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The Annotated History of US Dollar Debauchery
With everyone and their pet rabbit convinced the US Dollar strength continues, we thought some longer-term context on the 'strength' of the dollar was useful...
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Here is Goldman Sachs' Noah Weisberger take on Lessons From History:
While the real-trade-weighted USD is now at its strongest level since 2009, having already appreciated about 7% since July, the move is still quite modest when put in the historic context of real USD moves in the post-Bretton Woods era, and, in particular, the two periods of significant dollar appreciation from October 1978 to March 1985 and from July 1995 to February 2002. We look into the drivers of these past dollar-strengthening episodes, and what these lessons from history might mean for today.
The basics: Why does the dollar strengthen?
The causes and consequences of a stronger USD can be hard to disentangle. Different economic impulses can produce the same end “result” in terms of currency moves, but may have different implications more broadly. In particular, contractionary monetary policy, expansionary fiscal policy, or a reduction in country-specific risk can all plausibly leave the similar footprint of a stronger local currency (and declining net exports). Focusing on these root causes helps to point out critical similarities and differences between historical episodes and the current context.
1978-1985: US policy exceptionalism
From 1978 to 1985 the USD appreciated by 53% in real, trade-weighted terms, driven in large part by coincident shifts in US economic policy. In a departure from the prevailing policy stance, US monetary policy became far more contractionary, as the Volcker Fed sought to aggressively combat inflation and deeply ingrained inflationary expectations. Both long- and short-term interest rates climbed sharply throughout, and inflation and inflation expectations declined dramatically. At the same time, US fiscal policy became expansionary, with US deficits turning sharply more negative, and debt to GDP surging – even on a cyclically adjusted, “structural” basis. Each of these shifts alone would have pointed to a stronger currency; together, they amplified the impacts.
The 1978-1985 episode saw USD strength coinciding with a decline in net exports. From an accounting perspective, a declining current account is tied to a shortfall of US saving relative to US investment. In the 1980s, the widening current account was driven by declines in both savings and investment, with the savings shortfall even more dramatic. This is a very different “pattern” of current account widening relative to the 1990s.
1995-2002: US growth exceptionalism
The 1990s episode of dollar strength, with the real dollar appreciating by 34%, likely had more to do with a shift in some combination of improved perception of US risks as well as persistent and, perhaps exceptional and unexpected, demand strength. Indeed, economic growth was elevated, consumer spending was strong, savings rates declined and incomes grew. Critically, productivity growth was accelerating, keeping inflation dormant and helping to sustain the longest US expansion on record. The US fiscal balance improved, deficits got smaller, and interest rates fell.
Despite a very different backdrop relative to the 1980s, the net result was similar: a stronger USD, a decline in net exports and wider trade deficits. But unlike the 1980s episode, the widening current account deficit of the 1990s was driven by accelerating investment with savings unable to keep pace. Thus, the virtuous cycle of lower interest rates, lower debt payments, capital deepening, and productivity growth helped to make the 1990s dollar appreciation – at 120 months from trough to peak – the longest on record (so far).
But toward the end of this episode, USD strength may have had more to do with US risks looking far better than other alternatives, with external currency crises enhancing the relative “virtue” of the US. That the Asian crisis barely touched the US economy itself only helped to reinforce the dollar strengthening trend that had already been in train for some time.
Today: more exceptional in growth than in policy
While neither historical analogy is exactly right – and to be clear, our forecasts do not envisage a move as large or as long as the past episodes – there are elements of both episodes that currently seem to be in play. From a policy perspective, on the fiscal side of the ledger, our US forecast does not envisage much of an incremental positive impulse from government spending, with the budget deficit steadily improving. But, in 2014 some of the growth boost did come from a relaxation of fiscal tightening, which can be thought of as a positive fiscal policy impulse.
Similarly, on the monetary policy side, we do expect the Fed to start raising rates in 3Q2015. Although rate increases are expected to be modest, well telegraphed, and implemented against the backdrop of moderate inflation (at worst), the US monetary impulse seems magnified by the fact that the rest of the world, certainly in Europe and Japan, is leaning in the other direction. So here too, elements of contractionary monetary policy may be helping to support the USD, as in the 1980s.
But comparisons to the 1990s seem more apt in terms of the type and source of the relative exceptionalism. First, US growth is far more robust than elsewhere in the world, and yields, already higher, are expected to rise, both of which support and could be reflecting improving US risk sentiment, which would match the 1990 experience. Also, while not the same as a productivity shock, falling oil prices and the growing importance of the domestic oil production sector can deliver some similar economy-wide dynamics, which would also be more in line with the 1990 USD strengthening episode. Indeed, recent current account weakness seems to be spurred by a declining saving rate – as house prices and equity prices boost wealth – while investment spending is on the rise, again, in a pattern reminiscent of the 1990s.
This comparison has important implications for US policy in response to dollar appreciation. On the weaker economic backdrop of the 1980s, the competitiveness of US industry and agriculture suffered from a stronger currency. Protectionist sentiment escalated until the 1985 Plaza Accord between the US and its trading partners devalued the dollar. The 1990s, on the other hand, saw a relative absence of protectionism, as improving productivity and growing trade made dollar strength less of a target for policymakers.
On net, the greater similarities with the relative “growth exceptionalism” of the 1990s are perhaps comforting, with dollar strength more an outcome of positive developments – that are likely to continue – than the negative, defensive drivers that forced the “policy exceptionalism” of the 1980s.
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Perhaps this "growth exceptionalism" should look at today's PMIs and Philly Fed data and reconsider...
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history of the toilet paper ?
if they would print the FEDs faces on it I would use it more often
History of the Tribe Paper : Stealth wealth
We thought we could use as Toilet Paper. But even we was wrong and got Herpes in we Anal from Fed paper!
Fuck Golman Sachs
http://y2u.be/VI6tBwVjyOY
If you shoved enough up your bum, you might get lucky and get a coke bump from the residue on those FED wipes.
Just add hookers?
Don't forget the cocaine residue. Bullish!!!!
The discussion of currency debauchery by the Untied States' Government should not be limited to the dollar. The shenannigans predate the Occupying Force of the Untied States.
I find the history of Charmin more interesting: http://www.charmin.com/charmin-toilet-paper-history.aspx
At least it's real paper!
Yes, but this is the first time in history that a very select few have access to trillions of that "toilet paper" at 0.1% interest.
Fiat money in and of itself isn't the fucking problem.
Good article. Without a historical perspective it's impossible to debunk the daily degluge of dis-information.
Fuck Goldman Sachs.
Death to the squidmen...
The capital that was saved when interest rates were 12% or higher was the capital that funded the semiconductor/PC, and later internet revolutions. That capital is now being destroyed.
WS thanks you for your sacrifice...
Exactly. Volcker bought us a second chance. We wasted it. I would say, has been destroyed; otherwise, just yes.
Are The Tribe really going to get away with this ???..
Yes. In the future your cable/satellite subsciption will come with one channel that plays Yentyl 24/7 and a loaded gun with one bullet in the chamber.
How many Elliot waves does this make? What about the Bollinger Band and the RSI and the Fukashima Cloud?
good observation...
but the question I have is what kind of Fuckushima Cloud this market was doing today
I can only tell you that tomorrow.
<Psst... The didn't tell you it's about volume, did they?>
These two charts are much better:
Chart 1
Chart 2
Funny how the Dollar purchasing power only seems to be good during the Great Depression.
So in the last 7 years, we had the negative parts of the Great Depression but not the purchasing power benefits. My @ss hurts....
as much as we all think we know something, we know little at most and therefore nothing. we are just a bunch of spectators or very minor players in a game where the best we can hope for are some crumbs from the table and a view of the show.
Post of the Year.
We're not here hoping to catch some crumbs, we're here to learn how to dodge shrapnel and avoid being collateral damage.
Good post, however, I have found that if one tries to understand how things work at the top and then works one's way downward, much clarity is brought. Not so much if one works from the bottom up. From the bottom up, one usually does not get very far in understanding before becoming overwhelmed with details that may or may not have any bearing on the questions at hand.
"One must understand the forest to understand the trees."
The banksters need to repay us.
This is my favorite chart regarding the value of the Dollar:
http://silverunderground.com/wp-content/uploads/2012/01/3-value-of-the-dollar.jpg
Limbaugh says we are all idiots
I am loathe to say I'm starting to believe him....
Strong compared to what? Not gold or silver, not for more than 40 years.
Strong compared to other currencies? That's not saying much when every central bank is in a race to debase.
"The Annotated History of US Dollar Debauchery"
The dollar exchange rate has not recently strengthened, it was CHANGED in an act of war and to facilitate the fleecers that are now fleeing to Europe.
Ditto the stock market. It has not risen, it has been LIFTED upwards to facilitate the fleecers.
The banksters need to repay us.
The key point to always keep in mind when analyzing the machinations of the Zionists is:
They never take a short-term tactical loss for the sake of a long-term strategic win. They always facilitate a short-term win, and then convert that into a long-term win. So anyone that thinks that the push down of the oil price and the push up of the dollar don't also have a short-term win built in somewhere, they are deluding themselves. With oil, at a minimum, they can snap up cheap DC US and UK oil assets cheaply thru bankruptcy and/or fire sales, before pushing the price of oil backup in the future.
The most famous institution of the Zionist win-win Strategy:
"The scam that's playing itself out now began on June 18, 1815 with a courier working for Nathan Rothschild. The courier was reporting on events in the Battle of Waterloo, and he reported what he saw to Rothschild; which was that Napoleon was being beaten...
So, with everyone believing Wellington to be defeated, Rothschild immediately began to sell all of his stock on the English Stock Market. Everyone else followed his lead, and also began selling, causing stocks to plummet to practically nothing. At the last minute, his agents secretly began buying up the stocks at rock-bottom prices. On June 21, at 11 PM, Wellington's envoy, Major Henry Percy showed up at the War Office with his report that Napoleon had been crushed in a bitter eight hour battle, losing a third of his men. This gave the Rothschild family complete control of the British economy, and forced England to set up a new Bank of England, which Nathan Rothschild controlled."
Thanks for the link.
I don't normally listen to Mr. Willie, but maybe I should. He just nails it here. Put together a lot of pieces of the puzzle that I had over on the side of the table.
"They [mid-level banksters] know what the basis of the Whale's losses really are, and how large they are, and so they went flying..."
Classic, and right on.
The banksters need to repay us.
Since the IRS has declared ‘IRS head says budget cuts could delay tax refunds.’ One needs to ask, why should a peasant file this year. Food for thought.
Why file when you can keep your money?
Ah ! the "first oil shock = Arab embargo" myth, yet again ...
For information, the real story is :
- end 1970 : US production peak, the energy crisis starts from there, with some heating fuel shortages for instance (some articles can be found on NYT archive on that), or :
http://upload.wikimedia.org/wikipedia/commons/c/c5/US_Oil_Production_and_Imports_1920_to_2005.png
- Nixon name James Akins to go check what is going on.
- Akins goes around all US producers, saying this won't be communicated to the media, but needs to be known, national security question
- The results are bad : no additional capacity at all, production will only go down, the results are also presented to the OECD
- The reserves of Alaska, North Sea, Gulf of Mexico, are known at that time, but to be developed the barrel price needs to be higher
- In parallel this is also the period of "rebalance" between oil majors and countries on each barrel revenues (Ghadaffi being the first to push 55/50 for instance), and creation of national oil companies.
- there is also the dropping of B Woods in 71 and associated $ devaluation, also putting a "bullish" pressure on oil price.
- So to be able to start Alaska, GOM, North Sea, and have some "outside OPEC" market share, the barrel price needs to go up (always good for oil majors anyway) and this is also US diplomacy strategy
- For instance Akins, then US ambassador in Saudi Arabia, is the one talking about $4 or $5 a barrel in an OAPEC meeting in Algiers in 1972
- Yom Kippur starts during an OPEC meeting in Vienna, which was about barrel revenus percentages, and barrel price rise.
- The declaration of the embargo pushes the barrel up on the spots markets (that just have been set up)
- But the embargo remains quite limited (not from Iran, not from Iraq, only towards a few countries)
- It remains fictive from Saudi Arabia towards the US : tankers kept on going from KSA, through Bahrain to make it more discrete, towards the US Army in Vietnam in particular.
- Akins is very clear about that in below documentary interviews (which unfortunately only exists in French and German to my knowledge, and interviews are voiced over) :
http://www.youtube.com/watch?feature=player_embedded&v=fQJ-0jAr3LQ
For instance after 24:10, where he says that two senators were starting having rather "strong voices" about "doing something", he asked the permission to tell them what was going on, got it, told them, they shat up and there was never any leak. The first oil shock "episode" starts at 18:00
The "embargo story" was in fact very "practical", both for the US to "cover up" US peak towards US public opinion or western one in general, but also for major Arab producers to show "the Arab street" that they were doing something for the Palestinians.
In the end, clearly a wake up call that has been missed, especially at a time when we are around global peak and the omerta about it is almost complete.
Note : About Akins, see for instance :
http://www.washingtonpost.com/wp-dyn/content/article/2010/07/26/AR201007...
And his famous foreign affair article :
http://www-personal.umich.edu/~twod/oil-ns/articles/for_aff_aikins_oil_c...
His report to Nixon in 71 or 72 is still classified to my knowledge though, would be interesting to know if it can be declassified now.
this article lays it all out.........Kissinger was behind all of it on behalf of the Rockefellers
http://www.counterpunch.org/2012/02/22/what-really-happened-in-the-yom-k...
Thanks for the link, but really the "macro event" was more US 1970 peak :
http://upload.wikimedia.org/wikipedia/commons/c/c5/US_Oil_Production_and...
And James Akins (US amabassador in Saudi Arabia at the time), is a guy that should remembered a bit more (he died a few years ago), and he was fired by Kissinger by the way.
The USA heartbeat is weakening and almost flat-lined
It's all the printing and devaluation. Just like an unhealthy diet and lack of exercise. It'll finish you off every time
.
Interesting information and one thing is fairly clear. A rapid rise in the USD, for whatever reason, will eventually lead to some type of major financial event or collapse at some point and somewhere in the world. I figure the only thing that will be different this time is just how big the next event will be as the trend is for each crisis to get bigger and bigger.
As for the reasons for the rise in the USD, its not hard to understand when competing currencies have negative yields (Euro and Franc), are backed by the most indebted country on earth (i.e., the Yen in Japan as measured by debt to GDP), and/or emerging in status (getting killed by the drop in oil/commodities or are so small size on a world scale, nobody gives a shit). What we have is the prettiest pig in the pin situation as this pig has the most cosmetics to continue to make it look good.
But in the end, a rapid rise of the USD will infact spell the endgame for the world's financial system as we know it as the instability it will cause will spill over into social, political, and military conflicts (thus expediting the need for the world to move off a dominant reserve status currency).
If the current trend continues, the US will run the real risk of entering a deflationary period as the cost of everything, from raw materials to oil to electronics goods to you name it will begin to decrease. Of course great for the consumer (at least they think so) but horrible for a financial system that has never been more leveraged than now. Deflation is absolutely the financial industries worst fear given the excessive leverage and how quickly equity can be wiped out with even small decreases in the value of the collateral.
And remember the end result of a deflationary period is squarely centered in hyper-inflation. Once deflation sets in, the economic base contracts, tax receipts decrease, etc. and debt problems/crisises begin to increase quickly. With the onset of a debt crisis, a currency crisis then usually follows and people begin to lose faith in the value of the currency (and exchange it for anything they can). And just like that, hyper-inflation sets in. For a case study, look no further than Russia as they moved from deflation (based on the decrease in the price of oil) passed right through the debt crisis stage and then right into the currency crisis and hyper-inflation.
To me, the increase in the value of the USD (for whatever reason) is simply setting up a nasty deflationary event which the Fed is scared to death about. So before it reaches this stage, I suspect the Fed will act to ensure the USD's rise is held in check as otherwise, if they let the USD run wildly higher, especially against the Yuan, the next leg down in the world's financial community is going to force the reset of the entire international financial order and inflict major pain on not just the masses, but well into the .1% as well.
Read title as :
The Annotated History of US Dollar Douchbauchery.
I am sorry but this shit, this heinous shit is all about the next energy medium. When fossil fuels finally crap out there has to be a segue to the next item. Mit and all are already producing the papers validating cold fusion. Get your kicks now before the whole shithouse goes up in flames
Having the dollar as the world reserve currency is both a blessing and a curse. I think it is important to consider that the other three major world currencies are all in worse shape than the dollar. I contend they will fail first and bolster the dollar while they fail. In the end a new system will most likely emerge.
The world is currently engaged in a massive game of speculation and chance that contains a lot of risk. Political considerations and insider deals between both nations and Central Banks play a big roll in this game. A chart I saw recently touted how the percentage of funds held by foreign governments in dollars has fallen in recent years. Even after many countries have reduced their holdings in dollar reserves the dollar still carries a major wallop and place in the world economy and will effect everyone going forward. More on how the dollars role as the reserve currency effects all of us in the article below.
http://brucewilds.blogspot.com/2014/11/reserve-currency-status-both-blessing.html
The dollar is worth quite a bit taken into context, but the federal reserve is causing inflation (devaluing the dollar) through extensive bond buying. Meanwhile, the real gdp is dropping causing further unemployment and uncertainty, which leads to looser monetary policy. Also, the debt is rapidly increasing, with the new 1 trillion fiscal bill and that cuts both into the government's budget and also decreases investment. If the debt to gdp ratio gets too high, it will lead to an economic collapse (which I think it will). Extensive exceptionalism on the part of the former leaders of the USSA was met by the status quo, leading to political infeasibility. But really, infeasibility is unrest, because the politicians are ready to throw in the towel (well, not completely), and to the people more dollarz means more big gulps! So no more good politicians. Ahh, but efficiency you say. It's been some hard times in the neighborhood, I just swore that Drudge headline was referring to Kim Un.
fukushu
So will the $100 trillion dollar US note have a portrait of Ben Bernanke on it?
How about a chart from December 25, 1913??
To inflate, or not to inflate. That is the question-
whether 'tis nobler in the Eccles building to print,
or to suffer the no ink and presses of outrageous deflation
or to take ink against a sea of troubles with FX.
And by opposing, end them? To print, to sleep-
No more - and by sleep we say to end deflation
the heartache and the thousand natural shocks
that deflation is heir to - tis a a consumation
to be deeply wished. To print, to sleep
to sleep, perchance to dream - aye, theres the rub.
Opening scene: Yellin's Dilemma