The US dollar is toast
For those who want to cut to the chase procedure STRAIGHT to comment SIX below.
The shock of the panic attack is beginnning to wear off and cold hard TRUTH coming to the fore. This is a compilation of comments on a thread taken off today's International Herald Tribunes about whatsa coming ... even the situation of Canada is fairly discussed.
Dollar hits bottom, and then
falls again
What do you think the short-term future holds for the dollar? (12 comments)
I’ve just exchanged some U.S. Dollars for Pounds Sterling at a rate of two dollars to the pound. That is, one United States Dollar is now worth 50 pence.
I know in the past that it used to be worth even less than that. I think the peak may have been about 13 dollars to the pound some time in 1864, but for much of my adult life it’s been somewhere in the 1.5 to 1.75 range.
Most normal people don’t really care about the exchange rates. Unfortunately, however, I’m running a software business from the United Kingdom, and a large proportion of my customers are in the United States. That makes my business extremely sensitive to the exchange rate; the difference in takings caused by exchange rate fluctuations can be literally thousands of pounds. I really can see the difference it’s making to my bottom line… my company has to sell up to 14% more in order to make the same money it was making this time last year!
If things keep going the way they are, we’ll very likely have to increase our U.S. Dollar prices.It is possible to buy options, I believe (in fact, I’m pretty sure that our bank will sell them to us if we ask, or we could hold funds in U.S. dollars and try to convert them only when the exchange rate is good).
The problem I have with this is really that my business is about selling software, not speculating on the currency market; a lot of the people who routinely buy and sell currency options, or try to hold funds in different currencies to reduce their exposure to fluctuations, have the time and expertise to trade effectively and I don’t think we do.
Also, doing things like this can cause real headaches with the accounts (which are complicated enough already :-)) For instance, you’d have to track all the different buy and sell rates and account for losses and gains due to currency fluctuations.
And there’s the fact that a lot of our competitors charge in U.S. dollars (because they’re in the U.S.). The exchange rate would make our products look progressively more expensive as it gets higher, which isn’t good for us.
Finally, people like to pay a predictable price for goods, and, if you have to refund their money, they’d like to receive the same amount back (not some different amount because of the exchange rates).
Basically, we’re exposed to the exchange rate whether or not we charge people in U.S. dollars. The only difference is that because we do charge some people in U.S. dollars, we at least have separate control over the price, which we wouldn’t have if we just charged in Sterling.
We’re all biting the bullet. As a Canadian graphic designer, I had to increase my rates two years ago for American customers (most of my business) by 30% just to keep earnings level. Now I need to raise them again.
It’s likely to get worse. The Fed is inflating and China is sitting on a trillion US dollars they can unload on the market at any time.As others have mentioned, it seems to me the best approach here would be to hedge your exposure in the currency markets.
China and Russia partnering up is not a good look for our USA. The dollar has been taken a beaten and it will continue so. In result we will have to re pay the debt we own to the world in slavery, It’s part of the plan. Our federal reserve note is not back by GOLD. GOLD is trading at all time high and the dollar is declining each day. this is very easy to understand what’s going on with our nation. yet, the media loves to talk about simspon case and all that other brain washing material corporate america love to advise and keep the public in the dark. Need to invest in INTERNATIONAL MARKETS AND IF REGARDING DOWN TO SOUTH AMERICA.
When real estate costs more than wages, the problem should be obvious. The new feudalism. A democracy collapes when the jobs go offshore, the money from those factories goes to offshore banks, no longer to taxes. The market rate or is it the GREED rate. There is no movement of capital when too few hands control it. So what do I hear, wage restraint? We have entered the world of corporate greed, our political leaders, privileged, the masses too poor to buy anything. Stupid me, I thought the world economy was about sharing the wealth, not hoarding it.
We all going to face a biggest storm in the coming months.
I have advised everyone since 2001 (at Eur = $ 0.87) that the Euro was going to $1.50 within a decade. The speed with which my target has (almost) been reached suggests there is much worse to come.
3 years into the decline I wrote this, kindly published by the IHT:
http://www.iht.com/articles/2004/12/14/edlet_ed3__34.php
Unfortunately the U.S. Government has done nothing to correct the nation’s endemic macroeconomic problems, so I believe the Dollar should sink to just below Eur=$2.00 by mid-2009 when a show of fiscal responsibility by the new President (assuming it’s Hillary Clinton) gain recognition and begin to reverse the free-fall.
(me .. oh yeah! Are you ever a dupe!!)As for the immediate future there will be long-covering (= trading) opportunities just below Eur = $ 1.45, but essentially the Euro’s medium and long term trends are strongly upwards, because:
1. The interest rate differentials with the U.S. have narrowed;
2. America’s daily borrowing costs ($2.5 billion) are gargantuan;
3. The Dollar’s 60 % decline has scarcely dented the massive U.S. trade deficit, meaning that large current account deficits will persist:
4. European economies are showing strong growth and trade surpluses, meaning they have adjusted to currency revaluation;
5. America’s (mis-)adventures in the Middle East, at around $ 500 billion/year, will continue to weigh down on U.S. tax-payers; and
6. U.S. consumers, who account for 70 % of U.S. growth, have the lowest savings rate (MINUS 1.5 %!) since the Great Depression and therefore guarantee a recession in the U.S. unless they purchase even more IPods and other luxuries, which is highly unlikely.
The U.S. is between the proverbial rock and a hard place, and its current President is probably the least capable person imaginable to turn things round. He has done more harm to America, economically and politically, than Bin Laden.
The news this morning seemed to make a big deal out of the interest cut. It doesn’t solve the true problems we have. One is that we have run up the price of homes the same way we ran up the price of stock in the thirties. Another is the runaway cost of all of the wars we are in.
The interest rate cut is like throwing a drowning economy a marshmallow for a life preserver. It’s still going to drown. Just not as fast.
Here is some information on a little history of the Federal Reserve.
A group of bankers and businessmen had been trying to monopolize the banking industry. In 1912 Woodrow Wilson was elected President with the aid of a bribe from them.
They formed the Federal Reserve and are like our personal credit cards are for us except they are the credit card for the government. Well that and they pay no taxes that I know of. Anyway they’re at about at their 100-year anniversary.
They have grown to proportions that I believe they now control many of the politicians of the world. Not only can they buy politicians of both parties here, and control our borders, they can also control much of our spending.
Have you ever wondered why our once great nation has been spending money the way it does. It is sort of like how it would be to have a hundred wives on your credit cards and all of them dating those that own the credit card companies.
They make money when they lend money.
“I am a most unhappy man. I have unwittingly ruined my country.
A great industrial nation is controlled by its system of credit.
Our system of credit is concentrated. The growth of the nation,
therefore, and all our activities are in the hands of a few men.
We have come to be one of the worst ruled, one of the most completely
controlled and dominated governments in the civilized world.
No longer a government by free opinion, no longer a government by
conviction and the vote of the majority, but a government by
the opinion and duress of a small group of dominant men.”
-Woodrow Wilson
I wonder if this is the incentive one needs to start publishing discussion of the Amero, which will serve the North America SPP (www.spp.gov), similar to how the Euro serves Europe.
A transition to this new currency which replaces the US and Canadian dollar, and the Peso will be possible when the brunt of the value of the world’s economy is shouldered by Europe (in the Euro), and the consumption to create liquidity shouldered by Asia. A trend that is currently under way.
The dollar is clearly destablilised as a result of poor fiscal policy by the Bush’s Neocon administration, overspending while cutting taxes, growing the rich poor gap (subprime crunch), and multiple wars.
Let’s just hope China plays along, and doesn’t start selling off their nearly $1 trillion of reserves before our trade imbalance with them declines. But then again, who’d buy dollars worth pennies, unless you could convert them to Amero’s?
As an economist i have to focus on the main cause about why dollar fell down against euro. Analyzing the rate equalizazion (a moneraty view on exchange rates relationship), we understand that whenever take place a change on the rates of dollar or euro, this affect directly the exchange rate between euro and dollar. For instance, Fed just a few days ago, take the dicision to decrease dollar’s rate for 0.50%. Therefore, euro/dollar exchange rate increasing, since euro become more profitable. As you see, the highest euro’s rate against dollar’s one, explain to us why euro/dollar exchange rate increasing. To end up, my future view on how euro-dollar relationship will be, affected by each currency rate level and the inflation difference between U.S and Eurozone.
why did it happen?
From Canadian experience regarding unsustainable balance of payment deficits and unsustainable government deficits, we came to the point of almost IMF imposed straight-jacket.
Whereas the IMF [and World Bank] are both creatures of the USA type capitalism, they can not help the USA. Whereas the total messof sub-prime and various derivatives involves dollars which are multiple of the USA GDP, the Federal Reserve does not have a tool to balance the books. So there are two choices: HANG TOUGH and let the recession come now, or FOOL AROUND WITH DSICOUNT RATE etc, and face RECESSION IN A FEW MONTHS. the second choice, of course, involves the printing presses, the fear of which event forces the $ lower in trade=weighted analysis. Were Mr. Bernanke follow the lead of the previous Governor, then the inflation of assets [the last 3 bubbles] will convert to a real inflation rate of 20+% fore the core, or higher with far greater harm done to the inflation rate of necessities, such as power [oil/coal/elecricity], food [look at wheat/corn/meat] and housing [taxes, rents, etc]
The best thing to do would be to pull in the belt and face the music. This is politically untenable under the present government [as was the case in Canada], unfortunately there will be no choice by 2009 January, when like it or not, taxes go up, services go down, wages stagnate, etc which reflects the Canadain experience for 10 years or more. Due to outsourcing and faulty design, the USA does not have the manufacturing base to serve the citizens - the USA depends most strongly on imported manufactured goods, from computers, to clothing, from appliences to car parts. Manufacturing war materials will have to cease [or greatly reduce] and most of the foreign bases will have to close, for if push comes to shove, the USA $ will loose its place as reserfe currency, and without that help there aint no money for government.
i have lost thousands of dollars in forex business from last 5 yrs , on advise of so called analyst , in fact agents of brokerage house , always advising wrongly ,
now i am doing my self , with my own experiece and daily 24 pip profit is nothing to me, but what i want to say , one day economy of uro , or us zone are exptremely good , and safe heaven , and same next day it melts down like wax.
the occurance is so quick that traders pocket r not empty so early mean the economy of trader s in not so fast effected , as of countries,
i wonder it is just movement of number, no body sell or buy
That’s essentially right. Today you buy as much sterling as you think you would receive in income over the next, say, three months at today’s exchange rate. At the end of the period you sell that sterling and the profit (or loss, if the dollar rises) you make on the hedging transaction offsets the difference in actual income from expected income. How well this works depends on how well you can estimate your income.
(The way a currency trading account works, however, means that technically you will be ‘going short’ on dollars, since you don’t actually have any dollars to buy sterling with. The technicality doesn’t matter, it’s just a minus sign in the maths.)
Speculation is when you buy or sell with the intent of making a profit, but with the risk that you make a loss. Hedging is simply offsetting one asset against another in the expectation that their values will rise or fall by opposite amounts in order to keep the overall total value as constant as possible. In this case the assets are the expected value of your sales over a period and the open trade in the market. (BTW, don’t confuse this with ‘hedge funds’ which are actually speculative investments.) This is a standard business procedure when you rely on revenue from a resource that fluctuates in value. It’s the same principle as energy companies buying oil futures in order to be able to fix the costs over a period.
You can hedge over any period you like, really, but there are two factors to consider:
1) The benefit of this relies on you ability to forecast your dollar sales, which is going to be harder the longer timeframe you choose. Ideally, you would be adjusting your trading position regularly to track the outstanding estimated revenue for the period, not just wait until the end of the period to close.
2) If the dollard falls you need to close the trade in the market in order to be able to release the trading profits to add to your company’s cashflow. If the dollar rises then you need to close the trade in order to pay off the trading loss (using the extra cash from sales over and above what was expected based on the starting exchange rate.)
I’d be very happy to discuss this further in email to thrash out the details. There are a number of small points to consider when setting this up, but once you have it going it shouldn’t take any more effort than, say, doing your vat return.