Deflation is winning

[peterb]

The world is now officially becoming unwound. Emerging markets are getting hammered and will continue on this path as the OECD countries are not buying the exports anymore. They were highly leveraged on the expectation of this export growth. The US$ is the dominant currency on this planet. The Euro is under huge pressure from internal disagreement among its members. This trend will coninue for some time. Perhaps years. As global unemployment is rising and will destroy demand for all but essential items.

Deflation is just getting started. See what happens in 2009 as US employment hits 8% and the OECD’s in general go through the roof!!!!

[Fearful]

[quote=qwerty007]
Presumably it’s the Asian reserves that are the lion’s share, that would ultimately be the cause of a dollar collapse. But we are led to believe that the symbiosis between the US and Chinese economies make this unlikely? A crashing dollar sounds like a severe loss of value, but I guess that means basically it becomes unstable against a basket of currencies and can undulate, and whichever way it goes it’s bad right?
[/quote]

The Chinese-American symbiosis only needs to shift a little to have great impact. Over the last year there has been an increasing amount of grumbling from the Chinese. Earlier, when rogue speakers would complain about the situation, Party officials would quickly deny. We do not see that anymore, and the critical voices are becoming louder. The gist of the dissenting voices seems to be that the current situation is not in China’s long term interests; it has served them well so far, but now the Chinese economy needs to develop in ways that are not so dependent on U.S. consumption. Even a small bias toward banking their current account surplus in currencies other than the dollar would hurt the dollar greatly.

The Gulf states, and Japan, are also significant holders of dollar reserves. Their actions play a role. None of them wants to break the dollar hegemony, yet if that breaking starts, all will want to break first. So the situation seems unstable.

However, the interest in preserving the status quo will help. But this interest, and risk aversion, which is included in “speculation” because it implies forecasts of future risk, do not make a very strong foundation for a currency. One would prefer to see a healthy current account surplus, and a government with low debt and low deficit spending, when looking for a reserve currency. The status quo will prevail but will erode, in what we hope is not too volatile a fashion. Volatility will hurt our domestic economy – risk is bad – and shifting import prices may create deflationary expectations via risk fear.

It is difficult to see many factors, besides risk aversion and inertia, that support the dollar.

[Fearful]

[quote=qwerty007]
Presumably it’s the Asian reserves that are the lion’s share, that would ultimately be the cause of a dollar collapse. But we are led to believe that the symbiosis between the US and Chinese economies make this unlikely? A crashing dollar sounds like a severe loss of value, but I guess that means basically it becomes unstable against a basket of currencies and can undulate, and whichever way it goes it’s bad right?
[/quote]

The Chinese-American symbiosis only needs to shift a little to have great impact. Over the last year there has been an increasing amount of grumbling from the Chinese. Earlier, when rogue speakers would complain about the situation, Party officials would quickly deny. We do not see that anymore, and the critical voices are becoming louder. The gist of the dissenting voices seems to be that the current situation is not in China’s long term interests; it has served them well so far, but now the Chinese economy needs to develop in ways that are not so dependent on U.S. consumption. Even a small bias toward banking their current account surplus in currencies other than the dollar would hurt the dollar greatly.

The Gulf states, and Japan, are also significant holders of dollar reserves. Their actions play a role. None of them wants to break the dollar hegemony, yet if that breaking starts, all will want to break first. So the situation seems unstable.

However, the interest in preserving the status quo will help. But this interest, and risk aversion, which is included in “speculation” because it implies forecasts of future risk, do not make a very strong foundation for a currency. One would prefer to see a healthy current account surplus, and a government with low debt and low deficit spending, when looking for a reserve currency. The status quo will prevail but will erode, in what we hope is not too volatile a fashion. Volatility will hurt our domestic economy – risk is bad – and shifting import prices may create deflationary expectations via risk fear.

It is difficult to see many factors, besides risk aversion and inertia, that support the dollar.

[Fearful]

[quote=qwerty007]
Presumably it’s the Asian reserves that are the lion’s share, that would ultimately be the cause of a dollar collapse. But we are led to believe that the symbiosis between the US and Chinese economies make this unlikely? A crashing dollar sounds like a severe loss of value, but I guess that means basically it becomes unstable against a basket of currencies and can undulate, and whichever way it goes it’s bad right?
[/quote]

The Chinese-American symbiosis only needs to shift a little to have great impact. Over the last year there has been an increasing amount of grumbling from the Chinese. Earlier, when rogue speakers would complain about the situation, Party officials would quickly deny. We do not see that anymore, and the critical voices are becoming louder. The gist of the dissenting voices seems to be that the current situation is not in China’s long term interests; it has served them well so far, but now the Chinese economy needs to develop in ways that are not so dependent on U.S. consumption. Even a small bias toward banking their current account surplus in currencies other than the dollar would hurt the dollar greatly.

The Gulf states, and Japan, are also significant holders of dollar reserves. Their actions play a role. None of them wants to break the dollar hegemony, yet if that breaking starts, all will want to break first. So the situation seems unstable.

However, the interest in preserving the status quo will help. But this interest, and risk aversion, which is included in “speculation” because it implies forecasts of future risk, do not make a very strong foundation for a currency. One would prefer to see a healthy current account surplus, and a government with low debt and low deficit spending, when looking for a reserve currency. The status quo will prevail but will erode, in what we hope is not too volatile a fashion. Volatility will hurt our domestic economy – risk is bad – and shifting import prices may create deflationary expectations via risk fear.

It is difficult to see many factors, besides risk aversion and inertia, that support the dollar.

[Fearful]

[quote=qwerty007]
Presumably it’s the Asian reserves that are the lion’s share, that would ultimately be the cause of a dollar collapse. But we are led to believe that the symbiosis between the US and Chinese economies make this unlikely? A crashing dollar sounds like a severe loss of value, but I guess that means basically it becomes unstable against a basket of currencies and can undulate, and whichever way it goes it’s bad right?
[/quote]

The Chinese-American symbiosis only needs to shift a little to have great impact. Over the last year there has been an increasing amount of grumbling from the Chinese. Earlier, when rogue speakers would complain about the situation, Party officials would quickly deny. We do not see that anymore, and the critical voices are becoming louder. The gist of the dissenting voices seems to be that the current situation is not in China’s long term interests; it has served them well so far, but now the Chinese economy needs to develop in ways that are not so dependent on U.S. consumption. Even a small bias toward banking their current account surplus in currencies other than the dollar would hurt the dollar greatly.

The Gulf states, and Japan, are also significant holders of dollar reserves. Their actions play a role. None of them wants to break the dollar hegemony, yet if that breaking starts, all will want to break first. So the situation seems unstable.

However, the interest in preserving the status quo will help. But this interest, and risk aversion, which is included in “speculation” because it implies forecasts of future risk, do not make a very strong foundation for a currency. One would prefer to see a healthy current account surplus, and a government with low debt and low deficit spending, when looking for a reserve currency. The status quo will prevail but will erode, in what we hope is not too volatile a fashion. Volatility will hurt our domestic economy – risk is bad – and shifting import prices may create deflationary expectations via risk fear.

It is difficult to see many factors, besides risk aversion and inertia, that support the dollar.

[Fearful]

[quote=qwerty007]
Presumably it’s the Asian reserves that are the lion’s share, that would ultimately be the cause of a dollar collapse. But we are led to believe that the symbiosis between the US and Chinese economies make this unlikely? A crashing dollar sounds like a severe loss of value, but I guess that means basically it becomes unstable against a basket of currencies and can undulate, and whichever way it goes it’s bad right?
[/quote]

The Chinese-American symbiosis only needs to shift a little to have great impact. Over the last year there has been an increasing amount of grumbling from the Chinese. Earlier, when rogue speakers would complain about the situation, Party officials would quickly deny. We do not see that anymore, and the critical voices are becoming louder. The gist of the dissenting voices seems to be that the current situation is not in China’s long term interests; it has served them well so far, but now the Chinese economy needs to develop in ways that are not so dependent on U.S. consumption. Even a small bias toward banking their current account surplus in currencies other than the dollar would hurt the dollar greatly.

The Gulf states, and Japan, are also significant holders of dollar reserves. Their actions play a role. None of them wants to break the dollar hegemony, yet if that breaking starts, all will want to break first. So the situation seems unstable.

However, the interest in preserving the status quo will help. But this interest, and risk aversion, which is included in “speculation” because it implies forecasts of future risk, do not make a very strong foundation for a currency. One would prefer to see a healthy current account surplus, and a government with low debt and low deficit spending, when looking for a reserve currency. The status quo will prevail but will erode, in what we hope is not too volatile a fashion. Volatility will hurt our domestic economy – risk is bad – and shifting import prices may create deflationary expectations via risk fear.

It is difficult to see many factors, besides risk aversion and inertia, that support the dollar.

[kewp]

[quote=Fearful]
Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.[/quote]

But there’s the catch, why would they want to dump a currency that is gaining purchasing power against everything else?

[kewp]

[quote=Fearful]
Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.[/quote]

But there’s the catch, why would they want to dump a currency that is gaining purchasing power against everything else?

[kewp]

[quote=Fearful]
Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.[/quote]

But there’s the catch, why would they want to dump a currency that is gaining purchasing power against everything else?

[kewp]

[quote=Fearful]
Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.[/quote]

But there’s the catch, why would they want to dump a currency that is gaining purchasing power against everything else?

[kewp]

[quote=Fearful]
Problem is, if the Chinese, or any other net accumulators of dollar reserves, develop any bias away from the dollar, there would be a rapid devaluation. Fed and Treasury might not be able to intervene fast enough to stop the dollar from crashing.[/quote]

But there’s the catch, why would they want to dump a currency that is gaining purchasing power against everything else?

[34f3f3f]

[quote=kewp]The way I am seeing it, we are screwed, but everyone else is screwed worse.

Yup. Or so I hope.

America has everything it needs to be self-sufficient. We have natural resources, an abundance of food and the best *human* resources on the planet.

We can afford to sit this thing out. Gonna suck for those whom have never known hard times.[/quote]

Now let me see if I have got this right. Self sufficient, but dependent on China buying its debt. Highly subsidized farming, now geared more to producing biofuels. Gas guzzling cars that nobody wants to buy, and dependence on foreign oil. Best human resources on the planet …? I presume you are referring to the ones that got us into this pickle in the first place. Be careful what you wish for.

[34f3f3f]

[quote=kewp]The way I am seeing it, we are screwed, but everyone else is screwed worse.

Yup. Or so I hope.

America has everything it needs to be self-sufficient. We have natural resources, an abundance of food and the best *human* resources on the planet.

We can afford to sit this thing out. Gonna suck for those whom have never known hard times.[/quote]

Now let me see if I have got this right. Self sufficient, but dependent on China buying its debt. Highly subsidized farming, now geared more to producing biofuels. Gas guzzling cars that nobody wants to buy, and dependence on foreign oil. Best human resources on the planet …? I presume you are referring to the ones that got us into this pickle in the first place. Be careful what you wish for.

[34f3f3f]

[quote=kewp]The way I am seeing it, we are screwed, but everyone else is screwed worse.

Yup. Or so I hope.

America has everything it needs to be self-sufficient. We have natural resources, an abundance of food and the best *human* resources on the planet.

We can afford to sit this thing out. Gonna suck for those whom have never known hard times.[/quote]

Now let me see if I have got this right. Self sufficient, but dependent on China buying its debt. Highly subsidized farming, now geared more to producing biofuels. Gas guzzling cars that nobody wants to buy, and dependence on foreign oil. Best human resources on the planet …? I presume you are referring to the ones that got us into this pickle in the first place. Be careful what you wish for.

[34f3f3f]

[quote=kewp]The way I am seeing it, we are screwed, but everyone else is screwed worse.

Yup. Or so I hope.

America has everything it needs to be self-sufficient. We have natural resources, an abundance of food and the best *human* resources on the planet.

We can afford to sit this thing out. Gonna suck for those whom have never known hard times.[/quote]

Now let me see if I have got this right. Self sufficient, but dependent on China buying its debt. Highly subsidized farming, now geared more to producing biofuels. Gas guzzling cars that nobody wants to buy, and dependence on foreign oil. Best human resources on the planet …? I presume you are referring to the ones that got us into this pickle in the first place. Be careful what you wish for.

[Author]

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