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The Dollar And The Deficits
Great read from C. Fred Bergstein, Director of the Peter G. Peterson Institute for International Economics, on the role of the dollar in the current environment: the paper reviews both positive and negative implications for the dollar as the world's reserve currency, what that has meant, the impact adverse actions have had upon the United States and how to progress forward. Hat tip John.
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"If these sources of wealth recover significantly -- as equity prices have since March 2009 -- the trend of higher saving could easily reverse; thus it would be risky to count on higher private saving alone to curb the appetite for foreign financing. In addition, because the very factors that produce a rise in household saving simultaneously tend to depress corporate profits and thus corporate saving, a sustained rise in household saving may not automatically equal a substantial increase in total private saving.
Unfortunately, there are no proven policies to reliably promote private saving. Previous U.S. administrations have tried but failed by raising and lowering tax rates on saving itself and other components of income. Adjusting interest rates does note seem to encourage private saving, either"
- How about a market crash? That should teach the sheeple to stop investing overseas and in speculation.
Wonder how attractive cash will be then.
Brilliant insight by a keen mind, not a two bit hack looking for a pulpit.
I don't think that most people invest just to speculate though. There sure is a segment of the population that does and they do so with intent to outpace the returns that savings or treasuries offer but as people get older they tend to realize that their capital must be their income stream in retirement and shift to more conservative investments. Rarely do you find seniors leveraging up and trading on margin accounts...
That said, cash is good, but cash by itself doesn't generate much revenue unless goods prices tumble. Cash in a bank generates a little bit more but certainly not now and unless one has a really large amount of cash it's tough to argue that it could generate a stream of income sufficient to sustain oneself without compromising principle balance.
But I do think you're right that cash is attractive, it seems like equities are turning into a such a 90's play and that more and more market players are looking to different FX flavors since it's seemingly more transparent (if someone is patient). Also FX trades are more fractal in nature and are open to allowing a 'bad position' plenty of time to get out without significant loss. Iceberg slowness with which they do move can mean that 90/10 1:1 and 10:1 plays can pretty much cover your balance in any situation and the interest paid on the currency you move into for the carry trade also helps cover losses.
oh, and that's a good paper to read.
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Saving can't begin until debt is realized and dispatched. The sheeple are not investing overseas the crooks on wall street and the pols are. Debt-free is one of the best feelings in the world. The american people are chopping credits and walking away from scam house notes. The last market crash started the saving process for the people. The next crash is for the elite,the intellectuals and the crooks.
The U.S. cannot recover without moving away from providing the world's reserve currency, and whatever political party is in office when the "Age of Austerity" begins can kiss away a couple decades of electoral success.
Is the US trying to recover - i.e., rebuild its economy?
I thought it was trying to maintain its parasitic relation with net global producers. Why would there be an age of austerity?
Those charts are troubling to say the least.Recovery?I don't think so.
What reason is there to own the reserve currency if you cannot spend like a drunken sailor when everyone else has to tighten their belts...
I am not being sarcastic with my comment in the above comment. I really meant to ask that question.
If you can spend when everyuone else is starved for capital, expand your footprint in Africa, store large amounts of oil on tankers, or drive up the price of gold to beggar your neighbor as he tries to evade his dependence on your currency, why would you not do this?
Owning the world reserve currency is worthless if you cannot exploit it in times of desperation.
So in a world of greater fools, it seems any country who subscribes, or should I say supports, a reserve currency (as opposed to actually owning the reserve currency) is the greatest fool.
This is what happens when the bank robber, who has run out of hostages, pulls the ultimate scam and uses himself as a hostage. As long as the police accept the premise that the bank robber holding the gun and the hostage (aka bank robber) being held at gun point are two separate entities, the greater fool theory is alive and well.
Please, would someone please explain to me how this isn't insane? By what definition can this be considered reasonable? Who will be the first to publicly declare the emperor has no clothes? Or is this the ultimate example of Mutually Assured Destruction (MAD) a wonderfully ironic Orwellian newspeak from the 50's and 60's.
http://en.wikipedia.org/wiki/Mutually_Assured_Destruction
Sorry, can't do that.
It's nuts.
http://dailycapitalist.com/wp-content/uploads/2009/10/Obama-note.jpg
Does Bergsten live in the US?
A lot of words and not much said.
Acedemic babble at its best.
"the United States should launch new policies to avoid large external deficits, balance the budget, and adapt to a global currency system less centered on the dollar"
The United States? Hmmm. and who exactly does this reference?
Lets try and address corruption first, and then fix the systemic problems with Washington and the FED.
I think his comments give us insight into how the institutionally groomed Economists Mind works. It is a strage universe where fundementalist rhetoric eclipses actionable reality.
Please provide one step by step solution to any of the problems mentioned.
He wants to increase savings and at the same time move to a new outside currency, which surely kill the last remnant of USD denominated wealth.
"the United States should launch new policies to avoid large external deficits, balance the budget, and adapt to a global currency system less centered on the dollar"
What is the point of owning the world reserve currency if you have to act "responsibly" in times of crisis? If you had an unlimited line of credit in the middle of a crisis - leveraged at 3 cents on the dollar - would you not embark on a blatant asset grab?
This is a bit like asking, what's the point of behaving responsibly if your parents forgot to lock the liquor cabinet and your Dad left the keys to his Porsche. Your friends are all grounded, but you don't have to act responsibly. Of course, chances are you end up in jail or impaled on a tree.
First, let me be clear, I am not condoning this behavior - I am simply trying to overcome my revulsion and to understand its logic.
With that caveat in place however:
We talking here about the morality of GS.
What, pray tell, is the alternative? The blindered economic policy of the ECB? The mindless hoarding behavior of the PBOC? Both make a virtue of necessity, since they do not own the world reserve currency, and, therefore, cannot simply depreciate away their debt.
Assets are going for a song on world markets, your most likely rival to economic power is stalking Africa, and a gang of the most repulsive pretenders to power want you in debtors prison.
But you can print money at 3 cents on the dollar and use it to purchase the crap they can't sell anywhere else. Watching them scramble for the notes like starving street urchins from some shanty-town.
What do you do, Mr Blankfein???? What do you do?
If you get a chance, Ragnar, give this a read: http://angrybear.blogspot.com/2009/10/foreign-exchange-reserves-are-hot-...
According to the author, accumulating foreign reserves is the number one take away from this crisis. Brazil, China, Russia, Korea all survived this monster by leveraging their accumulated reserves.
Which means, they emerge from this crisis even more dependent on the dollar than before.
I'm not a big fan of the Smartmoney publication but this was interesting:
http://www.smartmoney.com/investing/stocks/when-big-returns-aren-t-that-...
Alas, $150Billion for a mug of beer...we are headed that way...
There is a long history of guys with safe seats in Washington think tanks looking at economic abstractions and concluding that policies that favor austerity are the only answer. There was a time when people would ask one another: "All the smart people in this country, but no one seems to know how to balance a budget?" It's never about austerity, it's about whose ox will get gored. In other words, its about politics. We are not going to see austerity in this country without civil unrest, people in the streets, riot police protecting "private property." Krugman's column for tomorrow begins with the opening lines from A Tale of Two Cities, a tale about the French Revolution. Such things have happened before. Generally, it ends in a really big war, not the kind of thing we have lately seen where high tech bombardment (by drones!) gives way to buying temporary peace, so long as the money lasts. Obama, it looks like he's heading straight for conflagration despite his efforts to govern with bipartisan approval. Did we not vote for him over the other guy because he seemed better equipped to deal with the maelstrom on the horizon?
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