The Dollar is Falling. Is the Sky?

[Thailandnotes]

Here's hoping "The Falling Dollar" video gets more of the clicks it deserves.

A link is here and at the bottom. "The Falling Dollar."

http://www.itulip.com/forums/showthread.php?t=3240

Once you get past the silly hospital scene, the juxtapositions work perfectly. The disheveled, globe-trotting Max Keiser is a hoot. Splicing in staid Paul Craig Roberts, ending at Jim Morrison's grave, and the fact that it's coming from Al Jazeera combine to give it the feel of an underground movie.

Most people don't know 25% of the world's building cranes are in Dubai or why. How could they? Except for prices at the pump most of us don't monitor creeping inflation, much less currency markets. It's not just presidents who can't tell you the price of milk.

Even when you're paying attention and doing some math, economies are blurry. I follow things for three months, then quit, alternating between myopia and closing my eyes completely. When a Thai friend complained about inflation last week, I naively asked, "So what's going up?" "Everything! The price of cooking oil goes up every two weeks."

The next day I was talking to my mechanic. His brother sells used cars. "Normally, he sells 20 every month. Last month, he sold 4." It's not stuff you read in the paper.

The video drives home the point that the people inside an economy with a devaluing currency are often the last to realize it. When my wife and I moved to Thailand at the beginning of the "Asian Crisis," the baht had already deteriorated 15%. We brought a stack of one-hundred dollar bills to buy a used car. Every seller I approached asked me to trade in the dollars and pay them in baht. It was as if they didn't believe the exchange rates being printed in the newspaper. Expats earning baht, trying to send kids to college overseas were screaming, but people with no expenses outside of Thailand didn't get it. In June of '96, you only needed 26 baht to buy a dollar. Eighteen months later you needed 55. Flights home doubled. By then everyone was paying attention.

(Read Paul Craig Robert's bio on Wikipedia. He's a former economist in the Reagan administration who opposed the Iraq war and called for impeachment.)

"The Falling Dollar"

http://www.itulip.com/forums/showthread.php?t=3240

[FRED]

Re: The Dollar is Falling. Is the Sky?

Here's hoping "The Falling Dollar" video gets more of the clicks it deserves.

A link is here and at the bottom. "The Falling Dollar."

http://www.itulip.com/forums/showthread.php?t=3240

Once you get past the silly hospital scene, the juxtapositions work perfectly. The disheveled, globe-trotting Max Keiser is a hoot. Splicing in staid Paul Craig Roberts, ending at Jim Morrison's grave, and the fact that it's coming from Al Jazeera combine to give it the feel of an underground movie.

Most people don't know 25% of the world's building cranes are in Dubai or why. How could they? Except for prices at the pump most of us don't monitor creeping inflation, much less currency markets. It's not just presidents who can't tell you the price of milk.

Even when you're paying attention and doing some math, economies are blurry. I follow things for three months, then quit, alternating between myopia and closing my eyes completely. When a Thai friend complained about inflation last week, I naively asked, "So what's going up?" "Everything! The price of cooking oil goes up every two weeks."

The next day I was talking to my mechanic. His brother sells used cars. "Normally, he sells 20 every month. Last month, he sold 4." It's not stuff you read in the paper.

The video drives home the point that the people inside an economy with a devaluing currency are often the last to realize it. When my wife and I moved to Thailand at the beginning of the "Asian Crisis," the baht had already deteriorated 15%. We brought a stack of one-hundred dollar bills to buy a used car. Every seller I approached asked me to trade in the dollars and pay them in baht. It was as if they didn't believe the exchange rates being printed in the newspaper. Expats earning baht, trying to send kids to college overseas were screaming, but people with no expenses outside of Thailand didn't get it. In June of '96, you only needed 26 baht to buy a dollar. Eighteen months later you needed 55. Flights home doubled. By then everyone was paying attention.

(Read Paul Craig Robert's bio on Wikipedia. He's a former economist in the Reagan administration who opposed the Iraq war and called for impeachment.)

"The Falling Dollar"

http://www.itulip.com/forums/showthread.php?t=3240

This is a GREAT post. We'll bring Max's video front and center. Indeed most Americans will be the last to "get" what's being done to them. Only one in nine has a passport and only half of that 9% use it in a year.

[World Traveler]

Thailand 1999, U.S. 2008

I spent time in Thailand in 1999 with a international non-profit exchange, where I lived with 2 different families, one in Chiang Mai and one in Phrae in (northern Thailand.) Also spent some time in Bangkok. I had the chance to interact with a variety of Thai citizens.

The Thai people kept referring to "the crisis" whereby everything was costing them more, business had dried up, and they could not afford to travel outside of Thailand. I saw unoccupied apartment towers in Bangkok along the river - the Thai said they were structurally unsound and would never be used - they had been built on speculation.

Two points.
1. Thailand seemed very cheap to me at that time - because I exchanged dollars for baht, it was a bargain basement for me
2. The U.S economy was fine at the time, I wasn't even aware before I got there how serious the situation was in Thailand

As the dollar continues to fall, is that our fate? A bargain basement for the rest of the world , because their economies are doing much better the the U.S. economy?

We'll see, I hope not, because it's not a good place to be. A lot more constraints on one's possiblities and options.

One thing I have learned though, having lived through the Houston oil bust in the 1980's and then spending time in Thailand in 1999. No matter the state of the economy, life does go on and still contains many joys. Life is definitely more stressful and difficult during hard economic times, but it's not armagedden as some other web sites seem to imply at times. The sun still comes up every day, children still laugh and play, get-togethers with family and friends are still enjoyable, etc.

[Jim Nickerson]

Re: The Dollar is Falling. Is the Sky?

This is a GREAT post. We'll bring Max's video front and center. Indeed most Americans will be the last to "get" what's being done to them. Only one in nine has a passport and only half of that 9% use it in a year.

With the dollar being so weak, in my opinion it is not a good time to go globe hopping unless you have a heap of dollars that need spending. I've spent a lot of time traveling in the world, fortunately at a time I had more dollars, and they went further. There is lots to see in the USA, and I've taken my share of advantage of that. Now is not a good time for regular people to be choosing vacations outside the USA.

[metalman]

Re: Thailand 1999, U.S. 2008

I spent time in Thailand in 1999 with a international non-profit exchange, where I lived with 2 different families, one in Chiang Mai and one in Phrae in (northern Thailand.) Also spent some time in Bangkok. I had the chance to interact with a variety of Thai citizens.

The Thai people kept referring to "the crisis" whereby everything was costing them more, business had dried up, and they could not afford to travel outside of Thailand. I saw unoccupied apartment towers in Bangkok along the river - the Thai said they were structurally unsound and would never be used - they had been built on speculation.

Two points.
1. Thailand seemed very cheap to me at that time - because I exchanged dollars for baht, it was a bargain basement for me
2. The U.S economy was fine at the time, I wasn't even aware before I got there how serious the situation was in Thailand

As the dollar continues to fall, is that our fate? A bargain basement for the rest of the world , because their economies are doing much better the the U.S. economy?

We'll see, I hope not, because it's not a good place to be. A lot more constraints on one's possiblities and options.

One thing I have learned though, having lived through the Houston oil bust in the 1980's and then spending time in Thailand in 1999. No matter the state of the economy, life does go on and still contains many joys. Life is definitely more stressful and difficult during hard economic times, but it's not armagedden as some other web sites seem to imply at times. The sun still comes up every day, children still laugh and play, get-togethers with family and friends are still enjoyable, etc.

man, you totally captured the whole thing right here. the diff between the thai and usa is scale and... the dollar is a reserve currency. imagine thailand doing its currency as the usa has done the dollar? it'd already be 1 euro = $5 for certain.

deflationistas... take note!

the purchasing power of the dollar is falling and will keep falling. empty houses and office buildings. asset deflation. but...

as worldtraveler says the end is not neigh! we'll get through it. reminds me of the article that draws me back... does the us have a peso problem?

[FRED]

Re: The Dollar is Falling. Is the Sky?

With the dollar being so weak, in my opinion it is not a good time to go globe hopping unless you have a heap of dollars that need spending. I've spent a lot of time traveling in the world, fortunately at a time I had more dollars, and they went further. There is lots to see in the USA, and I've taken my share of advantage of that. Now is not a good time for regular people to be choosing vacations outside the USA.

We don't recommend vacation travel outside the USA unless you got gold you bought before the unofficial post 2001 dollar devaluation to sell in trade for euros and Asian currencies.

The "travel at home" trend is already here.

See the U.S.
February 17, 2008 (Boston Globe)

Where the dollar’s at home

Granted, it’s Paris, and it’s a fancy cup of joe they serve at Les Deux Magots on Boulevard St-Germain. But with the continuing woes of the dollar against the euro, that coffee will cost you $7.69. Even here in the States, a threatened recession can make it hard to get very far on your dollar. Still looking to go someplace where your money can take you a (relatively) long way? Here’s a sampling of affordable options across the United States — from the small-town South to the heartland to arid Arizona — that all can offer rich rewards of their own.

[c1ue]

Re: The Dollar is Falling. Is the Sky?

as worldtraveler says the end is not neigh! we'll get through it.

True, but what comes out the other end?

Thailand was very much FDI and/or credit fueled for growth, had significant positive capital flows reversed and as a nation had a significant negative current account balance prior to the crisis.

The United States is in an event worse CAD situation, has (had) the dollar as a reserve currency, but has an imploding housing bubble and credit crunch causing the problem instead of being caused by capital flow.

Some interesting observations from academia:

http://www.adelaide.edu.au/cies/papers/0508.pdf

However, despite the popular belief that depreciation can improve trade balance, empirical works tend to suggest mixed results. Amongst 30 countries studied, Rose [1990; 271-3] finds that the impact of devaluation on trade balance is insignificant for 28 countries, and one country shows negative impact. He concludes that devaluation does not necessarily lead to an increase in trade balance. More recent work by Upadhyaya and Dhakal [1997; 343-5] also suggests that improvement in trade balance is only found in one country out of eight countries studied. On the other hand, others like Bahmani-Oskooe [1998; 89-96] and Himarios [1989; 143-68] find trade balance improvement following currency devaluation.

Hmm not completely conclusive, but here's an interesting comment - emphasis mine:

The issue of whether or not the trade balance will improve after devaluation become more important as the twin crises (currency and banking crises) become frequently recurring in the 1990’s. In the context of the twin crises, there are two issues worth highlighting. First, as seen in the Asian crisis episode, all countries experienced massive capital inflow reversals. The negative swing in the capital account needed to be counter balanced by improvement in the current account. If the trade balance is not so responsive to a depreciation, then the exchange rate need to overshoot to have a large enough compression on aggregate expenditure. Second, in the midst of the crisis the banking sector was paralysed. While the export oriented firms became more competitive, they were incapable of expanding their operation because of credit constraint, because several banks and finance houses went bankrupt and some other banks faced increased non-performing loans.

What EJ and iTulip have been saying is that the US' military strength and economic incumbent consumption leader position will allow this country to avoid what all of the other banking/currency countries have experienced: capital outflow and credit destruction.

Certainly it is possible, but it also could be another way of saying: "Its different this time".

More information of interest:

http://goliath.ecnext.com/coms2/gi_0...-during-a.html

As Table 1 indicates, the current account in Indonesia reversed from an average deficit of 2.5 per cent of nominal gross domestic product (GDP) from 1993-97 to an average surplus of 4.6 per cent from 1998-2000, representing a reversal of 7.1 per cent. For Thailand, the switch-around in the current account amounted to 15.7 per cent of GDP. In contrast, Malaysia's external balance reversal during the same period amounted to 19.3 per cent of GDP.

Or in other words, for these 3 countries affected in the Asian crisis - current accounts completely reversed from negative to positive in a very short time, but from the previous research it is primarily due to a consumption collapse as opposed to an export surge.

Argentina in 2002, Russia in 1996, Brazil from 1981-1995 also share this common thread with the Asian countries above: significant currency account deficits prior to a capital outflow/currency depreciation episode.

Should a similar US reversal of currency account deficits to surpluses occur - to the tune of 8% delta (i.e. -5% to +3%), it would represent a swing of something like $1.2T, and if furthermore 80% of this is due to decreased consumption (vs. increased imports), we're looking at $1T less spending.

Or in other words, GDP reduction of 7.5%.

How's that for a negative scenario?

[World Traveler]

Re: The Dollar is Falling. Is the Sky?

Clue,

An interesting analysis. I lived through the Houston oil bust in the 1980's, so I can speak from a ground level perspective.

It was really a local depression. We went from boom to bust pretty quickly (1982 to 1985). And it dragged on for years, things started to stablize and improve after 1991.

Almost all the major local banks failed (combination of oil-related and real estate loans going bad), which for me was a real shocker.

Lots of of oil-related companies and local businesses disappeared.

Even in this local depression, some did much better than others (which is what I think we'll see in U.S. in next decade). Those who manged to hand onto their jobs (as I did), those who bought foreclosed real estate at the bottom (1987-1988), those who had enough personal savings, etc.

The best safety valve for many was to leave Houston for more prosperous parts of U.S - I knew lots who did. If the entire U.S. is affected by coming downturn, that may not be an effective option this time . To me, that is a serious concern.

[FRED]

Re: The Dollar is Falling. Is the Sky?

Clue,

An interesting analysis. I lived through the Houston oil bust in the 1980's, so I can speak from a ground level perspective.

It was really a local depression. We went from boom to bust pretty quickly (1982 to 1985). And it dragged on for years, things started to stablize and improve after 1991.

Almost all the major local banks failed (combination of oil-related and real estate loans going bad), which for me was a real shocker.

Lots of of oil-related companies and local businesses disappeared.

Even in this local depression, some did much better than others (which is what I think we'll see in U.S. in next decade). Those who manged to hand onto their jobs (as I did), those who bought foreclosed real estate at the bottom (1987-1988), those who had enough personal savings, etc.

The best safety valve for many was to leave Houston for more prosperous parts of U.S - I knew lots who did. If the entire U.S. is affected by coming downturn, that may not be an effective option this time . To me, that is a serious concern.

Your concern is valid. According to the BLS, unemployment is falling in eight US states, flat in two, and rising in all others.

The metro area analysis is perhaps more relevant. From our upcoming analysis the summary unemployment growth stats for US cities is:

Rising unemployment growth: 271 cities
Flat unemployment growth: 25 cities
Falling unemployment growth: 67 cities

Raising the obvious question: where are the unemployed going to go to find jobs?

[c1ue]

Re: The Dollar is Falling. Is the Sky?

Raising the obvious question: where are the unemployed going to go to find jobs?

Dubai.

Hence my out-migration scenario mentioned previously

3) massive out-migration ensues as all 3+M of the last 10 years of legal and 15M illegal immigrants return to their countries of origin, followed by 15M 'native' Americans.