Tutor me in Economics 101 re the dollar.

[TNDemo]

Say the dollar continues to drop and foreign investors decide to pull their money and put it elsewhere to make more money - what is affected the most? Stocks take a big fall? Bonds go up? Will a mutual fund weather the storm if it is diverse enough?

[WMliberal]

1. shit dude, just buy EU bonds.

or japanese.

[FloridaPat]

8. How do you buy Euro bonds?

[Mike03]

2. One possible scenario from Northern Trust:

Chain reaction when Foreign Central Banks Stop Supporting the Dollar:

1. Falling dollar and strong foreign economies stimulate U.S. exports.
2. This leads to upward pressure on U.S. inflation
3. Fed responds to inflation by spiking policy interest rate
4. Higher interest rates provide incentive to U.S. households to "cut their deficit"--that is increase their savings.
5. Foreign currencies will have the wind at their back.
6. U.S. interest rates will rise
7. Output and corporate profits will shift away from industries related to interest-sensitive consumer spending, including housing, toward those that are export-oriented.
8. Basic material prices will rise...
9. ...resulting in higher interest rates that could shock the highly indebted household sector.
10. ...and which could shock an expensive housing market
11. A shocked housing market could severely damage the banking system (due to mortage positions, derivatives and leverage?)
12. A severe decline in the housing market may cause real estate values to fall significantly, if this happens:
13. Household wealth would decline, putting a crimp in consumer spending
14. The ripple effect of weaker consumer spending would increase unemployment
15. Increased unemployment would lead to mortage defaults
16. Mortgage defaults would lead to further downward pressure on real estate values
17. Mortgage lenders, including banks, could suffer significant losses.

[junker]

3. sure, all mutual and money funds will weather the storm no worries....but

it will take 150 dollars to buy a gallon of gas...and 455 dollars for a loaf of bread. But, hey, you'll be awash in dollars. And, what with the price of TP being 90 a roll, why all those dollars will come in handy.


go read about wiemar republic 1923

[54anickel]

7. Hey Junker! Long time, no see. Welcome back. n/t

[junker]

4. BTW: in 2003, more credit card charges went for food and bills, than for

clothing + vacations (here in USofA where we don't manufacture squat no more no more).

[sprinter]

5. Wages Are Stuck

Don't forget that wages haven't gone up in years (and real wages have fallen). Unlike past inflation spurts, wages went up with prices. This time prices will go up by themselves.

[elsiesummers]

6. A couple of websites for you

First, a warning, this guy is a Republican, but I do think he is a measured and naive Republican (he actually suggested that they raise taxes on the rich to fund Bush's transition costs on social security plan).

Read John Mauldin's work at www.frontlinethoughts.com. Go to Arcive link, Oct 29 Premise#3: A falling dollar. This particular letter is a great jumping off point - especially the three falling dollar scenarios.

Something to remember - as the dollar falls it takes more money to buy the same items - so it's inflationary. Also, buy of debt by foreign countries (mentioned in your question) is an effort of, for example, China and Japan, to keep their currency values from increasing. <b>If our debt became unpopular (like your original message) then our Fed would have to raise interst rates to attract foreign investors.

You have to register and then he sends you biweekly emails. Registering has not caused me problems.

Read the archives - he offers a lot of knowledge, for free.

Also: Read the dailypfennig. It is a dollar-bearish daily currency newsletter written by Chuck Butler. It is available at www.dailypfennig.com. The writer is the head currency trader at Everbank, an online bank with a specialty in foreign currencies.

If you sign up for these two letters, or read these sites, you will get it.

Other great info sources: Try Andrew Tobias - www.andrewtobias.com - do a search of his archives - he is the DNC treasurer - and a financial writer. He doesn't write about the dollar regularly, but occasionally gives over a column to macro.

Go to pimco.com and read Bill Gross for more macro stuff - he writes monthly.

Also, at Morgan Stanley, the most bearish of all bears, Stephen Roach.

So you aren't entirely bogged down by dollar bears (for perspective), while at Morgan Stanley you could read Andy Xie, as well.

For a weekly, pro-gold US stock market/dollar bearish, commentary, try "Contrarian Chronicles" - at msn.com, by Bill Fleckenstein.

[54anickel]

9. Thanks for the links. The questions I keep wondering about relate to

the huge amount of dollars that will be coming home next year.

A declining dollar is basically good for profits, especially for multinational corporations. As they repatriate their foreign profits into US$, they just get a heck of a lot of US$ in exchange.

So how does the Jobs Creation Act that Shrubby just signed at the end of October play out? Multinationals that have been "hiding" their profits in tax-shelters overseas will be allowed to repatriate that money at a 5.25% instead of 35% tax rate for the 12 months of 2005. This should boost stated corporate profits even more.

While all this profit boosting may bode well for the stock market (assuming an orderly decline in the value of the US$), what will the effect of all these dollars washing back up on shore mean? Will it be a huge shot of liquidity floating around in the system? Will it result in asset bubbles or possibly extreme rates of inflation?

:shrug: