Dispassionate
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In what ways can a lower US dollar contribute to inflation?
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Interesting......as no doubt lower $ = higher inflation, but then the stats have been relatively benign and its not as if the $ hasn't been weak for a while.
However the weaker $ should lead to higher exports (esp.agri.) and that is what is driving the commodity prices post the cut and although good for the unbalanced trade balance it is also very inflationary, and with oil north of 80, well looks like a pressure cooker to me.
Perhaps the question should be: is yesterday's cut the start or will the inflationary pressure inherent in such a move mean it is just temporary and they will be back to 5.25 by Q1 08?
However the weaker $ should lead to higher exports (esp.agri.) and that is what is driving the commodity prices post the cut and although good for the unbalanced trade balance it is also very inflationary, and with oil north of 80, well looks like a pressure cooker to me.
Perhaps the question should be: is yesterday's cut the start or will the inflationary pressure inherent in such a move mean it is just temporary and they will be back to 5.25 by Q1 08?
Atilla
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When the dollar loses it's petrol currency status the US will have to convert to Euros.
As the $ has gone from €1=$0.80 to $1.40 a 75% fall... you can work out the rest.
The worst is yet to come.
Things can only get much worse. Much much worse.
Wait for the dollar dump by the Chineese.
As the $ has gone from €1=$0.80 to $1.40 a 75% fall... you can work out the rest.
The worst is yet to come.
Things can only get much worse. Much much worse.
Wait for the dollar dump by the Chineese.
Hi Atilla
Apologies but i can't seem to get my head around why the $ would lose it petro currency status, they are still going to be one of the major producers and users for a long time or am i missing the point?
I agree though about the $ dump by Asia, if they haven't been already.
Apologies but i can't seem to get my head around why the $ would lose it petro currency status, they are still going to be one of the major producers and users for a long time or am i missing the point?
I agree though about the $ dump by Asia, if they haven't been already.
Actually it was said with tongue firmly in cheek, however upon reflection since the Hang Seng dumped large then rebounded to these stratospheric heights one of the reasons given was the relaxation of currency control allowing Chinese investors to invest "abroad". Needless to say the HSI has been rampant of the "wall of (chinese) money" about to tsunami them......heard that story before methinks........but might not now be beyond the realms of possibility this relaxation might result in Western takeovers. Now wouldn't that be interesting if Bae got an approach from a Chinese co. ho ho.
Atilla
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Why because the way the dollar is falling who wants to be left holding it?
Soon other oil producing countries like Iran Venezuella and possibly Iraq (once US gets kicked) out will revert to selling oil in Euros.
At the moment as long as dollar keeps falling the oil producing countries are being screwed by the rest of international countries that are strengthening against the dollar like Europe. Question of not if but when.
It will be dumped in exchange for the Euro and gold imo.
Dispassionate
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..and what if a country like Italy went into recession whilst eurozone rates climbed up? One would have to assume that they would have to drop the euro in order to have their own interest rate otherwise riots in the streets might take place. The euro would crap out if that happened...
Dispassionate
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Won't higher goods from abroad mean less imports?
Atilla
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Yes to both. Falling dollar imports inflation. Should help with improving BoP by making exports cheaper too. Depends if it is a one off or a cycle of bad managment without other corrective measures.
Not sure I understand your question about Italy. They use the Euro don't they. There is the ECentralB? Italy has representation on that bank.
Everybody is hell bent on interest rates as a single instrument of control.
What's wrong with fiscal policies?
"What's wrong with fiscal policies?"...as someone got some ? ...fiscal policies mean contraction in these circumstances ...interest rates mean expansion...hardly any of our western economies can afford the prospect of contraction..in fact when you see it rising up as a prospect over the horizon it's debateable that the govt/banks are actually starting to shoot at it earlier and earlier...the 'pain' threshold for contraction appears to be shrinking with each occurrence...pretty soon any beggar without a silver plated cup is going to be considered a charity case and worthy of a bailout.
Dispassionate
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Couldnt a situation where the majority of Eurozone economies want interest rates go up at a time that they need to go down in Italy? For the Italians to have thier own seprate rate of interest they would have to dump the euro to adopt the Lira again.
Paul,
“with a weaker USD then all imports will be more expensive and that will cause inflation to rise”. But wouldn’t the reduced domestic demand cancel this out to some degree? However, see below. The Chinese will go into the Euro. Again, see below.
Jimmij,
Weaker dollar, higher exports, especially commodities. Further, weaker dollar, cheaper dollar denominated commodities, greater demand, higher prices, inflationary pressures.
Atilla,
“Wait for the dollar dump by the Chinese”. Look for a massive sell-off on record volume in US bond futures, massive rise on record volume in Bund futures as a prelude. Saudi Arabia has reduced its dollar holdings and expanded its Euro holdings. I think it has also requested payment – at least part - for its oil in Euros.
Dispassionate,
The way the Euro is headed (north), the EU is going to take a hit on its exports – and it is a net exporter. Italy has already demonstrated unease with the vagaries of the Euro and a centralised fiscal policy (ie the Bundesbank and Bank of France). It wants to revert to the Lira. And who can blame it. Mama mia.
Grant.
“with a weaker USD then all imports will be more expensive and that will cause inflation to rise”. But wouldn’t the reduced domestic demand cancel this out to some degree? However, see below. The Chinese will go into the Euro. Again, see below.
Jimmij,
Weaker dollar, higher exports, especially commodities. Further, weaker dollar, cheaper dollar denominated commodities, greater demand, higher prices, inflationary pressures.
Atilla,
“Wait for the dollar dump by the Chinese”. Look for a massive sell-off on record volume in US bond futures, massive rise on record volume in Bund futures as a prelude. Saudi Arabia has reduced its dollar holdings and expanded its Euro holdings. I think it has also requested payment – at least part - for its oil in Euros.
Dispassionate,
The way the Euro is headed (north), the EU is going to take a hit on its exports – and it is a net exporter. Italy has already demonstrated unease with the vagaries of the Euro and a centralised fiscal policy (ie the Bundesbank and Bank of France). It wants to revert to the Lira. And who can blame it. Mama mia.
Grant.
Dispassionate
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OK couple of points in conflict here, looks like real risk of Euro going down if Italy dumps Euro for Lira, yet everyone is exchanging USD for Euros. Interesting times ahead!
Atilla,
Re my remark about Saudi, a report from Assocaiated released a few minutes ago says the sell-off in US Treasuriese ids due to, inter alia, Saudi not following the US rate cut, which hitherto, they always have (Saudi Riyal is pegged to the dolar). UAE and Kuwait did cut rates but Saudi is the largest producer.
European bonds have also been hit hard.
Grant.
Re my remark about Saudi, a report from Assocaiated released a few minutes ago says the sell-off in US Treasuriese ids due to, inter alia, Saudi not following the US rate cut, which hitherto, they always have (Saudi Riyal is pegged to the dolar). UAE and Kuwait did cut rates but Saudi is the largest producer.
European bonds have also been hit hard.
Grant.
Atilla
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Hi Grant, yes good call and and you are right.
The Arabs are being abused but do they really know what's going on. Oil may be going up in price but dollar is falling big time. So just about every currency strengthening against the dollar is pretty much neutral with oil price rise.
Sooner or later they'll wake up. I think they are losing billions but hey no skin off my nose.
When they wake up all their dollars will be worth much less than what they are now :cheesy: Maybe one day we can see the Arabian kingdom and all their princes work for their Big Macs.
Perhaps they are gradualy waking up.
