Death of the Dollar

[Twisted_Dawg]

Finally it appears that the world is beginning to move away from the dollar as the main currencey of trade. If indeed the Asian countries, the Mideast countries and Europe shift away from buying US bonds and bills to other currencies, notably the Euro, then look out! The US government will not have any takers to buy our securities.....and to finance those $200-$300 billion annual deficits. That means the US government will have to cut spending drastically, (not going to happen), or raise our interest rates to a higher level to attract the foreign investors back. If that happens, the economy tanks badly. The dreaded day of reckoning from years of bad government management and deficit spending appears close at hand.

http://articles.moneycentral.msn.com/Investing/JubaksJournal/TheDollarsPerfectStormWorsens.aspx

By Jim Jubak
The dollar's perfect storm worsens.
Europe's inflation is likely to prompt its central bank to raise interest rates -- five days before the Fed is expected to lower them here. That's bad news for the buck.

On Nov. 13, I wrote that the U.S. dollar was being pummeled by a perfect storm. Just three weeks later, the storm is even stronger. The force of the winds punishing the dollar is building, and there's a real danger that the currency will tumble out of control.

What has changed so much in just three weeks? Inflation in Europe has picked up and is now above the range the European Central Bank has said it will tolerate. There's a good chance the bank will raise short-term interest rates to 4.25% from 4% when it meets Thursday.

With U.S. interest rates on hold or headed lower, the result would be another big boost to the euro, another hit to the dollar, a continued move away from the U.S. dollar by central banks in Asia, Russia and the Middle East, and higher prices for gold and, more importantly, oil.


That's a lot of fallout from just one quarter-point increase, but the global economy and financial markets are so precariously balanced that any increase in wind velocity can cause massive damage.

So just how good a chance is the "good chance" that the European Central Bank will raise interest rates Thursday?

Here's the situation the bank faces. You be the judge.

Inflation on the uptick
Inflation jumped to 3.3% in Germany, the European Union's biggest economy, in October. That has led economists to raise their estimates for inflation for the European Union as a whole to 3%. Before the data from Germany, the consensus forecast for EU inflation stood at 2.7%.

Even 2.7% would have been worrisome: It would have been a slight advance from October's 2.6% and left the trend headed uncomfortably higher.

But 3% would present the bank with a crisis. Unlike the U.S. Federal Reserve, which doesn't publish a specific inflation target, the European Central Bank clearly states what level of inflation it finds acceptable. The bank has pledged to keep inflation "below but close to 2%." A 3% reading on inflation, the highest level in six years, would be way above that target.

Other signals point in same direction
And the 3% inflation figure isn't an isolated number. Other inflation indicators are pointing upward, too. Money-supply growth, which the bank uses to judge the likelihood of future inflation, has been running way above the bank's target of 4.5%. The bank calculates a 4.5% level of growth in the money supply is not inflationary.

But, the money supply grew by 12.3% from October 2006 to October 2007 -- the sharpest growth since July 1979. That was on the heels of an 11.3% year-over-year growth in September.

The bank may be on the edge of the kind of inflationary spiral it fears. At the same time as German inflation is at a 13-year high, German unemployment has dropped to an almost-15-year low. That gives workers clout to negotiate pay increases above the inflation rate. The chief economist for Germany's DGB trade-union federation, the largest union federation in Germany, told a Berlin newspaper last week that inflation had negated the pay raises it had negotiated this year.

Cuts in interest rates might head off a recession, but they are a bad idea, MSN Money's Jim Jubak says. Why? Because while cutting rates would bail out the stupid or greedy, it would lay the foundation for the next asset bubble to burst.

The country's 1.3 million-member civil-servants union has announced that it will look for a pay raise of 6% to 7% in 2008. Those are exactly the kind of raises that central bankers fear will set off an unstoppable inflationary trend, in which rising inflation prompts pay raises that in turn drive inflation higher. As if to confirm these fears, Germany's BASF (BFASF, news, msgs), the world's largest chemical maker, has announced it will raise prices by as much as 15%.

Balancing concerns
The European Central Bank has kept interest rates at 4% since June after raising rates nine times since December 2005. The bank has justified holding rates steady by pointing to fears that growth in the European economy might be slowing. But the bank may not be able to keep interest rates on hold much longer.

Why only "may not" instead of "certainly won't"? Because, like the U.S. Federal Reserve, the European Central Bank is keeping one eye on inflation and the other on the crisis in the debt markets. European financial institutions have suffered huge losses as a result of the meltdown of mortgage-backed debt. Barclays (BCS, news, msgs), for example, wrote down $2.7 billion in mortgage-backed assets Nov. 15. HSBC Holdings (HBC, news, msgs) set aside $3.4 billion in its third quarter to cover losses as a result of defaults on U.S. mortgages.

Continued: Credit crunch looms in Europe

1 | 2 | 3 | next >

[BradLohaus]

That was a good article. I'm going to have to start reading MSN's money page. Jim Jubak's really knows what's going on.

http://articles.moneycentral.msn.com/Commentary/ByAuthor/JimJubak.aspx

[BradLohaus]

Don't worry - a price freeze will save the day

Bush to outline 5-year rate mortgage freeze plan
http://www.reuters.com/article/politicsNews/idUSWAT00853020071205?feedType=RSS&feedName=politicsNews&rpc=22&sp=true

[Holt's Cat]

Great. He's channeling Nixon.

[JoeChalupa]

I like to watch Erin for my economic news.

http://blog.foreclosure.com/wp-content/uploads/2007/10/ss_440x230b.jpg

[Twisted_Dawg]

I like to watch Erin for my economic news.

http://blog.foreclosure.com/wp-content/uploads/2007/10/ss_440x230b.jpg

That chick is hot..when is she on?

Oh..and does she know anything about finance?

[Holt's Cat]

That chick is hot..when is she on?

Oh..and does she know anything about finance?


Well, she's probably not an idiot (http://www.cnbc.com/id/15838220/).

[BradLohaus]

A while back I said that the modern monetary/financial system doesn't represent competitive, free market capitalism at all - it is nothing more than the biggest pyramid scheme in history.

I finally ran across an article that talks about that:
http://www.webofdebt.com/articles/market-meltdown.php

I'm going to have to pick up this lady's book
http://www.webofdebt.com/

[whottt]

Death of European Exports


Fixed...

Who cares if other countries stop pegging their currency to the dollar? That'll shut up all the American Hegemony whiners...

And who cares is the dollar is the world's currency? That is pure show and status....


Buy American mofos...every one else is going to.



And if you think I'm just spinning...search this forum and you will find me talking about the budding economic coldwar between us and Europe, dating back 3 or 4 years ago....which was also why they primarily against the Iraq War. And it fucked every asshole leader over there up and got them voted out of office....go check their unemployment rates and export troubles...while you are at it. Payback is a bitch.

You guys really need to look beyond the news sometimes...its' nothing more than population control.

[Clandestino]

nice post... the euros can only dream about 5% unemployment

[JoeChalupa]

I think the US may have to change its thinking somewhat. The US dollar can not call all the shots anymore.

[Extra Stout]

The declining US dollar is fine as long as we either slash spending or raise taxes to cover the funding shortfall we currently cover by borrowing.

[xrayzebra]

I think the US may have to change its thinking somewhat. The US dollar can not call all the shots anymore.

It can and will for the foreseeable future. Stability of
our country will do that for the dollar.

[JoeChalupa]

It can and will for the foreseeable future. Stability of
our country will do that for the dollar.

Yes, but the costs of military operations and embassies will greatly increase. The Canadian dollar is now more valuable that the US dollar and Australia is not far behind. US companies doing business abroad may have their losses increase due to the decline. But I'm no Erin Burnett.

But I do think the US economy won't suffer because Americans love to spend no matter the cost. Even the higher price of oil hasn't stopped the growth.

[xrayzebra]

Yes, but the costs of military operations and embassies will greatly increase. The Canadian dollar is now more valuable that the US dollar and Australia is not far behind. US companies doing business abroad may have their losses increase due to the decline. But I'm no Erin Burnett.

But I do think the US economy won't suffer because Americans love to spend no matter the cost. Even the higher price of oil hasn't stopped the growth.

Good piece in the E-N this morning with Wall Streets take
on things. It was in the business section. They have a
favorable view on things.

[Nbadan]

...the economy is 1/3 perception...Wall Street wants to put out the perception that everything is hunky-dory - but Citibank just took out a foreign loan at the predatory rate of 11% to help inject credit into the economic system that once used to come from people borrowing against their over-valued homes, and the teachers fund in Florida is still mostly frozen..

[xrayzebra]

...the economy is 1/3 perception...Wall Street wants to put out the perception that everything is hunky-dory - but Citibank just took out a foreign loan at the predatory rate of 11% to help inject credit into the economic system that once used to come from people borrowing against their over-valued homes, and the teachers fund in Florida is still mostly frozen..

Are you sure they didn't sell 11 percent of Citibank to
an Arabian company? Wasn't a loan if I remember correctly.

[Extra Stout]

But I do think the US economy won't suffer because Americans love to spend no matter the cost. Even the higher price of oil hasn't stopped the growth.
Unless the banks are planning to let people keep borrowing with no expectation of ever being paid back, eventually Americans won't be able to spend.

[Nbadan]

Are you sure they didn't sell 11 percent of Citibank to
an Arabian company? Wasn't a loan if I remember correctly.


The details are sealed.......so we'll never know...or we'll know more in a few decades....

[JoeChalupa]

Unless the banks are planning to let people keep borrowing with no expectation of ever being paid back, eventually Americans won't be able to spend.

Where there is a will, maybe not to pay, there is a way.

[BradLohaus]

Are you sure they didn't sell 11 percent of Citibank to
an Arabian company? Wasn't a loan if I remember correctly.

That's what I read.


but Citibank just took out a foreign loan at the predatory rate of 11% to help inject credit into the economic system that once used to come from people borrowing against their over-valued homes...

the details are sealed.......so we'll never know...or we'll know more in a few decades....

Well that would be much worse - predatory rates indeed. That's a rate usually reserved for loans to third world dictators...a few years before the dictator defaults some of his country's infrastructure and moves to a Mediterranean mansion.

[Nbadan]

More details of the Abu Dhabi cash-infusion to CitiGroup start to filter to out - Yikes....11% interest....

Citigroup Borrows $7.5 Billion
11% interest yikes!
Posted: Tuesday, November 27, 2007 02:03 PM


Nov. 27 (Bloomberg) -- Citigroup Inc., the biggest U.S. bank by assets, will receive a $7.5 billion cash infusion from Abu Dhabi to replenish capital after record mortgage losses wiped out almost half its market value.

Citigroup rose 2.6 percent in New York trading today following acting Chief Executive Officer Win Bischoff's statement late yesterday that funds from the state-owned Abu Dhabi Investment Authority will help ``strengthen our capital base.''

Abu Dhabi will buy securities that convert to stock and yield 11 percent a year, almost double the interest Citigroup offers bond investors, underscoring the New York-based company's need for cash. Fourth-quarter profit will be reduced by as much as $7 billion because of losses from subprime mortgages, which led to the departure of CEO Charles O. ``Chuck'' Prince III and a 46 percent slump in its stock this year.

``Clearly, Citi has a problem with capital adequacy after the subprime crisis,'' said Giyas Gokkent, head of research at National Bank of Abu Dhabi PJSC, Abu Dhabi's biggest bank by market value. ``ADIA has seen an opportunity to get cheaply into a blue-chip stock.''

With the purchase of a 4.9 percent stake, Abu Dhabi, the largest emirate in the United Arab Emirates and its capital, would rank as Citigroup's largest shareholder ahead of Los Angeles-based Capital Group Cos. and Saudi billionaire Prince Alwaleed bin Talal, data compiled by Bloomberg show.

Depleted Capital

The investment follows purchases by U.A.E. fund Dubai International Capital LLC in companies including London-based HSBC Holdings Plc, Europe's biggest bank by market value, and New York-based hedge fund Och-Ziff Capital Management LLC. In Abu Dhabi, state-backed Mubadala Development Co. agreed to buy 7.5 percent of Washington-based buyout firm Carlyle Group. ADIA also owns a stake in Leon Black's New York-based buyout firm, Apollo Management LP.

Citigroup Chairman Robert Rubin, who stepped in after Prince resigned, and Chief Financial Officer Gary Crittenden said on a conference call earlier this month that the bank expects to restore capital to targeted levels by the end of the second quarter without having to cut its $2.7 billion-a-quarter dividend.

Mortgage writedowns cut Citigroup's ``tier 1'' ratio, a metric used to assess banks' ability to weather loan losses, to 7.3 percent on Sept. 30. The figure, while above U.S. regulators' 6 percent threshold for a ``well-capitalized'' bank, was below the bank's 7.5 percent target.

`Bullish' View

The Citigroup equity units that ADIA will purchase can be swapped for as many as 235.6 million shares starting in 2010. The securities will convert into Citigroup shares at prices ranging from $31.83 to $37.24 between March 15, 2010, and Sept. 15, 2011.

Today Citigroup's stock rose 78 cents to $30.54 as of 10:03 a.m. in New York Stock Exchange composite trading. Yesterday, they closed at $29.76, the lowest price in five years.

``The structure of the deal suggests that Abu Dhabi is very bullish, effectively participating in the upside beyond $37.24, and sharing in the downside below $31.83,'' said George Nikas, who helps manage $1 billion at Deutsche Bank AG in Sydney.

Abu Dhabi will have ``no role in the management or governance of Citi, including no right to designate a member'' of the company's board, Citigroup said in its statement.

``This investment reflects our confidence in Citi's potential to build shareholder value,'' ADIA Managing Director Sheikh Ahmed bin Zayed al-Nahyan said in the Citigroup statement.

Cost of Capital

Mounting subprime losses have increased Citigroup's funding costs. The bank sold $4 billion of 10-year bonds on Nov. 14, paying annual interest of 6.125 percent. The securities were priced to yield 190 basis points more than Treasuries, up from 118 basis points, or 1.18 percentage points, in a similar sale three months earlier.

CIBC World Markets analyst Meredith Whitney said in a note to clients today that she still expects Citigroup to cut its dividend as mortgage losses increase.

Abu Dhabi officials met with Rubin in the emirate yesterday to discuss ``world stock markets and their impact on the performance of banks,'' the state-run WAM news agency reported on its Web site.

Abu Dhabi owns the world's fifth-biggest oil reserves. It channels oil surpluses to ADIA, which ranks as the world's biggest sovereign wealth fund with assets of $875 billion, according to July estimates by the London-based Economist Intelligence Unit. The authority will spend $40 billion this year to buy foreign assets, estimates Gokkent at the National Bank of Abu Dhabi.

Buying Assets

Gulf investors have spent about $70 billion on overseas acquisitions this year, almost double their spending in 2006, as oil prices soared 58 percent, data compiled by Bloomberg show. With oil above $90 a barrel, Gulf producers including Saudi Arabia and the U.A.E. earn more than $1.3 billion a day from their energy sales.

State-controlled Saudi Basic Industries Corp., the biggest chemicals company by market value, in May agreed to buy General Electric Co.'s plastic unit for $11.6 billion in a record acquisition for the Gulf. State-owned Dubai World in August agreed to invest as much as $5.1 billion in MGM Mirage, the second-largest casino company, to try to tap into the Las Vegas- based company's U.S. gaming and real estate earnings.

Gulf petrodollars don't always get the prize. Qatar on Nov. 5 said it abandoned a $21.9 billion bid for U.K. supermarket chain J Sainsbury Plc after its cost of funding jumped ``significantly'' since first making the bid July 18.

China's Purchases

China also has been increasing investments in the U.S. and Europe. Bear Stearns Cos., the fifth-biggest U.S. securities firm, agreed last month to sell a 6 percent stake to China's government-controlled Citic Securities Co. for about $1 billion. China Investment Corp., the nation's $200 billion sovereign wealth fund, paid $3 billion for a stake in New York-based private equity firm Blackstone Group LP in May. Barclays Plc, the U.K.'s third-biggest lender, agreed to sell 6.7 percent of itself to China Development Bank in July.

The state-owned Dubai International Financial Center, which bought 2.2 percent of Deutsche Bank AG in May, on Nov. 19 said it is seeking acquisitions in the U.S., where the falling dollar and a lending crisis are driving down the price of banks and property.

Dubai Center

Citigroup is among tenants at the Dubai center, a business park being used to attract banks, insurers and asset managers to the Persian Gulf. Like neighbors Qatar and Bahrain, Dubai is bidding to plug the trading time gap between Europe and Asia and become the region's pre-eminent financial hub.

Qatar, like Abu Dhabi, is seeking to diversify its economy away from near-total reliance on energy earnings. Unlike Abu Dhabi, the oil wells of Dubai and Bahrain have almost run dry.

ADIA ``will bolster Citigroup's capital and competitiveness,'' U.S. Senator Charles E. Schumer said in a statement. The New York Democrat was among the lawmakers who criticized the Bush administration's decision last year to approve DP World Ltd.'s $6.8 billion acquisition of London-based Peninsular & Oriental Steam Navigation Co., a deal that gave the Dubai state-owned port company control of six U.S. terminals.

Schumer was among those who said Dubai ownership would jeopardize U.S. national security, arguing that two terrorists involved in the Sept. 11, 2001, attacks were from the U.A.E.

AIG's Purchase

DP World agreed in December to sell the U.S. terminals, in cities including New York, Philadelphia, Baltimore and New Orleans, to American International Group Inc., the world's biggest insurer.

``The issue for DP World was a misunderstanding that it might misuse its control of some U.S. ports, but that is behind us and Dubai in particular has been doing a lot of deals in the U.S. since then,'' said Mohammed Ghubash, professor of political science at the U.A.E. University in al-Ain.

Prince Alwaleed, a nephew of Saudi King Abdullah, invested $590 million in Citigroup predecessor Citicorp in 1991 when the bank needed cash because of loan losses in Latin America and a collapse in U.S. property prices. Alwaleed now holds about $6 billion of Citigroup shares. The prince wasn't available for comment at his Riyadh office today.

Bloomberg (http://72.14.205.104/search?q=cache:k9L5aMlonPUJ:sportstwo.com/Thread/View/STWO/GENERAL/1996230+AbuDabi+invests+in+Miami+Dolphins&hl=en&ct=clnk&cd=14&gl=us&client=firefox-a)

[SouthernFried]

The market will do what it will.

US dollar falling has both negative and positive ramifications. Speculators have much to do with currency values, so it does not necessarily reflect an economy's strength or weakness, but market sentiment at any given time.

Having said that, the dollar was way past due for a correction. Imported goods have created a huge glut of dollars overseas, and nowhere to put them, but back in the US. Which, in turn, make this is a perfect opportunity for investment and expansion of overseas markets...if handled correctly.

The US must make itself attractive to such investments. The trend, however...is exactly opposite.

Increased regulatory requirements is the norm nowadays. Business increasingly finds itself at odds with the myriad's of hoops/regulations/beaurocracy/activists which for reasons as numerous as there are people, are constantly fighting to stop those activities which are needed the most. So even with the attractiveness of a cheap dollar, the hurtles that must be overcome... limit them (think of the Dubai ports deal for just one of the more recent events.) So those dollars are not reinvested...and their value becomes less.

It is a dilemma that many can see the solution to, but not the will to implement... given the current political climate. It becomes a political football. With everyone blaming everyone else to affect polling numbers. No true understanding is sought, each side will have a spin not based on reality and markets...but on political capital gained or lost.

Such is the enviroment of present day America. One, that is to be avoided if possible.

Now, what to do with those dollars in the meantime....

[Nbadan]

http://images.ucomics.com/comics/jd/2007/jd071230.gif

[T Park]

yeah the economy is in shambles as the unemployment rate is at record lows.

[exstatic]

yeah the economy is in shambles as the unemployment rate is at record lows.
Unemployment figures are a Fig Newton of someone's imagination, and have been massaged many different times to reflect low percentages. They, in no way, represent the percentage of Americans out of work.

[Nbadan]

No doubt people are working longer and harder...but...

Late payments on a cluster of consumer loans, including those for autos, home improvement and certain home equity loans, climbed in the summer to their highest point since the country's last recession in 2001.


The American Bankers Association reported Thursday that the delinquency rate on a composite of consumer loans increased to 2.44 percent in the July-to-September quarter. That was up sharply from 2.27 percent in the previous quarter and was the highest late-payment rate since the second quarter of 2001, when the economy was suffering through a recession.

Link (http://www.iht.com/articles/ap/2008/01/03/america/Late-Payments.php)

[SouthernFried]

All economic numbers are usually BS. Not just unemployment ones. I always smile when people diss one economic stat, and then use another one in a different debate.

After taking 24 hours of economics when I was in business school, I came to the realization, economists don't have a fucking clue what they're talking about. And the numbers are so close to arbitrarily made up, that I pretty much deem them all irrelevant. Just change your database, or substitute an X in an equation for a Y...And if I heard one more "let's assume..." :blah

Probably the reason most business's have accounting/marketing/production etc, departments...but no "economics" one. Mostly used by politico types to justify a position...on both sides of the debate. Just find the "right thinking" economist to support your side, cuz you always can.

SIG

[Bunz]

Plus the unemployment rate is going up. Its the highest since Nov. 2005

[Nbadan]

Dubya goes into a XRay hallucination....


WASHINGTON (AP) -- President Bush said Friday that while there is some uncertainty about slowing economic growth, the nation's "financial markets are strong and solid."

Bush spoke after meeting with his top economic advisers about possibly drafting a package to stimulate the U.S. economy as it weathers the housing slump, rising oil prices and an uptick in unemployment.

"This economy is on a solid foundation," Bush said. But he also said it can't be taken for granted, and there are some signs of concern that require the administration and Congress to be careful to ensure economic strength.

"There are signs that cause us to be ever more diligent in making sure good policies come out of Washington," he said.

Sitting around a table with his economic advisers in the Roosevelt Room, the president warned Congress against taking steps that would increase taxes. "If the foundation is strong yet indicators are mixed, the worst thing Congress could do is raise taxes," Bush said.

CNN (http://money.cnn.com/2008/01/04/news/economy/bush_economy.ap/index.htm?cnn=yes)

Where by "strong" he means "almost completely fucked", I guess

o Dow currently: 12,807.74 -248.98 -1.91%

o Dow gain over last 12 months: about 5% (but dollar lost over 10% against Euro, so in 'real' money Dow LOST over 5%)

o Unemployment now 5% (official, playing all kinds of games with jobs 'assumed created')

o Irony is lost on these guys: "with his economic advisers in the Roosevelt Room . . . "

[SouthernFried]

Where by "strong" he means "almost completely fucked", I guess

o Dow currently: 12,807.74 -248.98 -1.91%

o Dow gain over last 12 months: about 5% (but dollar lost over 10% against Euro, so in 'real' money Dow LOST over 5%)

o Unemployment now 5% (official, playing all kinds of games with jobs 'assumed created')



When did the EURO become the basis for "real money?" It only means if you changed the dollar into Euro's, you would get less Euro's.

So, In Euro's...the Dow has went down. In Dollars, the Dow has went up. That is all that particular statistic means. If you used the Japanese Yen as your basis for "real money," the Dow's value has been steadily increasing since 1995.

And all through the latter half of the 20th century, 7% unemployment has been considered "full employment."


Like I said...people decry stats that make the other side look better, then turn around and use different ones just as innapropriately...to make their side look better.

so it goes...and goes...and goes...ad nauseum

[boutons_]

dubya getting worried, in the Mad "What? Me worry?" style, about the super strong economy:

http://www.nytimes.com/2008/01/04/washington/04bush.html?adxnnl=1&adxnnlx=1199487940-AjOwUEE4hbY8wz/PJOR50w

[SouthernFried]

If you cannot process a coherent thought...just post the email of the persons thoughts your using.. instead of a link.

We'll all be much happier trading emails with the person who's actually doing the thinking...than with the middleman who is just relaying messages.

Thanks.
SF

[BradLohaus]

When did the EURO become the basis for "real money?" It only means if you changed the dollar into Euro's, you would get less Euro's.

So, In Euro's...the Dow has went down. In Dollars, the Dow has went up. That is all that particular statistic means. If you used the Japanese Yen as your basis for "real money," the Dow's value has been steadily increasing since 1995.

Yeah, gold is the true money. But comparing the Dow to gold over the last 5 or so years isn't pretty. That tells us all we need to know about real returns.