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The Fed On The Dollar And Purchasing Power
In what could almost pass for a jocular pamphlet reminiscing on the death of the US dollar by the Cleveland Fed which ends with the biting insight "Let’s hope the exchange market does not see something that the rest of us are missing" the Fed does all it can to make the case that there is no reason to worry about the massive loss of the dollar's purchasing power. After all, in a perfect economic world, everything works out. Then again, in a perfect economic world, the number one thing that the Fed does, asset bubbles, tend not to exist for more than 1 nanosecond. "Define irony."
Full text below (highlights ours):
Purchasing Power Parity and the Dollar
In
terms of purchasing power parity, the dollar seems a tad undervalued
these days, but that does not mean it will soon appreciate. Exchange
rates can deviate from their purchasing-power-party levels for long
periods. What’s more, the necessary adjustment can come through prices,
not exchange rates.
People value money for what it buys, and, given the opportunity,
they will use the national currency that offers them the greatest
purchasing power. If, for example, goods are cheaper in Mexico than in
the United States, Americans will trade U.S. dollars for Mexican pesos
and buy Mexican goods. Such cross-border arbitrage should affect both
exchange rates and prices so as to promote parity among the purchasing
powers of the world’s currencies. This idea—purchasing power parity—is
fundamental to many economic models of exchange-rate behavior and to
some descriptions of the dollar’s equilibrium value. Observers who
complain that the dollar is overvalued or undervalued often do so with
reference to the dollar’s purchasing-power-parity value.
One way to get a quick fix on the dollar’s purchasing-power-parity
value is to look at a real exchange rate. Real exchange rates
mathematically combine nominal exchange rates—the kind you can find in
a newspaper—and price indexes—like consumer price indexes. A rising
dollar real exchange rate indicates that American goods, when expressed
in a common currency, are becoming more expensive than foreign goods,
or that the United States is losing its competitive edge.
Using a real exchange rate to judge whether the dollar is overvalued
or undervalued, however, requires some reference point at which
purchasing power parity holds. Such a point should also be consistent
with a global balance-of-payments configuration that is sustainable.
Good luck finding that! If, however, we assume that purchasing power
parity holds in the long term—a belief that many economists hold—and if
we assume that our sample is lengthy enough to reasonably represent the
long term, then we might define purchasing power parity in terms of the
mean or median of our exchange-rate data. By this method, the dollar
now seems undervalued by roughly 11 percent against a trade-weighted
average of developed and developing countries’ currencies, and by
approximately 7 percent against a trade-weighted average of major
countries’ currencies.
As our data demonstrate, real exchange rates can show large and
persistent deviations from levels consistent with purchasing power
parity. Because of the way economists construct real exchange rates, if
the prices of some goods change relative to others, the real exchange
rate will deviate from its purchasing-power-parity value even if
arbitrage is complete for each and every individual good. Global
economic shocks can induce relative-price changes, as can productivity
differentials between traded- and nontraded-goods sectors in specific
countries. Consequently, real exchange rates can deviate from their
purchasing-power-parity levels as long as relative-price trends persist.
While the dollar currently seems undervalued relative to its
purchasing-power-parity level, dollar exchange rates need not
quickly—or ever—appreciate. Instead, the dollar could return to
purchasing power parity if prices in the United States rise faster than
prices abroad. Inflation expectations in the United States are well
behaved and do not suggest fears of rising future inflation. Let’s hope
the exchange market does not see something that the rest of us are
missing.
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This is probably whats on Liesmans shitter.
And let us hope no one notices the press running at mach 12.
Currency Fail.
Epic fail imminent.
also lets hope nobody noticed it said 'purchase power party' in the first line... perhaps it's a simple typo but it could just as easily have been a freudian slip.
That was brilliant, mate :)
Ahh! The feel of a nice cold 1oz Gold coin in my hand.
And I Have Peace.
The USD/Toilet Paper cross is currently mean reverting.
No more money for GMAC - let it fail.
indeed
Fuck you. I work for GMAC.
Is your resume in order?
Try making an honest living.
Where is that K Street whore and her mack daddy?
http://tpmdc.talkingpointsmemo.com/2009/10/grayson-apologizes-to-lobbyist-he-called-a-whore.php
Yes. I really need to see her before I decide if he should apologize or not.
I can draw pretty pictures as well. Or write comforting words that don't constipate me or the reader. What can't be covered up or explained away is the fact that the rich are getting richer and the middle class is rapidly becoming the poor.
CD - I can explain why the middle class are getting poorer: Combo Meals. I swear, I must live in a box since I don't eat fast food much. I went for my first Combo Meal from Burger King (yes, I was in the stix) and it was EIGHT DOLLARS!! I feel like I just got slingshot through a time warp when I was expecting like 5 to 6 Dollars, with a nice size drink. I needz to get out a little more (or less if this keeps up).
SV,
I had a similar experience at a local Popeye's, which I had not visited in over 3 years. I walked inside and look at the menu board and I was stunned. $7.50 for 2 pieces of chicken, a biscuit and 2 sides. No drink.
I felt like I had just come out of a coma. I turned around and left and walked into the grocery store down the street for some fruit.
WoW!
You live up to your name.
What was your question again?
Dude,
Grow up and stop playing with yourself.
Not if the middle class defaults on all debt and buys Gold. Then the rich paper masters become poor and the middle class becomes rich with their Golden Hoard. And as a bonus they get to finally live under the law of The Constition of The USA that states that Gold and Silver is money.
Man, this money stuff is so simple!
I think Im catching on!
"Man, this money stuff is so simple!"
Mogambo, is that you?
Oh, please tell me where exactly the US Constitution specifically enshrines only gold/silver as money. Text of Article 1, Section 8:
"The Congress shall have Power...To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures."
I don't see gold or silver mentioned anywhere. All it says is that Congress has the power to coin money & regulate its value.
No, it aint Mogambo. But its nice to see you know about him and the rest of us, that despise the fake paper money system the FED has pushed on us.
If you read the next line of the constitution it says:
"To provide for the Punishment of counterfeiting the Securities and current Coin of the United States"
What was the current coin of the united states in 1913 before Prez Wilson illeagaly alowed the FED to print fake paper money that was backed by gold and silver but then was defaulted on by prez Roosavelt?
So now we have fake paper money backed by nothing and printed by private for profit bankers!
Dont ever stick up for the FED or the Squid, you Ponzi Debt Slave!
This is yet another example of what one would expect from the clueless Cleveland FED, part of the FED system. Academic BS and off the mark as it takes no account for the psychological valuation of any currency. If there's a run on the dollar someday, they will probably overlook the fear factor to hold dollars. FED rubbish just like the notes they print.
The Squid and FED must die!!!
Still stuck on the concepts of rough parity and equivalence. Everyone sees this in some shape, form or fashion hence the feds gaping qualification. If this is the best the fed can produce at this time & place then the boat is leaking faster than the pumps can keep up.
Its almost like we live in an immaginary economy with fake paper imaginary money. And people are waking up andjust dont want to live under the greedy bankers fake system anymore.
This currency arbitrage argument would be true if it was still 1547, but seeing as how we have legal tender laws whereby you must accept dollars for all debts in the US, it is not.
You don't have to eliminate the Fed. You can just eliminate legal tender laws. And then the currency with the most stability will be used as the commonly accepted medium of exchange. The dollar may end up being that currency if eliminates the purchasing power uncertainty.
"You can just eliminate legal tender laws."
simple & brilliant idea
"Owen Humpage", now that's a moniker.
F*** me MM17, that was a funny f***in reply you tapped out here.
"MARK IT ZERO, DUDE"
I too was wondering when he was going to pay it back.
Edit: Don't cha get it? Who is he Owing the Humpage to? Hu hu hu hu hu [in my best Butthead voice].
"they will use the national currency that offers them the greatest purchasing power" Now I know why DDRX and GMCR have been parabolic.They've been loading up on coffee from the Republic of Congo.Thanks Cleveland Fed!Now where can I purchase some of those mud boots made in Armenia so I can wade thru all of this BS you're spouting.
The FED spouting BS, what are you talking about?
The FED is a glorious instition that is in charge of all my lifes hard earned wealth that they force me to keep in their fake paper coupons.
The FED is our Friend, and I wont stand to hear anything spoken badly against them!
not that difficult to do when you're able to manipulate prices of certain key commodities to the end-user, in order to convince the end-user/consumer/voter to believe that the "money" they hold in their pocket is worth more than it is.
(cough corn, cough gasoline)
sorry mr. humpage, even some of us asses raised in ohio are smarter than that.
try again.
What a load of mumbo jumbo! Who did they write this BS for?
So this was written by the intern while she was simultaneously engaged in "is" type activities?
How about comparing the dollar to how much gold, silver, and oil it will buy you? What kind of purchasing power parity does that indicate? [This is a rhetorical question.]
JHC. What a mouthful of shit-breathed emptyness. So that's parity, eh? Thanks, I've always wondered about that. Christ. From the fucking FED.
We the people are the rightful masters of both Congress and the courts, not to overthrow the Constitution but to overthrow the men who pervert the Constitution.
Abraham Lincoln
This country, with its institutions, belongs to the people who inhabit it. Whenever they shall grow weary of the existing government, they can exercise their constitutional right of amending it, or exercise their revolutionary right to overthrow it.
Abraham Lincoln
The assertion that "all men are created equal" was of no practical use in effecting our separation from Great Britain and it was placed in the Declaration not for that, but for future use.
Abraham Lincoln
Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration.
Abraham Lincoln
Don't interfere with anything in the Constitution. That must be maintained, for it is the only safeguard of our liberties.
Abraham Lincoln
Hold on with a bulldog grip, and chew and choke as much as possible.
Abraham Lincoln
A woman is the only thing I am afraid of that I know will not hurt me.
Abraham Lincoln
Allow the president to invade a neighboring nation, whenever he shall deem it necessary to repel an invasion, and you allow him to do so whenever he may choose to say he deems it necessary for such a purpose - and you allow him to make war at pleasure.
Abraham Lincoln
Any people anywhere, being inclined and having the power, have the right to rise up, and shake off the existing government, and form a new one that suits them better. This is a most valuable - a most sacred right - a right, which we hope and believe, is to liberate the world.
Abraham Lincoln
The philosophy of the school room in one generation will be the philosophy of government in the next.
Abraham Lincoln
Things may come to those who wait, but only the things left by those who hustle.
Abraham Lincoln
My great concern is not whether you have failed, but whether you are content with your failure.
Abraham Lincoln
FYI - Look at the their dollar estimates and the yield curve fluctuations of the 10 or 30 year over the same time frame... notice anything?
*sigh* misinformation and lies are everywhere, but nobody takes the time for the truth. *SIGH*
What a total load of BULLSHIT.
Toss this around and you just got a prediction of 7-11% consumer price inflation waiting to be unleashed.
On behalf of the Federal Reserve, let me reassure you the dollar in your pocket will still be worth a dollar tomorrow..
heh, sorry couldn't resist saying that.
end the fed protest in Novmeber. Cleveland Fed monkey house included. not that it mateers, but f these thieves. the last action of any tyranny is to raid the public purse and that purse now is empty.
Why protest? What a waste of a beautiful day in November. Just stop paying all debts and withdraw all paper ponzi money from the banks and buy Physical Gold! The FED cant survive without your participation in their stupid system. SO STOP PARTICIPATING!
Seriously, its that easy folks.
If your on here complaining about the FED and you have not withdrawn all your fake paper money from your bank and stopped paying on all your fake paper debts and then went and bought physical Gold then you have no right to complain!
YOU CAN OVER THROW THE FED TODAY!
Just close your evil paper money bank accounts and buy Gold! Sure it takes guts and may be a bit painful at first, but afterwards you wont have to waste your time complaining about the FED because it will already have collapsed.
You people are the ones giving the FED the power.
TAKE THE POWER BACK TODAY!
My indicator for the USD is still giving bullish warnings.
DOW/SP500 daily chart showing bearish divergence.
http://www.zerohedge.com/forum/market-outlook-0
The last line is the best;
"Let’s hope the exchange market does not see something that the rest of us are missing."
I can only speculate that the "academic long hair economist types" at the FED are kept in the dark, or they just want to keep their job. To talk about the exchange market and not reference interventions or the status on international swaps, is essentially a piece for public pacification. But, really do we expect anything less.
I would ask TD if he really expects to be given the true facts from the FED in the public domain. Of course not, and I think you would agree that the FED employs the appropriate people needed to keep up appearances, or make plausible some argument to a congressional committee. The FED experts are spoon fed to spew out the needed spin. They may actually believe what they say.