Thursday, September 20, 2007
De-pegged
Money quotes from two short must read posts about this
economic development.
Calculated Risk: "The Greenspan conundrum was that long rates didn't rise as the Fed Funds rate was increased. Bernanke's conundrum may be that long rates don't fall (or maybe even increase) as he lowers the Fed Funds rate!"
Big Picture: "... something significant has changed recently"
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Update: Here are some selections from today's front page
WSJ story:
After 16 years during which the U.S. mainly borrowed and bought while much of the rest of the world lent and sold, the global economy appears to be undergoing a fundamental shift. American exporters are finding eager overseas markets for their products. U.S. consumers are beginning to temper their free-spending ways as the housing boom turns to bust. China, the Middle East, central Europe and Africa are absorbing more of the world's imports. The result: Instead of depending as heavily on the U.S. for demand, the world economy could become more evenly balanced.
...
In the background is a U.S. dollar that has grown weaker against the euro...
...
All of this could well add up to a major readjustment of the U.S. trade deficit, which began in 1991 and has ballooned to a level that would have seemed unimaginable not long ago.
...
[A rapid trade rebalancing] could be painful. Since Americans have financed their prosperity with borrowed money, reversing that habit means a period of living less opulently.
If foreign money turns scarce and the trade deficit narrows suddenly, Americans could face a tumbling dollar, soaring interest rates and an economic downturn.
Earlier today the Canadian dollar was worth
slightly more than the U.S. dollar. Soon will Canadian children be asking "Why are things so much more expensive in the U.S.?"
Labels: Dismal Science, links, Markets
8 Comments:
Help! Should I put all my money in gold?
Yes. And then put all the gold in a mattress.
I've been reading this site iTulip.com "The Contrary Market View" with all kinds of financial market news. Not that I have two nickels to rub together but I like it when what look like reasonable people call our leaders crooks.
http://www.itulip.com/
In other 'Economic Reading is Fundamental' reports, Paul Krugman now has a blog at the NYT and Michael Lewis has a column at Bloomberg.com. Both are EX-cellent.
Good idea, Jeffrey. That way I can save room in my freezer for ice cream.
Although inflation is terrible right now, real wages are rising at a respectable rate -- so the average Joe isn't suffering from it (unless they visit Europe).
Give me a break, owen.
According to the BLS the average hourly wage grew 1.2% between June 2006 and June 2007. Despite this "growth" over the past year that is assuaging so much pain for the "Average Joe", economist Dean Baker notes that average wages are STILL below their December 2002 level. That's nearly 5 years of zero growth. At the end of Clinton's term, real wages were growing 1.6% percent annually.
oyster - does having US currency trading at a low rate effect the U.S. ability to finance our national debt?
I would think if you buy US bonds that pay in US dollars and those dollars are deflating in the time the bond matures that would be something to avoid if you were an investor like, say, China.
It's complicated, so many things are connected and I don't know all the ins and outs, but China has been slowly "De-pegging" its yuan from the dollar, and is already quietly selling billions in US treasurys (I believe).
