| In 2004, The USD Was Falling, But the
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| | its current 1% lows.Quickly let's look at
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| Dollar Was Never Weak!Germany's long term
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| | each one of these "concensus" causes for
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| economic policy has been to cultivate a
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| | the USD's fall and learn why so many
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| permanent trade surplus by saving more,
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| | currency traders are jumping to the wrong
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| and consuming less. But there is another
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| | conclusions about the USD, and we will
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| side to their trade surplus/high savings
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| | see in the event, opportunities open up
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| rate story. Growth in Germany is 1/3rd
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| | for us to profit from being on the other
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| that in the US, while unemployment is
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| | side of the trade, that is, long the USD.
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| double, productivity is similarly a
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| | The question for currency traders is
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| fraction of what it is in the US. High
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| | "When to buy the USD, not 'if'."A Reality
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| taxes, over regulation, and a pension
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| | Check Of The Bearish USD Analysis Does
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| system that is in deep trouble, are costs
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| | Not "Bear Up"For those who say the
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| that contribute to the broad structural
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| | dollar's decline should be understood as
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| deficiencies that hold the German
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| | a reflection of an economy burdened by
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| economic machine back.This comparison of
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| | structural weakness {and there are many
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| the leading economy in euro land with
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| | prominant economists who do}, as opposed
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| America is an over simplified attempt to
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| | to a currency that is in a cyclical move
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| call attention to the importance of
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| | lower, then it would seem that the
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| understanding the dynamics behind a
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| | structural defects which dollar bears
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| country's strengths and weaknesses which,
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| | allude to must be able to "bear up" under
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| in the end, are reflected in currency
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| | a reality check. We know the US economy
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| values. So the Euro has been rising and
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| | has grown at 4% in 2004. We also know
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| the USD has been falling. What gives?For
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| | that between 1974 and 1994, productivity
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| starters, I believe we all can agree that
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| | was about the same as in the eurozone
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| the Euro's rise is less a story of Euro
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| | now--1.5%. But with the onset of the
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| strength and more really a story about
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| | productivity gains from US corporate
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| the dollar's fall. Dollar bears argue
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| | investment in IT beginning in 1995, US
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| that long overdue structural reforms in
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| | productivity has more than doubled for
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| the US need to be embraced now, and they
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| | the last decade, and in 2003 and 2004,
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| point to a looming 6% trade deficit, as
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| | printed 4% gains, almost triple euro
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| well as other issues that now seem to be
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| | land's levels.Even though the Federal
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| threatening a disorderly collapse in USD
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| | Reserve policies on interest rates gave
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| values worldwide. My point of view is
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| | US borrowers real negative interest
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| that the USD fall has been, bottomline,
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| | rates, inflation in the US is as low as
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| in a cyclical move lower from a
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| | the euro zone's is--2%. So on balance, we
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| previously over valued level in 2002 when
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| | see the economic foundation of the USD
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| the Euro was only worth 85 cents.At this
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| | neither defective nor needing reform. The
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| point the next long term move in the
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| | US economy has low inflation, soaring
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| dollar is in large part dependent on the
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| | productivity and high economic growth,
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| answer to one question:Does the US need
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| | all much better than historic trends, and
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| structural reforms, or is it the other
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| | all are projected to maintain those
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| nations of the world who are under
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| | levels for as far as the eye can see. Of
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| consuming and under producing that need
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| | course, unemployment, is much lower than
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| structural reforms in order to restore
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| | the eurozone, and trending lower. But
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| balance to the global economy and to
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| | what about these structural problems
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| currencies as well?In a modern
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| | within the US?Low Savings RateThe savings
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| environment of economic interdependence,
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| | rate figure is the simplest of statstics
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| money flows from around the globe
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| | to explain and understand. Accountants
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| increasingly affect individual, corporate
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| | add up total wages earned, subtract
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| and national wealth through nothing more
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| | consumer spending and what is left over
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| than the changing value of currency
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| | they call "savings." This savings rate
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| relationships {forex is a $1.3 Trillion
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| | number as a measure of consumer wealth,
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| day market}. Currency traders who
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| | consumer income, or even as a loose
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| understand the dynamics behind these
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| | approximation of consumer financial
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| changing foreign exchange values will
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| | status in the US is only a small piece of
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| profit consistently and substantially.
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| | the puzzle, and has too often been used
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| Those who have drawn the wrong
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| | in a misleading way.You cannot assess
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| conclusions about the underlying forces
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| | savings in America without factoring in
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| of currency valuations are destined to be
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| | housing. Three out of four Americans own
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| on the wrong side of currency trades and
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| | homes and like the overall American
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| their losses will enrich those who have
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| | economy itself, the US housing market has
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| been right!In today's foreign exchange
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| | been rising at an historic pace. The move
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| environment one currency continues to
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| | up has been so strong that housing sales
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| occupy centerstage as the world's reserve
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| | and price levels continued to print new
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| currency--the US dollar. Gold and oil are
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| | highs right through the economic
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| priced in dollars. The dollar is involved
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| | recession of 4 years ago.And even the
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| in 85% of all currency transactions {Euro
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| | much talked about "wealth effect" in the
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| 37%, Yen 16%} and central banks the world
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| | pre-recession, pre-bubble economy in the
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| over accumulate dollars as a necessity
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| | US it turns out was mostly a benefit not
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| for stablizing the exchange value of
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| | of stock market gains leading up to the
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| their respective national currencies.
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| | March 2001 bubble, but of appreciation in
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| Offshore central banks finance over 50%
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| | housing values and mortgage refinancing
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| of the US trade deficit that way. Three
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| | at historic low interest rates {which
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| out of four dollars now in circulation
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| | generated widespread "cash outs--cash
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| are held overseas. And today as we see
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| | payments after refinanciing because of
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| the US dollar falling farther and
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| | the much lower interest rates}.So it
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| farther, we know that the rising price of
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| | turns out that even though there was an
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| gold and the recent $50+ price of oil are
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| | equity market bubble, and a recession in
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|
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| | 2001 {not to mention the World Trade
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| each in great measure reactions to this
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| | Center attack}, nevertheless the booming
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| current and anticipated further decline
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| | economic structure in the US was solid,
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| of the USD. In fact Saudi Arabia is
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| | built as it was on new higher levels of
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| letting it be known that it plans to
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| | productivity from IT, housing wealth and
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| adjust the new baseline price for its oil
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| | low inflation. The recession,
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| up from $25 to $35. Saudi Arabia has also
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| | precipitated by the Fed's higher rate
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| been selling some of its dollar reserves
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| | policies was, as I noted on my radio show
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| in favor of the euro. There have been
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| | at the time, a "good recession" and a
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| stirrings that China is substituting the
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| | necessary one brought on by the over
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| euro for some dollars in its huge cash
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| | exhuberance of an economic and investment
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| reserve accounts. Net, net, if markets
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| | "boom" underlying the US economy. Fed
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| see this trend continuing, the USD is
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| | Chairman Greenspan has said the reason he
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| certainly headed still lower. There is
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| | raised rates was because businesses were
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| also more and more credible talk that the
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| | investing too much in high tech and at an
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| euro will replace the dollar as the
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| | unsustainable rate. In other words--the
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| world's reserve currency. After all the
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| | US had too much of a good thing. High
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| Euro now has a 20% stake as the reserve
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| | productivity, low inflation, robust
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| currency of choice by the world's central
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| | consumer spending and the US's growing
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| bankers, up from 13% a short time
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| | home ownership profile are not structural
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| ago.Counter intuitively, we find the
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| | defects for any economy, they are the
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| strengthening euro is not a welcome
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| | things every economy seeks to affirm its
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| development throughout much of europe and
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| | strength.Now as 2005 begins and with the
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| the world. Indeed today as we begin 2005
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| | recession far behind it, the US quite
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| and find the Euro at historic high
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| | clearly presents itself as an economy
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| levels, up fully 50% from its lows of
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| | that is stable and poised to consolidate
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| 2002, German Chancellor Gerhard Schroder
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| | its upward growth track, and with that
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| is saying the new level of the Euro is
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| | will go increased demand for her
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| worrisome for the German economy. The
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| | currency, the US dollar.Which Leads Us To
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| French Foreign minister is calling for an
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| | The Trade Deficit.As someone living in
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| international conference to develop
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| | America, I have confirmed for you that
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| coordinated policies {read intervention}
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| | for over a decade Americans have been
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| to staunch the Euro's climb against the
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| | living in an environment of low
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| dollar. ECB President Issing is troubled
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| | inflation, dramatically improving
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| and has asked europe's consumers to start
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| | unemployment, low interest rates,
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| spending to help the eurozone avoid
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| | skyrocketing real estate values, strong
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| recession.And europe is not alone in
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| | economic growth and an IT revolution that
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| concerns about their currencies' sudden
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| | offers falling prices on many of the
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| appreciation vs the USD. The Japanese Yen
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| | latest and most appealing high tech
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| is up 25% and in reaction, Japan spent
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| | recreation and entertainment products
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| $147 billion in the first quarter alone
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| | available from all over the world.
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| of last year selling its Yen mostly for
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| | Imports from foreign sources have been
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| dollars in another of its periodic and
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| | low priced thanks to a strong dollar
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| futile attempts to manipulate currency
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| | monetary policy in the US and taxes have
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| values. China is poised to raise its
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| | been on a declining trend. One has to ask
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| Yuan's peg with the USD since the
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| | the dollar bears, "Why wouldn't the
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| dollar's decline has dragged the
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| | American consumer spend and buy more and
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| dollar-pegged Chinese currency lower with
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| | more imports?" With interest rates at
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| it and the falling Yuan now threatens to
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| | historic lows, housing wealth fueling
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| ignite inflation in China's already over
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| | personal savings {though not counted as
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| heated economy. So as the Euro, Yen and
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| | savings in the savings rate}, inflation
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| other international currencies continue
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| | low and low priced imports from europe
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| their rise in value as a counterpoint to
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| | and asia abundantly available, it would
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| the dollar's decline, there are economic
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| | be odd if they weren't spending, and
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| costs at work.It seems that in practice
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| | given the moribund growth in Japan and
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| the world over, international economies,
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| | Europe, the 2nd and 3rd largest economies
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| but not always their political leaders,
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| | in the world, it would be impossible for
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| prefer a weak dollar. Indeed, in a chorus
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| | the US not to have a trade deficit.
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| that has grown stronger of late, the
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| | Americans are major importers for the
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| global political community is
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| | world and that fact contributes mightily
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| increasingly lamenting how our new era of
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| | to international economic growth, but it
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| globalization has become far too
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| | also leaves America with a trade
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| US-centric, and calls have become more
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| | deficit.So bottomline? The call for
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| urgent to fix a serious global imbalance.
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| | consumer demand to retrench in the US is
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| The source of this global imbalance of
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| | a call that will never be heard. It is
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| course must be America! "The US consumer
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| | like whistling in the wind. It is not
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| is consuming too much, he needs to stop
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| | going to happen, and further, a large
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| that!"Indeed, the emerging consensus in
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| | trade deficit must be understood as "part
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| the popular and financial press which
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| | of the bargain" resulting from a strong
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| after studying all of this has announced
| |
| | consumer driven US economy which is also
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| that there are 3 reasons for the USD move
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| | stimulating global economic growth. Don't
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| lower since 2002, all pointing to the US.
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| | forget, the international economy is
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| Too much consumption {leading to a record
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| | US-centric because of the US
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| US trade deficit} with its flipside, a
| |
| | consumer.Finally, let's look at the
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| low domestic savings rate. And third, the
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| | federal budget deficit in Washington.The
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| US trade deficit's twin--a growing
| |
| | US government budget deficit is an easy
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| government budget deficit has become a
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| | issue to evaluate in terms of its
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| dollar negative and is now contributing
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| | relationship to currency values. To begin
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| to a precipitous erosion in demand for
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| | with, the best, most informed estimate of
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| the dollar.There is an abundance of
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| | future tax revenues needed to balance
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| opinion among those who follow currency
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| | congressionally appropriated expenditures
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| markets that indeed the fall in the
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| | is reasonably accurate for at most, 60
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| dollar is due to these kinds of
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| | days out. Budget deficit estimates have a
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| structural issues that call out for
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| | notoriously short shelf life!As the 2005
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| America to reform. America must consume
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| | fiscal year began in October, 2004, the
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| less, raise taxes and save more. And so
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| | only thing that was certain is that the
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| their answer to the question, "Is the USD
| |
| | real budget deficit will be no where near
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| weak?" is an emphatic yes because the US
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| | its original working estimate. It never
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| economy's structure is weak!There is A
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| | is! The Congressional Budget Office, the
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| Different Opinion!The one thing to
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| | White House Office of Management &
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| remember about currency markets is that
| |
| | Budget, and every economist who follows
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| just like water, they seek their own
| |
| | federal budgets, none of them projected
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| level. They inevitably find a balance and
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| | the budget surpluses of 2000/2001.
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| these protests against the Euro's
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| | Indeed, most contemporary estimates were
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| strength suggests to me that the Euro is
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| | being changed weekly during that period,
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| not quite ready to step up and dislodge
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| | as tax revenues exploded from the hot US
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| the USD as a replacement in the global
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| | economy at that time.That being said, the
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| scheme of things for right now. It also
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| | idea of a balanced budget is a principle
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| suggests to me that the dollar's decline
| |
| | that the US should embrace. The 2005
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| is cyclical and the USD therefore, even
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| | budget at a projected deficit of $500
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| though it is falling, is not
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| | billion will pressure interest rates in
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| weak.Nevertheless, there is reason to
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| | the US higher. But higher interest rates
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| believe that markets are increasingly
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| | are USD positive. On the other hand, a
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| seeing the USD as now at a permanently
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| | $500 billion deficit will increase the
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| lower plateau than in the past, and I
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| | need for higher taxes, which subtract
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| agree. So let's revisit the pivotal
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| | from savings and investment growth, and
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| question for currency trader's. "Is the
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| | so that is dollar negative. But then we
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| USD weak, or is it falling in a normal
| |
| | have to think about higher taxes which is
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| cyclical adjustment?" We need to look
| |
| | what the dollar bears are prescribing to
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| closely at what is behind this dollar's
| |
| | strengthen the dollar and help the US
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| move lower if we are going to be ahead of
| |
| | address the issues they see dragging the
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| what's happening in the currency markets
| |
| | dollar down, and so higher taxes from
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| in 2005 and understand these dynamics so
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| | their perspective are dollar positive!I
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| we can then profit in currency trades.
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| | want to note that it actually would be
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| Note:The Federal Reserve US dollar index
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| | dollar positive, and significantly so,
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| of 26 leading currencies ranks the
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| | should the US congress adopt a "paygo"
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| dollar's decline from Feb. 2002, at 14%.
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| | rule, like it had when the congress
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| That was from what many consider to be an
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| | posted the surpluses of a few years ago.
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| overvalued level with the Euro trading at
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| | The Paygo rule requires an offset in any
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| less than 85 cents per dollar at one
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| | new discretionary spending from either an
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| time. Today this basket of currencies
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| | increase in taxes or reduction in other
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| shows the USD at the same level it was in
| |
| | spending, thus maintaining a stricter
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| 1994! In other words, it is in sync with
| |
| | discipline over the budget. If the
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| past USD cyclical moves lower.Despite the
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| | markets were to see a balanced federal
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| many statistics that show current USD
| |
| | budget in the US's future, they would
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| valuations within historical ranges, many
| |
| | anticipate more investment in the US and
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| governments, political leaders,
| |
| | at lower interest rates and that will
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| economists and currency traders believe
| |
| | attract buyers to the USD.The truth is,
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| the US is facing a crisis and must
| |
| | that at the end of the day a balanced
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| balance its trade account, reduce
| |
| | budget is dollar positive while budget
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| consumption at home and return to the
| |
| | deficits affect the dollar exchange rate
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| balanced federal budget it had in
| |
| | only in a marginal way, so long as they
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| 2000-2001. In the absence of such
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| | exist in an environment of strong growth
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| reforms, the US invites a disorderly
| |
| | and low inflation, which we find in the
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| collapse of the dollar which is certain
| |
| | US currently. With declining unemployment
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| to lead to global economic chaosFrom the
| |
| | and a base of high productivity we can
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| point of view of the international
| |
| | discount the federal budget deficit at
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| political community higher taxes would be
| |
| | these levels in terms of significantly
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| an ideal answer and contribute to all
| |
| | affecting USD currency values.So it is
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| three remedies. They would reduce
| |
| | quite apparent here in my "World of
|
| consumption and thus help the import
| |
| | Currencies," that the structural strength
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| skewed trade deficit plus also help point
| |
| | of the US economy preempts a disorderly
|
| toward a balanced federal government
| |
| | dollar collapse crisis that dollar bears
|
| budget! They want to see taxes raised,
| |
| | project. Apart from that, the supposed
|
| consumers spend less and a slower growth
| |
| | structural causes of the USD's decline,
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| rate in the US. It sounds like they want
| |
| | its trade deficit, savings rate and
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| the German experience as the model for
| |
| | government deficit are non starters as
|
| the US. Dollar bears and their adherents
| |
| | targets for reform, and more importantly,
|
| are prepared to short the USD until they
| |
| | not structural weaknesses after all.
|
| can begin to see their remedies finding
| |
| | Forcing the American consumer to spend
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| traction in the US economy. But currency
| |
| | less through higher taxes would wreck the
|
| traders who buy into these prescriptions
| |
| | US economy and in the process derail
|
| will be on the wrong side of the USD
| |
| | global economic growth. The global
|
| trade in the long run. Dollar bears as
| |
| | imbalances from an admittedly US-centric
|
| they continue to sell dollars will have a
| |
| | international economic environment are
|
| long wait for any profits in anticipation
| |
| | real, but they can best be addressed by
|
| of a collapse of the USD.As a resident,
| |
| | greater consumption and other structural
|
| citizen and student of the American
| |
| | reforms in the international community of
|
| economy, I can tell you, neither the
| |
| | the sort the German model is resisting.
|
| trade nor budget deficits in the US are
| |
| | The two points of view about where
|
| going into balance anytime soon. More to
| |
| | reforms must occur next are in fact, the
|
| the point, barring a catastrophe, it is
| |
| | two sides of the USD trade.The market
|
| virtually impossible to see them doing
| |
| | will declare the bottom for the USD as
|
| anything more than narrow marginally. The
| |
| | soon as it finishes making up its mind of
|
| domestic savings rate similarly is not
| |
| | how low that bottom should be, given its
|
| going to rival the eurozone's 9% level,
| |
| | new recognition now of the permanent
|
| nor Japan's 6% for the foreseeable
| |
| | status of a large US trade deficit.. The
|
| future. In fact, unless the American
| |
| | Eur/USD level of $1.40 and USD/JPY of 100
|
| shopper miraculously morphs into a
| |
| | Yen, may not be the low point for the
|
| parsimonious European or Japanese clone
| |
| | dollar, but if theyare not, they are
|
| {something that is not going to happen},
| |
| | awfully close. The USD is falling, the US
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| the annual American savings rate will not
| |
| | dollar is not weak!
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| be surpassing even 3% anytime soon from
| |
| |
|
