On Fri, 26 Nov 2004 20:15:09 -0700, "John P. Mullen" <jomullen@zianet.com>
wrote:

>MacHamish wrote:
>
>> On Thu, 25 Nov 2004 21:11:42 -0700, "John P. Mullen" <jomullen@zianet.com>
>> wrote:
>> 
>> 
>> <snip>
>>>
>>>The dollar going crosswise with the Euro is something to worry about.
>> 
>> 
>> I absolutely agree.  The question is, who should worry more, USAians or
>> EUians? 
>> 
>>
>
>Well, considering the direction of the change, I'd say the USAians.  At 
>least any USAians buying European products, such as flu vaccine.

On the other hand, it makes European products much more expensive, not only
in the US but in every export market, at the precise moment in time when
Europe needs an economic boost.  Unemployment is already too high in
countries like France and Germany, and the social welfare programs are
putting a heavy burden on the tax base.  In the meantime, the world is
menaced by a bunch of religious kooks on a jihad, and the left is siding
with them.

The world sure is in a hell of a mess, eh.

>>>The countries that have pegged currencies, except for China, would have 
>>>no power to stabilize the USD and, as I pointed out above, China may 
>>>unpeg soon.
>> 
>> 
>> China may unpeg soon under heavy pressure from the IMF and the major
>> countries' central banks.  They'll resist it as long as possible because the
>> declining dollar benefits China by making its exports more competitive.
>>
>
>True, and as long as the central government can get cheap labor and skim 
>immense profits out of the exchange, they will resist.  But eventually, 
>as happened in Japan, Korea, etc. the workers will become more 
>experiences and want a farer share of the pie.  At that point,t he 
>leadership will realize how much the pegging is costing them and will 
>allow a float.

I'm not sure I understand your point, but if you mean that market driven
adjustments will occur over time, I agree.  That's the nature of markets.

>How long that will take is anyone's guess, but it is starting in Hong 
>Kong already.

Thank the gods for Hong Kong.  Kudos to Britain for giving it back to the
communists.  What looked like a terrible idea at the time turned out to be a
good thing by showing the Chinese Communists the benefits of a system based
in freedom.  They're not all the way there yet by any stretch, but they're
moving in the right direction thanks to the example of Hong Kong.

>> Certain countries whose currencies aren't pegged to the dollar have the
>> biggest problem.  Their exports to the USA become more expensive in the
>> world's biggest market, a market they've come to depend on for their
>> prosperity.
>
>Well, Europe is a pretty big market, too.  India is getting pretty big. 
>Also, eventually, China will be a huge market.

Yeah, ain't it great!!??  All these markets becoming more open and affluent.
It's a good thing for the whole world.  It will kick off a new wave of
growth into the future, and the USA is in a better position to compete with
the dollar at these lower levels.  That's the silver lining.

>> That's why countries like Japan and South Korea have been
>> intervening in the currency markets to stem the dollar's decline.  This has
>> happened before.  It never works over the longer term, and it obviously
>> isn't working now.  Intervention distorts the free market.  The "invisible
>> hand" will give them all a good slap before it's over.
>>
>
>When there is a small to moderate leak, bailing works, but the USA ship 
>is taking on too much water for that to work now.

That's extreme pessimism in my view.

>> The fact is, the US can't continue to run the massive current account
>> deficits of the past few years.  $50 billion + per month simply isn't
>> sustainable.  There has to be an adjustment.
>> 
>> 
>
>Indeed!
>
>>>You argued that the countries with pegged currencies would take action 
>>>to keep the USD up, but there is no reason to expect such a thing. 
>> 
>> 
>> No, I didn't.  That was Rykk, I believe.  
>
>Sorry.  You are right. It was Rykk.  My mistake.
>
>> He's right where China is concerned.  
>
>Well, for the moment.

"For the moment" is what counts.

>> China, along with other major exporting countries, has been
>> buying US dollars to slow the decline.  It's a two edged sword, you see.  A
>> lower dollar is good for China in competitive terms, but it's bad for China
>> in that it devalues their holdings in US assets.  What the whole world wants
>> and needs is stability in the currency markets, even if it means a lower
>> USD.
>> 
>> 
>
>Well, it is a bit iffy now.  To keep liquid, the US has to get billions 
>of dollars every week in new loans, about half of which comes from 
>foreign investors.  The interest rates are low and the investment is 
>getting riskier.  Sooner or later, there will be nobody left willing and 
>able to loan.  At that point, inflation or recession.  Take your pick.
>
>:-(

Probably both, but in any case a necessary adjustment for the better.  Look,
my position is that we wouldn't be in this situation were it not for
manipulation of the markets by every government with any clout, not just the
USA.  I trace this back to the elimination of the gold standard.  That's how
conservative I am.  Nevertheless, this is where we are now.  Where do we go
from here?  The first thing we need to do is defend our freedoms against a
medieval death cult based in bizarre superstitions.  

>>>Those countries currently pegging their own currency against the USD 
>>>will either find a more stable currency or go along for the ride.
>> 
>> 
>> That's brilliant.  All you're saying is that they'll either stay as they are
>> or do something different.
>> 
>>
>
>The idea of pegging is stability.  If the USD doesn't offer stability, 
>they will find a currency that will.

They'll let their currency float like other currencies.  The world's central
bankers will not allow them to peg to a different currency.  That would be
too egregious.

>>>You certainly provided no credible evidence to support your claim.
>> 
>> 
>> I made no claim.  All I did was point out that the Chinese Yuan and a few
>> other currencies are pegged to the US Dollar, contrary to your claim that,
>> "It seems like nobody tracks to the USD".
>> 
>
>I did say "seem."  I checked about a dozen, none of which tracked.  I 
>did not pick China, because I know they did not have a currency that was 
>influenced by market forces.

All currencies are influenced by market forces, including currencies pegged
to the USD.

>> I will make this claim, though.  Before this is over, there is likely to be
>> a round of trade protectionism bigger than ever before.  Trade wars
>> sometimes lead to shooting wars.  That's the scary bit.  
>> 
>> MacHamish M$(D??(Br
>
>Well, I hadn't though of that, but it could happen.  I don't think it is 
>likely to be directly from the US, govern the US current commitments, 
>but proxy wars are always an option.

I don't understand you point.


MacHamish M$(D??(Br