Dollar Pounded as Recovery Doubts Surface

[Spazito]

NEW YORK (Reuters) - The dollar slumped on Tuesday amid skepticism over the pace of the U.S. economic recovery and additional statements from European officials saying the euro's rise against the greenback is not currently a problem.

In early U.S. trading, the euro was up 0.63 percent against the dollar at $1.1779, rising to a three-month high earlier in the session. The single currency's gains supported it against the yen, buying about 129.70 yen .


Against the Swiss franc , the dollar fell below 1.32 francs, to shed 0.42 percent on the day. The pound rose 0.16 percent to stand above $1.67.


"The overall macroeconomic picture is coming into play," said Tim Mazanec, director of foreign exchange at Investors bank and Trust Company in Boston. "Worries about the U.S. current account deficit are coming back and foreign capital is just not in place to finance the gap," he said.

more

http://story.news.yahoo.com/news?tmpl=story&cid=568&e=4&u=/nm/markets_forex_dc

[alexwcovington]

1. Neat

All the rich guys with Swiss bank accounts must be cheering violently over all this!

[mumon]

17. Not just rich guys...

A good portion of my IRA's been in foreign bonds for well over a year now.

It's been doing quite nicely.

Which of course underscores your point: if schmucks like me can get 25% a year doing this, the rich guys are REALLY cleaning up!

[Tandalayo_Scheisskopf]

2. Foriegn Capital.

At the end of Clinton's term, foriegn investment in the US was running at an anual rate of approx. $US 300 Billion. Last year, that number had slipped to $US 44 Billion.

The word I got is that considering that pro forma accounting is a 3-Card Monte scam and that the SEC and DoJ responses to the corporate scandals has been so tepid, and add to that the job losses and general arrogance of the maladmnistration, foriegn investors just cannot be arsed.

[LoneStarLiberal]

5. Bottom Line: We're Not As Profitable

The fundamental bottom line on the flight of foreign capital is that investors can make more money with fewer problems in other capital markets. Why put up with the drama and loss of investing in a Worldcom, Enron, or Tyco when you can put your money into Chinese or Russian equities and get a better return without the scandal (most of the time)?

The bottom line is we're not a profitable place for foreign capital any longer.

[bif]

9. That's huge!

A drop from $300 billion to just $44 billion. This is not a good sign.

[Girlfriday]

3. Gerry Bowyer, our local RW talk radio host....

...wrote a book called "The Bush Boom" "How a 'Misunderestimated' President Fixed Our Broken Economy". I kid you not!

http://www.amazon.com/exec/obidos/ASIN/1594670870/qid%3D1065540335/sr%3D11-1/ref%3Dsr%5F11%5F1/002-2004245-9612016

It was interesting this morning because he was sooo upset about Snow trying to devalue the dollar. If he is any barometer of how the repukes are feeling, they're on the run. He pulled out all the stops this morning - talking up the repukes, it's almost sad how they are self destructing.

[ixion]

6. oh yeah... he 'fixed' it alright...

like a monkey wrench thrown into the machine. :argh:

I just looked at the job boards today. Very dismal prospects out there. I guess that's just more of our 'fixed' economy. :eyes:

[LoneStarLiberal]

7. The Fiscal Patriarchy

The Republicans have for so long held themselves out as the "daddy" party, the patriarchal guardians of fiscal sense.

That they have done such a disservice to our entire nation with their destructive fiscal policies and their painfully obvious mismanagement of tax cuts that their failure cannot be disguised. For all those pundits and bandwagoning chuckelheads who tethered themselves to Bush when it was unpatriotic to do anything else, they are tied to him for better or worse.

The acrimony is going to get really nasty before all this is over because there's nothing quite as desperate and vicious as a cornered rat on a sinking ship.

[northernsoul]

10. what's his next book going to be?

"The Joy of Self-Amputation Without Anesthetic"

"The Sun Really Does Revolve Around Our Flat, Flat Earth"

"I Hate Sunshine and Fuzzy Bunnies and So Should You!"

"How 2 Tak reely Smart: Gerry Bowyer's guyde 2 bean artikulet"

;-)

[Jacobin]

21. That would be "tawk"

:-)

[priller]

22. For the wealthiest, it has been a boom

As far as they're concerned, the Bush plan is "Mission Accomplished". Bush has emptied the treasury and started borrowing like crazy just to provide those few at the top with their enormous tax cuts. I mean, you can't look at any *overall* economic data to indicate a boom, but at the top, they're making out like the bandits they are.

[LoneStarLiberal]

4. Why Would The Dollar Be Stable? No Reason.

There is so much instability in the dollar right now that it's not too surprising to see it slumping.

Between our tiff with the Chinese and Japanese over their pegged currencies, to concerns about our deficits, and whether or not our "economic recovery" is on its last coke-addict rampant credit-fueled legs, why in Heaven's name would the dollar be strong?

Ironically it is with national security and fiscal policy that the Republicans usually make their appeals to being the party of responsibility and patriarchal reason. It is the Bush administration's COMPLETE MELTDOWN on these two issues that has left the barn door open for our donkey to bolt and kick up some change!

We should be clear about one thing: George Bush did not cause the economic conditions that have led to our bouncing into and out of recession. His administration's policies and mismanagement have made it a hell of a lot worse, however.

[Bandit]

11. We should be clear about one thing: George Bush did not cause the economic

I strongly disagree. He most certainly did cause the economic mess all of the states and the Federal government are now dealing with. One can not come into office and literally empty out the treasury and give it to the extremely wealthy and not be held accountable. The economy may have been suffering a down tick but was still quite strong when Bush* entered office.

[LoneStarLiberal]

12. Recession Would Have Happened, Bush Made It Worse

I understand your disagreement. I should have been more clear in my statement.

The macroeconomic conditions for recession were already beginning when Bush took office. There's nothing his administration could not have to stop that.

But they have greatly increased the depths of our fiscal suffering with their mismanagement of tax cuts and their Jeckyl-and-Hyde approach to the dollar's valuation.

If there had been a sensible approach to the recession, one that involved smaller tax cuts targeted at lower class and middle class consumers who would employ the extra money in ways directly meaningful to our economic condition, then we would at least have an opportunity to have sustainable growth in our economy with a real hope of breaking the back of stagflation. Instead we have this vapid credit-driven recovery that SIMPLY CANNOT BE SUSTAINED and we're looking at an extended period of stagflation.

To summarize: The recession would have happened no matter if it was Al Gore or George Bush in the White House. Bush's policies and mismanagement made it far worse than it should have been and will be, though.

[sendero]

14. Exactly...

.... I agree 100%. The dot.com failures were portents of the coming downturn in the overall economy, that happened pre-Bush*.

But giving tax cuts to the rich is not stimulative when the problem is on the demand side, not the supply side.

[ProfessorGAC]

15. Any Data To Back Up That Premise?

A review of the data from 1970 to 2000 indicates no such precipitous condition set that made a recession inevitable.

Despite the rhetoric of classical economists, there was no recession at the end of Clinton's term. The growth rate was NOT negative, after adjusted for inflation, which hit the highest point in 7 years, and was still only 0.4% per quarter. The result, adjusted to the standard 1994 dollars, indicate the real GDP to still be growing at a rate equal to any point in the last 5 years of Reagan.

In addition, the leverage of debt on the growth was essentially zero. The lack of additional debt used to sustain gov't spending and transfer payments is an economic positive.

If one reviews the econometric data in simple terms and in as FEW dimensions as possible, than one could come to your conclusion. But, that's one of the criticisms (published, btw) that i have of classical economics. It's not based upon sound mathematical analysis. The analyses are designed to confirm the pre-existing theories on which these people's careers are based.

Not the most intellectually honest thing, imo.

It is definitely not displayed within the econometric data that any downturn or increase in unemployment were predictable. Li'l Georgie and his thugs did that all by their own little selves.

If you have data or an analysis that contradicts my thesis, i'd be happy to review it.
The Professor

[Art_from_Ark]

20. The Japanese currency (yen) is NOT pegged

and hasn't been so since Nixon unpegged it back in the early '70s. And during the past 15 years or so the yen has seen more wild gyrations vis-a-vis the dollar than any other major currency. Snow's complaint with the yen is that it is "undervalued" (that is, the market is not correct) and has to be artificially inflated to make US exports to Japan cheaper.

The question is, just what does the US have to export to Japan (besides military hardware and technology)?

[LoneStarLiberal]

24. My Apologies! Yuan, Not Yen, Is Pegged

I blew that one in a bad way!

The yuan is pegged, the yen isn't.

[Art_from_Ark]

26. Confusing, isn't it?

Yuan, yen-- and the Chinese pronunciation of "yuan" is even closer to "yen" than the spelling implies.

At any rate, this intentional devaluation of the dollar versus the Japanese yen is similar to what Nixon tried in the '70s and Reagan tried in the '80s and Bu$h 1 tried in the '90s. I am not sure how well this strategy worked for Nixon, although the energy crisis during his term made the point moot as the Japanese started selling masses of fuel-efficient cars while Detroit was still complaining about mileage standards.

As for Reagan and Bu$h 1, I don't think it had much effect at all, because by that time there was little (in the way of consumer goods) that the US was producing that the Japanese wanted. It didn't do much to alleviate the trade imbalance, which is one reason why Reagan pressured Japan to move some of its manufacturing base to the United States.

[UpInArms]

8. Fed Gov Ben Bernanke speech excerpt

November 2002

http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm

What has this got to do with monetary policy? Like gold, U.S. dollars have value only to the extent that they are strictly limited in supply. But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation.

Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior).8 Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys. Alternatively, the Fed could find other ways of injecting money into the system--for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities. Each method of adding money to the economy has advantages and drawbacks, both technical and economic. One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies. Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.

[LoneStarLiberal]

13. Real Fed Up

Leave it to our current Fed, the same guys who have nullified their most effective instrument of fiscal intervention (cutting the Federal funds lending rate), to next step up and defend the expansion of the broad money supply as a responsible reply to the spectre of deflation.

[UpInArms]

19. do you think that the printing press has already been busy?

[madrchsod]

16. if you had a billion dollars

to invest would you invest in the usa or invest in china or the european markets?

[Capn Sunshine]

23. I'll tell you what my high net worth clients are doing

They are taking their hundreds of millions of dollars
pulling out of the market ( selling into ups)

and buying quality income real estate. All of them. Not at my urging.

This times a million other guys explains the conspicuous lack of volume at the NYSE lately.

Those guys on the sidelines have left the stadium.

[BeatleBoot]

18. Must be Clinton's fault

Dang liberuls

[joeybee12]

25. I'm in Vienna right now--getting killed on the exchange rrate!

One more reason to impeach Dumbo!