G'day Penpals,
Have been at my musing again, and doing the rounds of my fave miserabilist
sites - am going to bed with the following dark forebodings ...
There's a bloke called Stephen Jen, who reckons the greenback will land softly
much in the way an asteroid does:
"In recent weeks, the dollar has failed three
tests as the sole safe-haven currency. First, the dollar usually rallies on
tensions in emerging markets. Pressures in Argentina have been brewing for
several weeks, yet the dollar has not rallied. Second, the dollar is usually
bought when tensions rise in the Middle East, but the dollar has failed to
rally despite the escalating conflict in Israel. Third, the decision by the
Bank of Japan to ease yesterday was a major re-orientation in policy, in my
view. Despite the fact that it was totally unexpected, dollar/yen failed to
make a meaningful advance. The fact that the dollar did not rally in these
three situations suggests that the dollar may be losing its monopoly over
safe-haven flows."
I know Ellen has compelling arguments against this, but my understanding of
political economy is that things don't do anything softly in a financially
calibrated global system that operates at the speed of light. A lower
greenback might help US manufacturing (in precisely the way seven rate cuts
haven't - I noticed this last one hasn't even occasioned the usual
blip-to-the-black), but it'll hit the rest of us pretty hard (for instance,
all Australia's growth of the last couple of years has come via our export
sectors, and we're not alone in this).
So Uncle Sam's producers badly need a lower dollar, and the other six billion
of us badly need a strong one, and the US badly needs us to get what we need,
so we can buy the stuff your producers need us to buy (coz effective demand in
the US itself has to be affected by the fact that [a] any Yank with an income
must have a house full of new stuff already, [b] any Yank with a quid on the
markets must have less than s/he used to have, [c] any older boomer must be
very careful with whatever nestegg is left him, [d] most Yanks owe more than
they've ever owed before, [e] blue-collar America is getting scourged, [f]
there is a demographic trough, so fewer young folk are going to be joining the
consumption queue than, and [f] energy costs have been dropping to meet a
sagging market. but seem to have stopped dropping now).
The BLS remind us that "This Christmas could be even bluer than last. Though
it is only August, retailers are bracing for what some say could be the worst
holiday season in a decade. Hopes are being quashed by eroding consumer
confidence, layoffs, and rising energy costs, especially in California (*WSJ*,
page B1).
So a lower dollar can work only if it helps US exporters, and if these
producers don't have faith in that (which they might well not, given the
global droop), well, then the lower dollar might mean higher capital
investment costs in a time of lower projected domestic demand. In which case
the lower dollar actually militates against economic recovery ...
And Prudent Bear (which, miserabilist wretch that it is, just keeps getting
the calls right), updates the case for a creaking buck: 'the US has a large
current account deficit, in absolute terms ($400 billion plus), relative to
gross domestic product (more than 4.5 per cent, the highest ratio in almost
200 years) and relative to exports (nearly 40 per cent). This growing external
imbalance has occurred at a time of unprecedented private financial sector
deficits, a negative household
savings rate, and in the context of a rapidly slowing global economy, the
source of which is largely American in origin'.
You'd just about have to be a miserabilist, wouldn't you?
Doug?
Cheers,
Rob.
