The Euro, Now.

SouthAmerica...excellent commentary

The broad based arguments that you make to me are theoretically correct...

However these countries ie CAFTA...etc...have no meaningful comparative advantages...and ie although 25000 pesos a month is poor in the US..it is very respectable as a middle class income...the family can live a dignified life...However when agreements arrive that allow for big company intervention...countless numbers of middle class small businesses will be eliminated...the retired older class who had the money to retire..no longer have the money to retire...the list goes on and on....

Extremely low interest rates are very destructive....Extremely high interest rates are destructive....

If you look at the full spectrum...troubled countries have interest rates in the 12 to 25% range....all the way to supposed stable countries which are less than 5%...

In the US....If retirees use 5% as an interest indicator...it takes $1,000,000 in cash to get a pretax rate of $50,000 per year...now what % of the US population has this...

This is indeed not healthy...and nor are extremely high levels...but even with high levels..the middle class has a chance if they save money and gather the interest that is made available to them...

Savers in Turkey...Indonesia...Brazil...Argentena...Honduras...Dominican Republic fared better than citizens in the US when you combined the interest paid plus capital in the currency... and their problems are still around...

ie..The US has offered 1x1.02x1.01x1.01x1.02/1 vs 17x1.17x1.2x1.3x1.15/29....ie a recent example...

In the US...you just spend whatever money you have with no chance of making it...along with the lowest paying economies...

Obviously...there are always going to be efficiency issues ...but when efficiency knocks out a generation or two of hard working..intelligent middle class people,,this is not the right solution...these people matter too...this is 20 to 50 years of time...

The incentive to save is paramount to any healthy economy...In the US people save what they save because of tax reasons...

Each healthy economy needs big cowboy populations that think they can win....when big brother and big business comes to town...this is just not possible...

I really do like your commentary...and as you can tell...I am very interested in this line of thinking...

Finished trading for the day...enjoy batting around ideas...
 
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June 20, 2005


SouthAmerica: Since October 2000 the US dollar had been declining against the Euro, and reached $ 1.38 to 1 euro a few months ago.

The market has paused for a while before it will continue its downward trend.


Value of US dollar versus the euro.

November 2001 - US $ .82 = Euro 1

December 2004 - US $ 1.38 = Euro 1


The decline is not over as yet, but so far this type of default are associated with collapsing economies such as the Soviet Union, or the total collapse of the Argentinean economy.

That is not supposed to happen to a currency that became a reserve currency around the world. Very soon the US dollar will be trading in the range of $ 1.50 to $ 1.60 for each 1 Euro.

The question is: at which rate “Panic” among Central Bankers trying to dump their US dollar positions will cause a major international monetary crisis?

Is it US dollar “PANIC” selling around the corner?

PANIC selling can be justified based on what is really happening to the US economy at every level today. But no major central banker wants to be responsible for starting this major international monetary crisis.

If you are a Central Banker how you will be able to justify to the people of your country losing so much value in the country’s foreign exchange reserves and investments, a patrimony that many countries built with so much hard work, and over a long period of time?

If you are a Central Banker do you let the value of your US dollar reserves and investment evaporate? Or do you dump it before the heard can figure out that it is time to cash out? Are you going to let the heard cash out before you do it?

Only “Incompetent” and “Stupid” people wait to cash out after the stampede starts. When there is “Panic” selling in the market, you can lose a great deal of money. (The foreign currency reserves of Japan and China are so large that they can’t sell their positions. As other central bankers dump their US dollar positions – Japan and China will be adding even further to their already large positions. To dump their US dollar positions is not a choice available to Japan and China at this time.)

This pause in the market gives Central Bankers an opportunity to dump their US dollar reserves. China and Japan can’t do that, but countries around the world can take this opportunity to cash out of their US dollar reserves, before the US dollar continues its decline.

The Constitutional no vote in France and in Holland it is giving only a temporary break to the US dollar, the US dollar recovered a little against the euro to $ 1.22 to 1 euro. At the end of the day the fundamentals of the euro still much solid and it is in better shape than the US dollar.

The US economy will continue its massive US government deficit spending, and also its large deficits on its balance of trade against the rest of the world.

As of the end of May 2005, China’s foreign currency reserves has reached $ 700 billion dollars, and in the near future China will continue supporting the massive deficit spending by the US government.

If you are a smart Central banker, other than Japan and China, you should be taking this golden opportunity to get ride off immediately of your US dollar reserve positions. (Japan, and China can’t sell their positions because that would have a major negative effect in the value of the US dollar in international markets – these two countries are stuck with their US dollar reserves and will be holding the bag for the United States.)

Anyway, in my opinion US dollar “PANIC” selling in the foreign exchange market is around the corner, and it is just a matter of time for the Panic selling to start.

I have been writing about the decline of the US dollar for the last 3 years and I understand why Warren Buffett has an outstanding bet worth $ 25 billion dollars against the price of the US dollar. I have 100 percent faith on Warren Buffett’s economic and financial judgment, and he will be right regarding his bet in the long run.

If the stampede becomes a “Panic Selling,” then we will have a major international monetary crisis in the world, because of this steep US dollar decline in world markets.

The current period will separate the men from the boys, and also will figure out which central bankers are the smart ones. The clever ones must be getting ride off their US dollar positions as quiet as they can be, before the rest of the heard realizes what is going on.

The ones who don’t dump their US dollars as soon as possible, they will look foolish in the future, and they will have to do a lot of explaining to the people of their countries.

In the future we will refer to this period as the “US dollar PANIC of 2006.”

Ricardo C. Amaral

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I have been writing about the decline of the US dollar for the last 3 years and I understand why Warren Buffett has an outstanding bet worth $ 25 billion dollars against the price of the US dollar. I have 100 percent faith on Warren Buffett’s economic and financial judgment, and he will be right regarding his bet in the long run.
More...

famous last words.
 
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APismoClam: famous last words.


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SouthAmerica: The US dollar should be trading in the range of at least $ 1.50 to Euro 1. And the price of gold also should be at least 20 percent higher in terms of the US dollars.

The Chinese central banker in China it is playing a major role regarding the price of the US dollar in world markets today. Without Chinese support for the US dollar the US currency would be declining today in the international currency market, and the decline would have reached a level of $ 1.50 to $ 1.60 against the euro.

The Japanese central banker also has been helping to keep the US dollar from
further decline in world markets.

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Quote from southamerica:

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APismoClam: famous last words.


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SouthAmerica: The US dollar should be trading in the range of at least $ 1.50 to Euro 1. And the price of gold also should be at least 20 percent higher in terms of the US dollars.

The Chinese central banker in China it is playing a major role regarding the price of the US dollar in world markets today. Without Chinese support for the US dollar the US currency would be declining today in the international currency market, and the decline would have reached a level of $ 1.50 to $ 1.60 against the euro.

The Japanese central banker also has been helping to keep the US dollar from
further decline in world markets.

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More...

right. because everyone just have to have the euro. not.
 
Quote from southamerica:

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APismoClam: famous last words.


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SouthAmerica: The US dollar should be trading in the range of at least $ 1.50 to Euro 1. And the price of gold also should be at least 20 percent higher in terms of the US dollars.

The Chinese central banker in China it is playing a major role regarding the price of the US dollar in world markets today. Without Chinese support for the US dollar the US currency would be declining today in the international currency market, and the decline would have reached a level of $ 1.50 to $ 1.60 against the euro.

The Japanese central banker also has been helping to keep the US dollar from
further decline in world markets.

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More...


Central banks can print money to FX in interventions. Did you ever think about that? And where do those bought USD go? Right into treasuries.

Everyone is acting like $1.50 EUR/USD is the end of the world. WHY? So oil, Louis Vuttion bags, and BMW's will be more expensive. Buy a new more fuel efficient ford or toyota in a few years and wear the handbag of some up and coming new york designer. Big whoop.

EUR/USD 2.0 and I might begin to get concerned. The we will have to utilize some fiscal discipline and raise rates significantly to regain world confidence. That should set asia off nicely and put them back in their place.

GLD/USD 20% higher? Maybe, but until there is some sort of currency or asset crisis, there just isn't that much interest in it except for specs and hoarders. I'm OK with it at $400. Would prefer it back down to $250. But where it is is fine.

I'm not sure "who's playing who" but there is an assumption that out of the US and China, one of us is getting burned. Are you so sure its going to be us? Before your knee-jerk reaction of "Yes, dummy", really think about it. I have not yet made up my mind.
 
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Drsteph: Everyone is acting like $1.50 EUR/USD is the end of the world. WHY?

I'm not sure "who's playing who" but there is an assumption that out of the US and China, one of us is getting burned. Are you so sure its going to be us? Before your knee-jerk reaction of "Yes, dummy", really think about it. I have not yet made up my mind.


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SouthAmerica: Why?

Because if the rate had reached $ 1.50 or higher to Euro 1, the US Federal Reserve bank would have been forced to increase interest rates here in the US more than the current market players desire. The resulting rate increase would have had a very negative impact in the real estate market in the US.

**

Depends on what is the major government goal in China and in Japan.

If the goal of the Chinese and Japanese were return on their investment and capital appreciation then the US is screwing them in a big way.

But I believe that keeping the people employed in China and Japan is a higher priority to these governments than making money on their investments. That is why they still supporting the US dollar today.

Today, China and Japan are keeping as many people as they can employed, and the US keep buying everything in sight on credit - and the US will continue running its tab into an Everest mountain of debt.

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SouthAmerica: Keep in mind when you are reading the article below by The Economist that – there is a monetary loss incurred by China, and Japan in the last 3 1/2 years because they are holding to a large amount of US dollar denominated assets.

What happens to the stock of a corporation, which is publicly traded, and the people holding the stock want to sell the stock and there are no buyers?

The price of the stock goes down to the level until the seller is able to find a new sucker to buy it.

The price of the US dollar in relation to other currencies, and gold; is the price of the US economic stock in the international market.

The Central Banks of China and Hong Kong has amassed over $ 950 billion dollars in US foreign exchange assets so far.

The Central bank of Japan alone has amassed over $ 750 billion of this US dollar type of depreciating asset.

The US dollar is an international commodity, and central banks from around the world are swamped with US dollars.

The US dollar is an asset, which is becoming obsolete very quickly. There is an over supply of US dollars around the world. All you need is a central banker who starts dumping his US dollars to convert the proceeds into a more sound investment, and the panic starts.

The rest of the heard also would try to sell their collapsing US dollar positions, and the entire world would have a major international monetary crisis.

It will not be a pretty picture!!!!

And who knows by how much the value of the US dollar will decline against other currencies and also against the price of gold?

When that happens the entire US economy goes into an implosion mode, and all kinds of American assets lose in value in terms of assets outside of the US.

I want to remind the readers that over 70 percent of all US dollars ever created are floating around the world; and the US Treasurer, and Federal Reserve will be able to do next to nothing when the "House of Cards" comes down crashing the entire system.

In a nutshell: a little central banker "Panic" - the stampede starts and the party will be over.

By: Ricardo C. Amaral


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Here is what “The Economist” magazine had to say on December 2004:


“The disappearing dollar”
Dec 2nd 2004
From The Economist print edition
How long can it remain the world's most important reserve currency?


THE dollar has been the leading international currency for as long as most people can remember. But its dominant role can no longer be taken for granted. If America keeps on spending and borrowing at its present pace, the dollar will eventually lose its mighty status in international finance. And that would hurt: the privilege of being able to print the world's reserve currency, a privilege which is now at risk, allows America to borrow cheaply, and thus to spend much more than it earns, on far better terms than are available to others. Imagine you could write cheques that were accepted as payment but never cashed. That is what it amounts to. If you had been granted that ability, you might take care to hang on to it. America is taking no such care, and may come to regret it.


The cost of neglect

The dollar is not what it used to be. Over the past three years it has fallen by 35% against the euro and by 24% against the yen. But its latest slide is merely a symptom of a worse malaise: the global financial system is under great strain. America has habits that are inappropriate, to say the least, for the guardian of the world's main reserve currency: rampant government borrowing, furious consumer spending and a current-account deficit big enough to have bankrupted any other country some time ago. This makes a dollar devaluation inevitable, not least because it becomes a seemingly attractive option for the leaders of a heavily indebted America. Policymakers now seem to be talking the dollar down. Yet this is a dangerous game. Why would anybody want to invest in a currency that will almost certainly depreciate?

A second disturbing feature of the global financial system is that it has become a giant money press as America's easy-money policy has spilled beyond its borders. Total global liquidity is growing faster in real terms than ever before. Emerging economies that try to fix their currencies against the dollar, notably in Asia, have been forced to amplify the Fed's super-loose monetary policy: when central banks buy dollars to hold down their currencies, they print local money to do so. This gush of global liquidity has not pushed up inflation. Instead it has flowed into share prices and houses around the world, inflating a series of asset-price bubbles.

America's current-account deficit is at the heart of these global concerns. The OECD's latest Economic Outlook predicts that the deficit will rise to $825 billion by 2006 (6.4% of America's GDP) assuming unchanged exchange rates. Optimists argue that foreigners will keep financing the deficit because American assets offer high returns and a haven from risk. In fact, private investors have already turned away from dollar assets: the returns on investments in America have recently been lower than in Europe or Japan (see article). And can a currency that has been sliding against the world's next two biggest currencies for 30 years be regarded as “safe”?

In a free market, without the massive support of Asian central banks, the dollar would be far weaker. In any case, such support has its limits, and the dollar now seems likely to fall further. How harmful will the economic consequences be? Will it really undermine the dollar's reserve-currency status?

Periods of dollar decline have often been unhappy for the world economy. The breakdown of Bretton Woods that led to a weaker dollar in the early 1970s was painful for all, contributing to rising inflation and recession. In the late 1980s, the falling dollar had few ill-effects on America's economy, but it played a big role in inflating a bubble in Japan by forcing Japanese authorities to slash interest rates.

This time round, it is a bad sign that everybody is trying to point the finger of blame at somebody else. America says its external deficit is mainly due to sluggish growth in Europe and Japan, and to the fact that China is pegging its exchange rate too low. Europe, alarmed at the “brutal” rise in the euro, says that America's high public borrowing and low household saving are the real culprits.

There is something to both these claims. China and other Asian economies should indeed let their currencies rise, relieving pressure on the euro. It is also true that Asia is partly to blame for America's consumer binge: its central banks' large purchases of Treasury bonds have depressed bond yields, encouraging households in the United States to take out bigger mortgages and spend the cash. And Europe needs to accept, as it is unwilling to, that a weaker dollar will be a good thing if it helps to shrink America's deficit and curb the risk of a future crisis. At the same time, Europe is also right: most of the blame for America's deficit lies at home. America needs to cut its budget deficit. It is not a question of either do this or do that: a cheaper dollar and higher American saving are both needed if a crunch is to be avoided.


Simple but harsh

Many American policymakers talk as though it is better to rely entirely on a falling dollar to solve, somehow, all their problems. Conceivably, it could happen—but such a one-sided remedy would most likely be far more painful than they imagine. America's challenge is not just to reduce its current-account deficit to a level which foreigners are happy to finance by buying more dollar assets, but also to persuade existing foreign creditors to hang on to their vast stock of dollar assets, estimated at almost $11 trillion. A fall in the dollar sufficient to close the current-account deficit might destroy its safe-haven status. If the dollar falls by another 30%, as some predict, it would amount to the biggest default in history: not a conventional default on debt service, but default by stealth, wiping trillions off the value of foreigners' dollar assets.

The dollar's loss of reserve-currency status would lead America's creditors to start cashing those cheques—and what an awful lot of cheques there are to cash. As that process gathered pace, the dollar could tumble further and further. American bond yields (long-term interest rates) would soar, quite likely causing a deep recession. Americans who favour a weak dollar should be careful what they wish for. Cutting the budget deficit looks cheap at the price.

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SouthAmerica: Today the Euro is trading at US$ 1.21 to Euro 1.

This period of calm in the currency markets gives the perfect opportunity to unload your US dollar positions, before the US dollar continue its declining trend.

The smart money must be selling its US dollar positions into the current market. I have no doubt that in the long-term the US dollar will be selling at US$ 1.50 to Euro 1 or lower.

It will be very interesting what will transpire in the coming months regarding the US dollar value in world markets. China has all the cards, and China will call all the shots - The US is no longer the master of its own faith regarding the US dollar.

Here is what Reuters reported today.

NEW YORK, June 22 (Reuters) - The dollar strengthened on Wednesday, led by stellar gains against major European currencies amid market speculation European interest rates are headed lower.


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May 9, 2006

SouthAmerica: On May 5, 2006 The New York Times had an article that called my attention: “Asian Finance Ministers Seek Common Currency.”

The article called my attention because that was the first time I saw anyone mention anywhere about a new Asian currency similar to the euro.

I have been predicting a “new Asian currency” similar to the euro since July of 1999 when my article “How can currency stability be achieved for the Brazilian economy?” was published by “The Brasilians” newspaper.

You can read about the "New Asian Currency" - similar to the Euro at the following website.

http://www.elitetrader.com/vb/showthread.php?s=&threadid=68758


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