Mechanics of a major dollar collapse
- Thread starter Susannah
- Start date
Correct me if I am wrong, but here is my analysis.
WEAK DOLLAR:
High Commodity/Good prices, good for commodity/good producers and holders in the US.
Strong Market, foreign investors get our stocks at a discount and invest.
Cheap bonds, they can invest in our bonds and receive our interest at a discount, which funds our dept.
This all increases the moneyflow to the US, which we need right now. So it seems like a good thing to me, I think its done on purpose.
WEAK DOLLAR:
High Commodity/Good prices, good for commodity/good producers and holders in the US.
Strong Market, foreign investors get our stocks at a discount and invest.
Cheap bonds, they can invest in our bonds and receive our interest at a discount, which funds our dept.
This all increases the moneyflow to the US, which we need right now. So it seems like a good thing to me, I think its done on purpose.
#########################################
Good comments from you and Grinqinho
although China's position is a bit more complicated imho.
For the time being they own tons of Treasury Bonds and they do depend quite a bit on the consumption in the US.
That's probably why they appeared to be ready to help before the full disaster became public - provided that's all.
I have my doubts.
First, no one foreign or in US want to see US consumer shrink drastically.
Long term, foreigners will whine US off debt by shrinking their treasury buying as they see fit.
If they see their domestic consumption is growing too fast, they will cut treasury buying to cool export. If not, the reverse.
Long term, you will see :
Deep recession in US, light recession in Asia.
slower growth in US, stronger growth in Asia.
As US GDP shrink as a total % of global GDP, the less correlation you will see.
This will continue until US trading deficit disappears.
Not totally decouple, not totally couple.
Net treasury buying :http://www.ustreas.gov/tic/snetus.txt
China and Japan are still buying. That means they are not ready to expand their domestic spending yet.
Long term, foreigners will whine US off debt by shrinking their treasury buying as they see fit.
If they see their domestic consumption is growing too fast, they will cut treasury buying to cool export. If not, the reverse.
Long term, you will see :
Deep recession in US, light recession in Asia.
slower growth in US, stronger growth in Asia.
As US GDP shrink as a total % of global GDP, the less correlation you will see.
This will continue until US trading deficit disappears.
Not totally decouple, not totally couple.
Net treasury buying :http://www.ustreas.gov/tic/snetus.txt
China and Japan are still buying. That means they are not ready to expand their domestic spending yet.
I didn't mean to start an argument, I'm just trying to hedge myself against a dollar decline, whether it be gradual or a crash.
I'm thinking commodities are the best hedge, but I can't decide if their bubble is done bursting, so I was trying to figure out what else is a good hedge. Forex seems obvious, but other countries can always print more, too.
I wasn't clear on the bonds, and I think I'm still not. Also, I can't figure out a good way to short bonds long-term, since ETFs require paying out the dividends while you're short.
Anyone have an opinion on going long the Yen as part of a hedge against inflation?
I'm thinking commodities are the best hedge, but I can't decide if their bubble is done bursting, so I was trying to figure out what else is a good hedge. Forex seems obvious, but other countries can always print more, too.
I wasn't clear on the bonds, and I think I'm still not. Also, I can't figure out a good way to short bonds long-term, since ETFs require paying out the dividends while you're short.
Anyone have an opinion on going long the Yen as part of a hedge against inflation?
poyayan,
I agree 100%.
Susannah,
commodities are the best hedge against the USD and US economy woes. You could also look at strong fiscal owners of commodity resources, or very strong manufacturers of goods - but I think being conservative is getting as close to the commodities as possible. You also have to bear (!) in mind the growth potential and possible macrotrends/conjunctures of instability - e.g manufacturers with a strong internal market as a second leg are better.
Also, since the Japanese economy like the US economy are very consumption based - go for EUR, AUD or similar.
I agree 100%.
Susannah,
commodities are the best hedge against the USD and US economy woes. You could also look at strong fiscal owners of commodity resources, or very strong manufacturers of goods - but I think being conservative is getting as close to the commodities as possible. You also have to bear (!) in mind the growth potential and possible macrotrends/conjunctures of instability - e.g manufacturers with a strong internal market as a second leg are better.
Also, since the Japanese economy like the US economy are very consumption based - go for EUR, AUD or similar.
James Turk wrote a useful book on this subject.
Koliotkoff's Coming Generational Storm also was useful with good advice for mom/pop types who may not have access to futures/fx markets.
Most of this information is freely available on the net.
Realize that you always have a net long USD position due to your citizenship (if you live in the states) and future income. You may wish to hedge against that. Just realize that hedges don't really make money - they just equilibrate a particular risk (in theory - sometimes they don't work).
Diversify among not only asset classes but institutions. Consider credit risk as well as anything else.
DISCLAIMER: I am not a financial advisor, nor do I hold myself out to be one. You should consult your financial advisor, attorney, or tax advisor about the particulars of your situation. DYODD.
Koliotkoff's Coming Generational Storm also was useful with good advice for mom/pop types who may not have access to futures/fx markets.
Most of this information is freely available on the net.
Realize that you always have a net long USD position due to your citizenship (if you live in the states) and future income. You may wish to hedge against that. Just realize that hedges don't really make money - they just equilibrate a particular risk (in theory - sometimes they don't work).
Diversify among not only asset classes but institutions. Consider credit risk as well as anything else.
DISCLAIMER: I am not a financial advisor, nor do I hold myself out to be one. You should consult your financial advisor, attorney, or tax advisor about the particulars of your situation. DYODD.
Acumen,
Ad the J-curve to that list, which over time allows a debased currency to attract interest through exports. Also a weak USD continuing to hurt the German exporting sector, which could plunge Germany further in a recession.
Ad the J-curve to that list, which over time allows a debased currency to attract interest through exports. Also a weak USD continuing to hurt the German exporting sector, which could plunge Germany further in a recession.