[metalheadpunk]

Originally Posted by Drew

So, in 2000, one dollar would buy you 1.2 Euros. Today, one dollar will buy you about .6 euros; the dollar has fallen by half in relation to the Euro. Is it any wonder, then, that USD prices for oil have skyrocketed? Return the dollar to pre-Bush strength, and gas prices fall by half, back to about $1.50-1.75 a gallon. Sure, there are other factors in play, not the least of which political instability in the region, but you can't seperate the drastic increase in oil prices with the drastic fall in the value of the dollar.

the question then becomes how do we restore the value of the dollar. unfortunately, it may be about to get much worse. china is one of our largest trading partners and they have large reserves of USD. if they were to diversify these dollars and trade more in euros and british pounds etc....the dollar would plummet further. this is actually pretty likely to happen. on the other hand, saudi arabia is still a close ally to the US, and they are still the largest oil producer and exporter. they will continue to trade oil in USD. now, this keeps the cost of oil high, but helps keep the USD relevant. what needs to happen is the federal reserve needs to stop flooding the market with USD. also of note, as the dollar falls, goods from other countries become much more expensive. thus, export driven economies (such as those in asia and europe) cannot afford the dollar to fall too much. what needs to happen is US interest rates need to rise so that foreign investors feel comfortable investing in USD again.

[Drew]

Originally Posted by metalheadpunk

the question then becomes how do we restore the value of the dollar. unfortunately, it may be about to get much worse. china is one of our largest trading partners and they have large reserves of USD. if they were to diversify these dollars and trade more in euros and british pounds etc....the dollar would plummet further. this is actually pretty likely to happen. on the other hand, saudi arabia is still a close ally to the US, and they are still the largest oil producer and exporter. they will continue to trade oil in USD. now, this keeps the cost of oil high, but helps keep the USD relevant. what needs to happen is the federal reserve needs to stop flooding the market with USD. also of note, as the dollar falls, goods from other countries become much more expensive. thus, export driven economies (such as those in asia and europe) cannot afford the dollar to fall too much. what needs to happen is US interest rates need to rise so that foreign investors feel comfortable investing in USD again.

...but US interest markets won't/can't rise, because to do so would cause thousands if not millions of sub-prime borrowers to default on mortgages they can't afford, and while honestly a dose of fiscal reality is what the US economy needs, no one actually wants that blood on their hands.

Consider things from the perspective of the Chinese, too; it's a little less likely to happen, short of a total US economic meltdown, that it might seem at a glance. They hold a LOT of USD-denominated debt. They keep buying the stuff because it keeps us happy to keep importing Chinese exports, and it goes straight back into their own economy. It makes perfect sense short term, but over time they've built up staggering USD reserves. If they suddenly said, "screw this, it's not worth it any more" and dumped their assets, the value of the USD would absolutely bottom out. Why is that a problem for them? Because in that seller's market, not only would they have a hard time even finding buyers, the buyers that they'd eventually find would only be willing to purchase in an oversaturated market WELL below face value. In short, the Chinese would take tremendous losses on liquidating their USD holdings. They're just as fucked as we are.

You can only blame the Federal Reserve so far - inflation is rising but so far is within control. What I would argue the problem is is the federal deficit, the fact that we keep needing to borrow several billion dollars a day to meet obligations because our president wants to keep spending much more than he's taking in on taxes. If total outflows is bigger than total inflows, no matter how you dice it you're going to have problems.

[metalheadpunk]

Originally Posted by Drew

...but US interest markets won't/can't rise, because to do so would cause thousands if not millions of sub-prime borrowers to default on mortgages they can't afford, and while honestly a dose of fiscal reality is what the US economy needs, no one actually wants that blood on their hands.

Consider things from the perspective of the Chinese, too; it's a little less likely to happen, short of a total US economic meltdown, that it might seem at a glance. They hold a LOT of USD-denominated debt. They keep buying the stuff because it keeps us happy to keep importing Chinese exports, and it goes straight back into their own economy. It makes perfect sense short term, but over time they've built up staggering USD reserves. If they suddenly said, "screw this, it's not worth it any more" and dumped their assets, the value of the USD would absolutely bottom out. Why is that a problem for them? Because in that seller's market, not only would they have a hard time even finding buyers, the buyers that they'd eventually find would only be willing to purchase in an oversaturated market WELL below face value. In short, the Chinese would take tremendous losses on liquidating their USD holdings. They're just as fucked as we are.

You can only blame the Federal Reserve so far - inflation is rising but so far is within control. What I would argue the problem is is the federal deficit, the fact that we keep needing to borrow several billion dollars a day to meet obligations because our president wants to keep spending much more than he's taking in on taxes. If total outflows is bigger than total inflows, no matter how you dice it you're going to have problems.

agreed. irresponsible lending has created the mess. AND, the chinese won't DUMP their USD, but they will diversify their holdings, as the rest of the world has been doing in response to the crisis here. which will have a negative effect on the USD. you are absolutely correct that too low of a dollar would crush the Chinese. it would make imports from china much more expensive here.

[Drew]

They pretty much have to diversify at this point, however the dollar's down so far as it is that even now they're selling at a loss. In their shoes you have to at least consider the possibility that the dollar will recover and they can recoup most of their unrealized losses.

Going forward, though? Yeah, I can totally see a reluctance to take on new USD debt... And considering how much we depend on it, we're in trouble. The sooner we get on track to a balanced budget again, the better.

[metalheadpunk]

Originally Posted by Drew

They pretty much have to diversify at this point, however the dollar's down so far as it is that even now they're selling at a loss. In their shoes you have to at least consider the possibility that the dollar will recover and they can recoup most of their unrealized losses.

Going forward, though? Yeah, I can totally see a reluctance to take on new USD debt... And considering how much we depend on it, we're in trouble. The sooner we get on track to a balanced budget again, the better.

and the dollar still can recover if the right steps are made. today the fed is expected to deliver only slight rate cuts, then back off of cuts for the foreseeable future. and the dollar has been on the rise since that all time low point a few months ago.

[Drew]

Haven't been following them, actually - foolish, really - but i mean, you figure they really can't cut much more, you know? Another few three quarter point cuts, and they'll be paying you to borrow money.

My lease doesn't expire until January of this year, but part of me is kind of wondering if it wouldn't be a bad idea to call up the dealership and talk to them about terminating the lease early and just buying it outright now, to lock in a lower interest rate...

[metalheadpunk]

Originally Posted by Drew

Haven't been following them, actually - foolish, really - but i mean, you figure they really can't cut much more, you know? Another few three quarter point cuts, and they'll be paying you to borrow money.

My lease doesn't expire until January of this year, but part of me is kind of wondering if it wouldn't be a bad idea to call up the dealership and talk to them about terminating the lease early and just buying it outright now, to lock in a lower interest rate...

probably would be a great idea actually.