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USA wages economic warfare with low dollar

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posted on Dec, 27 2004 @ 09:39 PM
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I daytrade, and am active in the currency markets. Since Jan/04 I have been focusing on shorting the dollar.

For those of you who don't follow foreign exchange, you will probably be surprised to see me mention a return to the gold standard. In high-school history classes, we are told that gold was inefficient and exascerbated market cycles. If you do some reading on the web (foreign, and especially french/german economic analyses) you'll see that most of the world outside of USA/UK still takes the idea seriously.

While the US treasury dept. tries to "jawbone" a strong dollar policy, they aren't backing it up with any words. They have allowed (I believe they have actually incouraged) a weaker dollar because of its effects on our economic rivals.

1. China.
China has "pegged" it's currency (yuan) to the dollar. Their goal is to keep chinese-made goods inexpensive for US consumers. Basically, in order to keep the yuan suppressed, they have bought tons of US debt, so that their holdings are mostly in dollars. They must also use their secret police to stop absolutely ALL black-market moneychangers, which is fundamentally impractical, as the true value of the yuan grows "inside" of china. Basically, the chinese are paying for the privelege of doing business with the usa, and cracking down mercilessly on their own people as their economy shows signs of stalling.

2. The southeast asian "tigers"
These nations have been hurting for business since 1997, and began doing business in China, so they need to follow China's economic policiy vis-a-vis the USA. There are some hints that China has actually threatened them if they don't play ball.

3. Russia
Russia is a geopolitical rival with the US, but an economic rival with the EC. Their immediate hope is to see the EC collapse, so that they have a hope of pulling eastern europe back into their orbit. Interestingly, the state-controlled mining interests in Russia have curtailed gold sales, contributing to the world-wide rise in gold prices. There is some speculation that THEY want to return to a gold-backed currency, in which case they could be an economic threat to europe, and a geopolitical threat to the USA.

4. The European Union
The Eurostate is probably the biggest threat to the US's economic hegenomy. France, the power behind the euroconomy, has been a rival w/ the US since the late 60's, and has stepped her confrontation into high gear since about 1998. Many French economists still believe in DeGaulle's doctrine of a gold-backed currency to overwhelm the USA's credit-based economy. While you won't hear them speak of it, you can catch them talking about "growth with minimal inflation," which is code for a non-fiat medium of exchange.

If you are trying to build a currency that doesn't fluctuate alongside the dollar, you need to back it with a commodity (gold) or an economic measure (oil sales). You cannot use debt, because all world debt is affected by the USA's economic hegenomy. If you want to cause America to decline w/out being sucked down alongside, you need a currency backed w/ something besides debt.

To make the transition to a backed currency, the euro needs very low interest rates, so the European Central Bank doesn't have to pay for the privilege of changing to the new (backed) currency.

The problem is, as the dollar falls, everyone shifts their acconts into euros, thereby driving up demand, and putting a premium on them. The premium expresses itself as a sort of de facto interest rate. This premium is putting the squeeze on germany's economy, and threatening France's as well.

Normally, the way you would fix it is to print more money. But doing so pushes you away from a backed currency, and makes you more like the US. Not what you want if you want to see their economy decline. The other option is for the member states to sell their remaining gold stocks in the B.I.S., but that defeats the whole aim of a backed currency.

The euro's problem's are compounded because different member states want different things. Southeast Europe wants an appreciating euro, because they sell raw commodities. North and West want the opposite.

I have seen predictions by some professional forex traders that, if the eurobank doesn't find a solution soon, the euro will cease to exist by 2010.




posted on Dec, 27 2004 @ 09:52 PM
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I thought I would never see this type thread presented in ATS.
Seeing it gives me a major, major deja'vu.
I wrote and posted this (below) prior to Christmas:


What effect in Europe is the over-valued Euro having? Rumors abound on everything from inflation to the high cost of living to crippling the economy...
Basically, the under-valued "weak" dollar really affects who worse?
I see a strategy being played out here....

US Dollar hits all-time low against Euro: Post Number: 1044158

Most excellent observation, dr_strangecraft.





seekerof



posted on Dec, 27 2004 @ 09:55 PM
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Actually, the weaker dollar was inevitable because of the continuing large US trade deficit and budget deficit. A lower currency, and higher interest rates, will help counter the trade deficit. There are signs that with the election out of the way, the US govt. will start addressing the budget deficit. The trick is to manage both problems without causing a recession or worse.

China's economic growth is very high in good measure because the currency is pegged, and is not being adjusted. Hence, the Chinese economy's strength is somewhat artificial and unsustainable. Either they will need to let it float higher, or another typical boom and bust will play itself out.

I don't agree with your apocalyptic scenario for the Euro. I think the US "hegomony" is illusory (the post war monopoly based on war ravaged Europe and Japan, and shackled communism, is over), and why you would see Europe as a threat is a mystery to me. Surely their economic stability and prosperity is a good thing for a trading nation like the US. As for centripetal forces, sure, they exist, but the European Community is getting larger, not breaking up. The frictions will be negotiated, as always.



posted on Dec, 27 2004 @ 10:01 PM
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I didn't say it was a good thing. Sorry if it came out like that.

I don't subscribe to the "There can be only one" mentality.

Honestly, I don't know for a fact that the USA's executive branch does, either. But I do believe that both economies (EC & USA) are competing for business with the same bunch of oil producers and developing nations.



posted on Dec, 27 2004 @ 10:07 PM
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Thanks for the clarification. Its a complex enough subject without trying to parse the nuances. Good luck with the daytrading - I hear the attrition rate is high... takes a steady nerve... do you manage to make a living at it, or is it a hobby? I suppose it must give you a different perspective on the world economy than I get just from reading the Economist.



posted on Dec, 27 2004 @ 10:14 PM
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Interesting post dr_strangecraft. I don't know much about economics but this part of your post:


The other option is for the member states to sell their remaining gold stocks in the B.I.S., but that defeats the whole aim of a backed currency.


Reminded me of when the UK's Chancellor of the exchequer Gordon Brown sold 415 tonnes of the UK's 715 tonnes of gold in 1999. No one (at least in the press) seemed to be able to make sense of the decision at the time.

This site talks about it and give it's own reasoning but does mention this:


It is possible that the sale is a pre-cursor to joining the European Monetary Union. Most members have already reduced their holdings, as part of their entry to ERM. ERM members can only make reserve disposals with the permission of the European Central Bank.


Do you agree with that or do you see a different reason?



posted on Dec, 27 2004 @ 10:45 PM
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I have been daytrading for 12 years now; mostly in commodities, although moving now more and more into purely currencies. I have a "regular" job where I am in mgt, and my flexible hours let me day trade w/out anyone in my daily life (except Frau Dr.) knowing about it.

I and several extremely close friends formed a corporate entity several years ago; I am the general manager, and guide the trading strategy. My share of the returns are not enough that I can quit my day job (just yet!). We get together for an annual reunion, distribution of gains, and shareholder meeting after Christmas each year. Beer and fine cheese is served!

As to Kegs' question.

You have to remember that every press release you see from a government is a p.r. job. Notice that they don't tell you UK's total net gold holdings, or whether someone else was paying them in gold, and they didn' t want a full warehouse going into historic lows.

Second, I don't think that UK is playing along with EC monetary policy. The UK public's demand for a separte currency keeps them on a separate course. The longer they go without switching to the Euro, I believe, the less likely they are to ever do so. Like the Swiss, there are definite gains to being a fairweather friend of the EC, but holding on to your own currency, for when the bluff is finally called.

Third, the history is pretty complicated, but the gold sales by central governments at the close of the millenium was simply a funeral epitaph for the Bretton woods agreement. That agreement, based on Keynes' theories, basically admitted that the world was still using a de facto gold standard. So what they did was "demonetize" gold by saying that only the gold in member vaults could be used for international payments. So no matter how much more gold was ever mined, only what the central banks already owned was "money" for paying international debts.

The whole bretton woods thing began to fall apart as early as 1967, when De Gaulle tried to get France back on the literal gold standard. Not buying BIS gold, but buying and holding newly-mined gold. That helped Nixon get off the silver standard, and move America to a purely "debt-backed" dollar.

Once the Philedelphia exchange started an open auction in international currencies, Bretton Woods began to dissassemble itself and become less and less relevant. The sales by G7 in the nineties was sales of the original BW "magic" gold. It was public notice from Bank of England that they wouldn't play along any more.

With the open market in currencies, changes that used to take decades now take a year. From currency outlook, those 1997-99 gold sales are "ancient history."



posted on Dec, 27 2004 @ 11:02 PM
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Just a thought:
Other than the Europe, what country or nation is pegged to the Euro?




seekerof



posted on Dec, 27 2004 @ 11:30 PM
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Originally posted by Seekerof
Just a thought:
Other than the Europe, what country or nation is pegged to the Euro?




seekerof


This site here has a list of countries who are using the Euro or are pegged to the Euro: (I included European Nations also)

www.wilkiecollins.demon.co.uk...

The Official Currency
31 States and Territories use the euro as an official currency

Twelve countries in the EU:
Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain

Four small European states:
Andorra, Monaco, San Marino and Vatican City

Seven French overseas departments and territories:
French Guiana,, Guadeloupe, Martinique, Runion, St Pierre-et-Miquelon and Mayotte.

Five Spanish territories in Northern Morocco:
Ceuta, Melilla, Islas Chafarinas, Penon de Alhucemas and Penon de velez de la Gomera.

Two Balkan countries:
Kosovo, Montenegro

Fixed To The Euro
Fourteen West African countries - Members of the Zone Franc
Benin, Burkina Faso, Cameroon, Central African Republic, Chad, Congo, Equatorial Guinea, Gabon, Guinea-Bissau, Ivory Coast, Mali, Niger, Senegal and Togo

Three French overseas territories
French Polynesia, New Caledonia and Wallis and Futuna Islands.

Two African island countries where the currency was pegged to Portuguese or French currency
Cape Verde and Comoros

Three former Communist countries where the currency was pegged to the German mark
Bosnia-Herzogovina, Bulgaria and Macedonia

One North African country
Morocco

Four European Union countries
Cyprus, Denmark, Estonia and Hungary.

More nations will be using the Euro in the future.



posted on Dec, 27 2004 @ 11:38 PM
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Let me see there AceofBase,
31 from 189 leaves....hmm....approx. 158 'pegged' to the U.S. dollar?




seekerof



posted on Dec, 28 2004 @ 12:19 AM
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Originally posted by Seekerof
Let me see there AceofBase,
31 from 189 leaves....hmm....approx. 158 'pegged' to the U.S. dollar?


Nope.
31 countries use the Euro as their national currency.
27 have their own national currencies which are pegged to the Euro.
10 more nations will adopt the Euro by 2008.
8 others may join the Euro in the next 6 years.

So that's 58 nations so far with perhaps 76 nations by 2010.

Your calculations on which countries are 'pegged' to the dollar need to be adjusted because many nations are not pegged to anything.

The Canadian dollar, the Australian dollar, the British Pound, the Swiss Franc, etc... are all independent.

The is what wikipedia has to say about the US dollar:

en.wikipedia.org...
A few nations outside of U.S. jurisdiction use the United States dollar (USD) as their official currency. These nations include Ecuador, Palau, East Timor, Panama, the British Virgin Islands, and the Federated States of Micronesia. Additionally, the local currencies of Bermuda, The Bahamas, and a few other states can be freely exchanged at a 1:1 ratio for USD. Argentina used a fixed 1:1 exchange rate between the Argentine peso and the U.S. dollar from 1991 until 2002. The exchange rate between the Hong Kong dollar and the United States dollar has also been fixed since the early 1980s, and the renminbi used by the People's Republic of China has been informally and controversially pegged against the dollar since the mid-1990s. Malaysia has formally pegged its ringgit to the dollar since 1997.

The dollar is also used as the standard unit of currency in international markets for commodities such as gold and oil. Even foreign companies with little direct presence in the United States, such as the Euro zone Airbus Industrie, list and sell their products in dollars.

The majority of US paper currency is actually held outside of the United States.



posted on Dec, 28 2004 @ 12:35 AM
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The whole point to this AceofBase, is that with the ever increasing over-inflation of the Euro, just exactly who here is benefiting from this?
Are the European's with their 10-12% unemployment? Their approx. 1.1-1.5 economic growth rating? Or is it the U.S. with their 5.5-5.4% unemployment and 4.5% economic growth rate?

Whether anyone wants to admit it or not, the entire world's 'economy' is tied to the U.S. economy and its success or failure. There is a reason why the U.S. is lax on strengthening the dollar. Some can continue to think and postulate that the U.S. is on borrowed time, but in reality, it just may that the huge ballon that the Euro is inflating that may well be the one on borrowed time. Time will only tell, correct, I mean after all, fads do come and go, and only the strong survive....





seekerof

[edit on 28-12-2004 by Seekerof]



posted on Dec, 28 2004 @ 12:37 AM
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How can you be waging economic warfare when you have no control over what people put their money in? A strong currency is good for anyone wanting to make "finished goods" like TVs, radios, clothes ect. because you can get cheap labor in countries with weak currencies and buy the materials needed at a low price. It also makes it cheaper to buy the equipment to manufacture things in your own country. There is a reason why most 1st world countries have strong currencies and the 3rd world has weak currencies and it isn't because weak currencies are better... Also you can't just fix it by printing more money, ever heard of inflation?

[edit on 28-12-2004 by Trent]



posted on Dec, 28 2004 @ 08:02 AM
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Extremely interesting topic, I thank dr.strangecraft for bringing so much to my attention! Until now, I used to think that the US was simply trying to reduce its enormous trade deficit by weakening their currency and making their goods more attractive for the foreign customers, while making foreign goods less attractive for the US buyers. Living in the EU, and importing lots of goods straight from the US, this is quite a good time for my trade (I am selfish, you know), but I wonder how long will it last. Europe is in the middle of an economic slump. Inflation is "officially" under control, but it's been "actually" rampaging since the inception of the Euro in 2002. Prices are soaring while wages are still pretty much at 2001 levels. You see this everyday: people have less money to spend, goods consumption is falling, etc. Big scale economy is also starting to show the strain: industries are closing shop, or relocating to more convenient locations (Romania, Poland, China, etc), leaving thousands of people jobless, welfare is called in much more often to ensure many people can mantain a minimum living standard, etc. Europe has a pretty much "stagnating" economy: to grow economically it needs exports much more than, let's say, China or the US. The high Euro is really slowing things down: even luxury items production (usually untouched in time of economic crisis) is starting to feel the heat, since foreign customers now prefer US or Japanese brands (cheaper, thanks the exchange ratio). The EU Central Bank is seemingly powerless in this affair: they acknowledge that in the long run the high Euro will choke the economy, but at the same time are pleased that in the short term the higher Euro will ease the commercial deficit towards our traditional "raw material" suppliers. In short, it's a mess and I don't know how it will end...



posted on Dec, 28 2004 @ 09:19 AM
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Personally, I believe that the market will ultimately decide the value of both the $ and euro.

Economists talk about what the US admin "could" be doing. Personally, I don't think it would work. If you have a product for sale outside your own domain, then the market will decide price. You can prop up the value for a short time, but you will pay for the privilege; which only proves that the free market is king.

I will also say that I'm looking for a top in the Euro. I'm still long, but looking for the end of this up-cycle.



posted on Dec, 28 2004 @ 09:33 AM
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If this is economic warfare on the part of the US, I think their thinking same as with the war on Iraq is seriously flawed. Yes of course, the Europeans will suffer but like I said in the other thread, I believe the negatives to a weak dollar outweighs the benefits. Especially in the Caribbean and countries that use the US dollar to back their economies. Americans may not be suffering quite yet, but in a country where the exchange rate is $160 to $1 and prices for goods are based on the dollar, the people are already suffering having to dish out more of their dollars to buy everyday goods.

I think the momentum in the forex will change when Japan finally intervenes and curb the strenghtening of the yen, only then will the rest fall into place. I don't think the EU or US will intervene, my bets are on Japan, but we'll have to see.



posted on Dec, 28 2004 @ 09:43 AM
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Originally posted by AceOfBase
Twelve countries in the EU:
Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain


Now theres a list i'd be happy with....no UK


The US and the EU is bound to conflict, neither likes the other too much and both want economic kingship.



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