1. Which Interest Rates - 2. Reserve currency

[jem]

I see two statements over and over which no one seems to explain.

Since the end of Bretton Woods and the depth of the foreign exchange market why should we give a shit about the U.S. being the worlds reserver currency. Our currency is not longer backed by gold. The exchange rates float. The trick is to match supply with demand. If the world wants to print Euros and demand goes down so what. There are simply less transaction in dollars. We save the cost of the paper we provide to aid the underground drug economy. The float is mostly electronic anyway. Please explain why I should care if oils denominated in euros. Please give me a real answer with real effects. And then tell me if the effect is substantial and why.

2. Every one says the fed is stupid because we have so much inflation. last time I checked the 30 year and 10 year bond markets were not predicting hugh inflation. Why? Isn't really the long bond which fights inflation not short term lending rates.

 

[crgarcia]

Quote from jem:

I see two statements over and over which no one seems to explain.

Since the end of Bretton Woods and the depth of the foreign exchange market why should we give a shit about the U.S. being the worlds reserver currency. Our currency is not longer backed by gold. The exchange rates float. The trick is to match supply with demand. If the world wants to print Euros and demand goes down so what. There are simply less transaction in dollars. We save the cost of the paper we provide to aid the underground drug economy. The float is mostly electronic anyway. Please explain why I should care if oils denominated in euros. Please give me a real answer with real effects. And then tell me if the effect is substantial and why.

2. Every one says the fed is stupid because we have so much inflation. last time I checked the 30 year and 10 year bond markets were not predicting hugh inflation. Why? Isn't really the long bond which fights inflation not short term lending rates.

1. A high priced Euro is not sustainable in the long run. Investments in Euros will only get MUCH more profitable than those in USD if the Euro were to keep climbing (and I don't think it will).
A high EURUSD rate (be it steady or climbing) harms europe, since their exports are much more expensive.
So, a weak dollar is healthy for the US.

3. Inflation is NOT out of control, as your bond analysis points out. A little inflation will make home prices come into equilibrium faster.
Again a bit of controlled inflation is healthy for the US economy.

 

[poyayan]

Lets see... do I believe in what the price of wheat, gold, silver, copper, iron core, oil and etc tell me.

...or believe in long bond rates.

Now, look at why other countries have problem with inflation and for some reason, US said inflation is contained.

The stories don't match together. So, who is right? Somehow I don't trust the long bond story.

 

[jem]

ok I don't trust the note and the bond either. But does that mean our analysis is not deep enough.

Does the fed really have anything to say about it?

 

[gnome]

Quote from jem:

ok I don't trust the note and the bond either. But does that mean our analysis is not deep enough.

Bond rates are low, but there are a few possible reasons... not sure which if any is correct.

1. Bond buyers are anticipating recession or worse, expecting rates to fall further.

2. Overseas buyers have so much of our money, they can't find a better place quickly. (We are sending nearly $1.5 Billion per day overseas to buy oil, you know.)

3. Fed is printing money and covertly buying T-Bonds on the sly... thereby "monetizing the debt" to keep downward pressure on rates.

I have NO evidence of any of the above. If it's #3, we're already in deep doo-doo. However I can see where the Fed and Gummint would have an incentive* to be monetizing the debt, so it makes sense to me as a possibility.

* and of course you all know that I'm a believer in the "Great Conspiracy of Gummint and Bankers and Financial Services Industry to Screw Everybody Out of Everything As Best They Can Get Away With", concept.