is cleaning up ? you must be watching different movies to me. it is the loser who turns nasty.

i don’t know the detail, but surely if the dollar were going to halve in value, there would be a windfall profit in oil and other stuff denominated in dollars. thus a violent shift from manufacturing (buys commodities) to primary producers of commodities. the holders of other currencies would be sucked in to the commodity spike. now the smart guys move to take their profits – in what ? zlotys again ? how do you take profits if you refuse to buy / hold the dollar ?

and look – dollar halves – european exporters to america and other dollar holders are decimated. is the euro now going to stay there, up in the sky, with no exports to over half of the world ? i think the dollar fall would be more like an undersea earthquake. people do not die at the bottom of the sea, but on beaches thousands of miles away.

]]> By: Guest http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83851 Guest Tue, 24 Jan 2006 07:02:52 +0000 http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83851 <a href="http://bigpicture.typepad.com/comments/2006/01/home_equity_loa.html">Home Equity Loans Fall Of The Cliff:</a> The greatest consumer buying binge ever is starting to fade. And the reason why can be discerned in that simple but eloquent chart on this page, courtesy of MacroMavens. And what it shows unequivocally is that home-equity loans, which have been one of the great springs of the growth in the consumer-driven economy -- the source, as MacroMavens' proprietor, Stephanie Pomboy, puts it, of the "marginal consumption buck" -- are going south for the first time since the last recession in 2000. The downturn in home-equity loans, she further notes, is part and parcel of the recent overall sharp retreat in consumer borrowing, which has suffered its first quarterly contraction since the recession of 1991. And credit, she notes, "has come to replace wages as the driver of consumption. Last year, the $375 billion gain in disposable income fell way short of the $500 billion increase in consumption." <a href="http://bigpicture.typepad.com/comments/2006/01/consumer_spendi.html">Consumer Spending And Housing Correlation</a> <a href="http://macroblog.typepad.com/comments/2006/01/money_and_the_s.html">Money And The Stock Market</a> Home Equity Loans Fall Of The Cliff: The greatest consumer buying binge ever is starting to fade. And the reason why can be discerned in that simple but eloquent chart on this page, courtesy of MacroMavens. And what it shows unequivocally is that home-equity loans, which have been one of the great springs of the growth in the consumer-driven economy — the source, as MacroMavens’ proprietor, Stephanie Pomboy, puts it, of the “marginal consumption buck” — are going south for the first time since the last recession in 2000.

The downturn in home-equity loans, she further notes, is part and parcel of the recent overall sharp retreat in consumer borrowing, which has suffered its first quarterly contraction since the recession of 1991. And credit, she notes, “has come to replace wages as the driver of consumption. Last year, the $375 billion gain in disposable income fell way short of the $500 billion increase in consumption.”

Consumer Spending And Housing Correlation
Money And The Stock Market

]]> By: Guest http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83850 Guest Tue, 24 Jan 2006 06:44:53 +0000 http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83850 <a href="http://www.morganstanley.com/GEFdata/digests/20060124-tue.html">Do Imbalances Matter?</a> The imbalances may not matter for now, as the US trade deficit is a welcome stimulus for the global economy. The rest of the world is as enthusiastic about funding the US deficit as the US is about borrowing, I believe. The imbalances are a symptom of the Fed's stimulus to maximize US demand growth without causing inflation. The high growth rate has been achieved by asset inflation-led demand growth. So, it would seem that the stability of the bubbles, rather than the imbalances per se, is the issue at stake. Do Imbalances Matter? The imbalances may not matter for now, as the US trade deficit is a welcome stimulus for the global economy. The rest of the world is as enthusiastic about funding the US deficit as the US is about borrowing, I believe. The imbalances are a symptom of the Fed’s stimulus to maximize US demand growth without causing inflation. The high growth rate has been achieved by asset inflation-led demand growth. So, it would seem that the stability of the bubbles, rather than the imbalances per se, is the issue at stake.

]]> By: Guest http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83849 Guest Tue, 24 Jan 2006 05:31:05 +0000 http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83849 <a href="http://www.gao.gov/cghome/whitehousewalker1205/index.html">A Look at Our Future: When Baby Boomers Retire</a> - Since Bush took over, we have doubled our unfunded fiscal liabilities to <a href="http://www.gao.gov/cghome/whitehousewalker1205/img5.html">$43 trillion</a>. <a href="http://www.reason.com/rauch/012306.shtml">Why Republicans Can't Cut Spending</a> <a href="http://businessweek.com/magazine/content/06_05/c3969042.htm">The GOP's Risky AMT Gambit</a> <a href="http://quote.bloomberg.com/apps/news?pid=10000039&sid=aNZqm9RmXyw8">It's Time to Face Up to the U.S. Medicare Crisis</a> A Look at Our Future: When Baby Boomers Retire – Since Bush took over, we have doubled our unfunded fiscal liabilities to $43 trillion.

Why Republicans Can’t Cut Spending
The GOP’s Risky AMT Gambit
It’s Time to Face Up to the U.S. Medicare Crisis

]]> By: Guest http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83848 Guest Tue, 24 Jan 2006 05:26:13 +0000 http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83848 What do you guys think of the argument that to some extent very large holders of USD reserves, say China and Japan, are to some extent trapped in their dollar holdings. Currency markets, even USD/EUR, are certainly not liquid enough to convert even a small fraction of their holding in a short amount of time. Could the US treasury market even handle the flow? Then what about the various balkanized Euro bond and equity markets. They would be even more roiled. Of course, rather than liquidating their current dollar holdings, they continue to suck in even more every day. I think they have already been trying to diversify as much as they can by purchasing Euros, Gold etc. What do you guys think of the argument that to some extent very large holders of USD reserves, say China and Japan, are to some extent trapped in their dollar holdings. Currency markets, even USD/EUR, are certainly not liquid enough to convert even a small fraction of their holding in a short amount of time. Could the US treasury market even handle the flow? Then what about the various balkanized Euro bond and equity markets. They would be even more roiled. Of course, rather than liquidating their current dollar holdings, they continue to suck in even more every day. I think they have already been trying to diversify as much as they can by purchasing Euros, Gold etc.

]]> By: bsetser http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83846 bsetser Mon, 23 Jan 2006 14:16:46 +0000 http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83846 GCS -- the US did devalue the dollar against gold in the 30s, good thing, too! do you have data on German/ UK current account deficits in 30s v. their exports? I suspect both exported more than 10% of GDP, so the CAD/ Export ratio never reached 70% ... but in the face of evidence that disproves my thesis, I (often) can be convinced to change my mind. GCS –

the US did devalue the dollar against gold in the 30s, good thing, too!

do you have data on German/ UK current account deficits in 30s v. their exports? I suspect both exported more than 10% of GDP, so the CAD/ Export ratio never reached 70% … but in the face of evidence that disproves my thesis, I (often) can be convinced to change my mind.

]]> By: groucho http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83845 groucho Mon, 23 Jan 2006 14:11:07 +0000 http://blogs.cfr.org/setser/2006/01/23/geithner-states-the-obvious-dollar-falls/#comment-83845 Rate increase warning? Everyone's talking about FFR stopping at 1 or 2 more hikes. Am I reading Geithner's closing remarks incorrectly? It looks to me that he's implying the Fed may have to compensate for Asian CB intervention. If so, this will be one helluva yield inversion later this year. If the war with Iran starts later this year, do you think China will start dumping US treasuries in retaliation for "messing with their oil"? Rate increase warning? Everyone’s talking about FFR stopping at 1 or 2 more hikes. Am I reading Geithner’s closing remarks incorrectly? It looks to me that he’s implying the Fed may have to compensate for Asian CB intervention. If so, this will be one helluva yield inversion later this year.

If the war with Iran starts later this year, do you think China will start dumping US treasuries in retaliation for “messing with their oil”?

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