Comments on: The (almost) dollar crisis of 2007 … http://blogs.cfr.org/setser/2009/07/30/the-almost-dollar-crisis-of-2007/ Thu, 14 Oct 2010 13:09:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Finance Dollar http://blogs.cfr.org/setser/2009/07/30/the-almost-dollar-crisis-of-2007/#comment-135109 Finance Dollar Wed, 05 May 2010 05:34:08 +0000 http://blogs.cfr.org/setser/?p=6056#comment-135109 I think international macroeconomists have been looking for a dollar crisis for quite some time, and they believed that such a crisis would bring on the meltdown. Instead, the meltdown occurred for other reasons and paradoxically reinforced the position of the dollar (and, for the moment, many of the structural imbalances that have troubled international economists).”The paper didn’t directly address the issue, but I certainly bought into your conclusion. In subsequent readings however I began to suspect–certainly after 2007– that the paper was about global excess liquidity (imbalances?) and that the real danger was not the collapse of the dollar, but the the US’s loss of the ability to conduct its monetary policy. In short, Greenspan’s conundrum which, in fact, fed the housing bubble and build up of excess leverage in the financial sector <a href="http://financedollar.com" rel="nofollow">Finance Dollar</a> I think international macroeconomists have been looking for a dollar crisis for quite some time, and they believed that such a crisis would bring on the meltdown. Instead, the meltdown occurred for other reasons and paradoxically reinforced the position of the dollar (and, for the moment, many of the structural imbalances that have troubled international economists).”The paper didn’t directly address the issue, but I certainly bought into your conclusion. In subsequent readings however I began to suspect–certainly after 2007– that the paper was about global excess liquidity (imbalances?) and that the real danger was not the collapse of the dollar, but the the US’s loss of the ability to conduct its monetary policy. In short, Greenspan’s conundrum which, in fact, fed the housing bubble and build up of excess leverage in the financial sector
Finance Dollar

]]> By: smoody http://blogs.cfr.org/setser/2009/07/30/the-almost-dollar-crisis-of-2007/#comment-133838 smoody Sat, 01 Aug 2009 15:00:06 +0000 http://blogs.cfr.org/setser/?p=6056#comment-133838 I remember your paper with Roubini. I've read it several times. I first read it looking for an explanation for the excess liquidity that had been building in Kazakhstan since the end of 2002. The paper didn't directly address the issue, but I certainly bought into your conclusion. In subsequent readings however I began to suspect--certainly after 2007-- that the paper was about global excess liquidity (imbalances?) and that the real danger was not the collapse of the dollar, but the the US's loss of the ability to conduct its monetary policy. In short, Greenspan's conundrum which, in fact, fed the housing bubble and build up of excess leverage in the financial sector. So, from my perspective anyway, everyone missed the call because (1) they didn't understand Fed monetary policy failed in 2004 and (2), even if they called the housing crisis, they didn't connect it to the global excess liquidity issue and (3), to this day, few point to the yen and dollar carry trades that drove Eastern European housing and stock markets to heights of folly in the days of the bubble. For me, your paper was very insightful even if you--like me and everybody else--missed the most important point. I remember your paper with Roubini. I’ve read it several times. I first read it looking for an explanation for the excess liquidity that had been building in Kazakhstan since the end of 2002. The paper didn’t directly address the issue, but I certainly bought into your conclusion. In subsequent readings however I began to suspect–certainly after 2007– that the paper was about global excess liquidity (imbalances?) and that the real danger was not the collapse of the dollar, but the the US’s loss of the ability to conduct its monetary policy. In short, Greenspan’s conundrum which, in fact, fed the housing bubble and build up of excess leverage in the financial sector. So, from my perspective anyway, everyone missed the call because (1) they didn’t understand Fed monetary policy failed in 2004 and (2), even if they called the housing crisis, they didn’t connect it to the global excess liquidity issue and (3), to this day, few point to the yen and dollar carry trades that drove Eastern European housing and stock markets to heights of folly in the days of the bubble. For me, your paper was very insightful
even if you–like me and everybody else–missed the most important point.

]]> By: The (almost) dollar crisis of 2007 … | Mortgage Loans Equity .Net - Home Mortgage, Home Loans, Home Equity & Mortgage refinancing http://blogs.cfr.org/setser/2009/07/30/the-almost-dollar-crisis-of-2007/#comment-133812 The (almost) dollar crisis of 2007 … | Mortgage Loans Equity .Net - Home Mortgage, Home Loans, Home Equity & Mortgage refinancing Sat, 01 Aug 2009 02:21:19 +0000 http://blogs.cfr.org/setser/?p=6056#comment-133812 [...] Read more here - The (almost) dollar crisis of 2007 … [...] [...] Read more here – The (almost) dollar crisis of 2007 … [...]

]]> By: Twofish http://blogs.cfr.org/setser/2009/07/30/the-almost-dollar-crisis-of-2007/#comment-133808 Twofish Sat, 01 Aug 2009 00:28:15 +0000 http://blogs.cfr.org/setser/?p=6056#comment-133808 purple: There is massive excess capacity that must be flushed from the system if capitalism is to become healthy again - as measured by its own standards. This is madness. You have a perfectly good factory or apartment building that is idle, you can't figure out what to do with it and the solution is *burn it down???* If there really is excess capacity then fire up the helicopters and drop money from the skies until the capacity gets used, which is exactly what has been done and it seems to be working. purple: There is massive excess capacity that must be flushed from the system if capitalism is to become healthy again – as measured by its own standards.

This is madness. You have a perfectly good factory or apartment building that is idle, you can’t figure out what to do with it and the solution is *burn it down???*

If there really is excess capacity then fire up the helicopters and drop money from the skies until the capacity gets used, which is exactly what has been done and it seems to be working.

]]> By: Pax Americana http://blogs.cfr.org/setser/2009/07/30/the-almost-dollar-crisis-of-2007/#comment-133800 Pax Americana Fri, 31 Jul 2009 19:34:05 +0000 http://blogs.cfr.org/setser/?p=6056#comment-133800 Agree with the Decoupling Prognosis, to a certain extent as the PRC goal is to reinforce the use of RMB as a global currency by the facilty of bi-lateral Agreements.Real Decoupling from Fate of American consumers make take longer. Agree with the Decoupling Prognosis, to a certain extent as the PRC goal is to reinforce the use of RMB as a global currency by the facilty of bi-lateral Agreements.Real Decoupling from Fate of American consumers make take longer.

]]> By: FollowTheMoney http://blogs.cfr.org/setser/2009/07/30/the-almost-dollar-crisis-of-2007/#comment-133799 FollowTheMoney Fri, 31 Jul 2009 19:06:47 +0000 http://blogs.cfr.org/setser/?p=6056#comment-133799 emergin world was indeed attracted to u.s. dollar as "safety"...however as decoupling becomes more imminent in years ahead the chances of this decrease. Since the Fed has decided to inflate her way out of the troubles,there's likley a good possibility dollar weakness may continue in 2nd half of 2009. For the record i expect GOLD to break through $1000/oz within 30 days of this note. emergin world was indeed attracted to u.s. dollar as “safety”…however as decoupling becomes more imminent in years ahead the chances of this decrease.

Since the Fed has decided to inflate her way out of the troubles,there’s likley a good possibility dollar weakness may continue in 2nd half of 2009.

For the record i expect GOLD to break through $1000/oz within 30 days of this note.

]]> By: Yoda http://blogs.cfr.org/setser/2009/07/30/the-almost-dollar-crisis-of-2007/#comment-133798 Yoda Fri, 31 Jul 2009 18:49:03 +0000 http://blogs.cfr.org/setser/?p=6056#comment-133798 http://globaleconomicanalysis.blogspot.com/2009/07/free-money-runs-out-congress-authorizes.html Obama, Pelosi, and democrats waste taxpayer money. Unbelievable. Why not, since Treasury and Bernanke Co has unlimited dollar supply. http://globaleconomicanalysis.blogspot.com/2009/07/free-money-runs-out-congress-authorizes.html

Obama, Pelosi, and democrats waste taxpayer money. Unbelievable. Why not, since Treasury and Bernanke Co has unlimited dollar supply.

]]> By: Stormy http://blogs.cfr.org/setser/2009/07/30/the-almost-dollar-crisis-of-2007/#comment-133797 Stormy Fri, 31 Jul 2009 18:04:18 +0000 http://blogs.cfr.org/setser/?p=6056#comment-133797 The current account balance may yet take us down. Unless it begins to gain some equilibrium, all the Fed and Treasury will be doing is throwing money at the consumer and hope some of it catches. What is the current account balance as a percentage of GDP? The current account balance may yet take us down. Unless it begins to gain some equilibrium, all the Fed and Treasury will be doing is throwing money at the consumer and hope some of it catches.

What is the current account balance as a percentage of GDP?

]]> By: purple http://blogs.cfr.org/setser/2009/07/30/the-almost-dollar-crisis-of-2007/#comment-133794 purple Fri, 31 Jul 2009 11:59:50 +0000 http://blogs.cfr.org/setser/?p=6056#comment-133794 The imbalances written about by Wolf and the like are just symptoms of chronically weak demand relative to capacity. Credit innovations and public deficit spending have floated the world economy along for quite some time, but there is massive excess capacity that must be flushed from the system if capitalism is to become healthy again - as measured by its own standards. The imbalances written about by Wolf and the like are just symptoms of chronically weak demand relative to capacity. Credit innovations and public deficit spending have floated the world economy along for quite some time, but there is massive excess capacity that must be flushed from the system if capitalism is to become healthy again – as measured by its own standards.

]]> By: Twofish http://blogs.cfr.org/setser/2009/07/30/the-almost-dollar-crisis-of-2007/#comment-133793 Twofish Fri, 31 Jul 2009 11:59:03 +0000 http://blogs.cfr.org/setser/?p=6056#comment-133793 quote: If economists try to predict crises they will get it wrong, and that will reduce their credibility when they try to warn of risks. This is a bit odd. I can predict with pretty high certainty that there will be some financial crisis around 2015. I have no idea what it will be right now, but I should have a better idea in two years or so. One problem here is "free will" versus "determinism." Economists like to use deterministic models, which poses a problem is that they exclude free will. The reason I don't know what exactly the cause of the crisis of 2015 is is because the nature of the crisis depends a lot of what decisions people make now and in the next year or two. I can be confident that there will be some crisis around 2015, because social institutions take about five years to adjust. Someone will make some decisions, these decisions will have unforeseen consequences, and it will take about five years for those consequences to grow large enough to cause something dramatic to happen. bsetser: let’s just say that the banks weren’t all that keen to dispell the regulators notion that securitization was dispersing risk. If you have a set of institutions in which people have to act in massively non-self-interested ways to get things to work, then that system is very flawed. On the other hand, with a few exceptions, most banks really had no idea what their risk exposures where. 4degreesnorth: I suggest turning the blame game onto JP Morgan: in the nineties - and I was in the industry - there was a model of risk assessment that was developed by that firm, and if I recall well, distributed freely by them post LTCM. But that VaR model worked quite well at JPMorgan. If you actually use VaR correctly you end up with the fact that investments in super-senior CDS's were bleeding insane, which is what JPMorgan itself concluded. quote: If economists try to predict crises they will get it wrong, and that will reduce their credibility when they try to warn of risks.

This is a bit odd. I can predict with pretty high certainty that there will be some financial crisis around 2015. I have no idea what it will be right now, but I should have a better idea in two years or so.

One problem here is “free will” versus “determinism.” Economists like to use deterministic models, which poses a problem is that they exclude free will. The reason I don’t know what exactly the cause of the crisis of 2015 is is because the nature of the crisis depends a lot of what decisions people make now and in the next year or two.

I can be confident that there will be some crisis around 2015, because social institutions take about five years to adjust. Someone will make some decisions, these decisions will have unforeseen consequences, and it will take about five years for those consequences to grow large enough to cause something dramatic to happen.

bsetser: let’s just say that the banks weren’t all that keen to dispell the regulators notion that securitization was dispersing risk.

If you have a set of institutions in which people have to act in massively non-self-interested ways to get things to work, then that system is very flawed.

On the other hand, with a few exceptions, most banks really had no idea what their risk exposures where.

4degreesnorth: I suggest turning the blame game onto JP Morgan: in the nineties – and I was in the industry – there was a model of risk assessment that was developed by that firm, and if I recall well, distributed freely by them post LTCM.

But that VaR model worked quite well at JPMorgan. If you actually use VaR correctly you end up with the fact that investments in super-senior CDS’s were bleeding insane, which is what JPMorgan itself concluded.

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