Thread: The strongest economy in the world

Originally Posted by Storekeeper

Global Economic Forecast Predicts Solid Growth in U.S. By Matt Margolis




More good news that Democrats will ignore...

When reading economic articles try to get unbiased and non-political reports.

Wall Street Journal isn't good enough for you ?

^ Wall Street Journal can be good but it's owned by Dow Jones company, and it has its own interests.

(Most journalist now hired by the New York Times come from the Wall Street Journal.

More good news about our 71 trillion dollar GDP & 50 billion dollar trade deficit economy

How is the Economy?


Larrry Kudlow over at Real Clear Politics paints the picture:

"Osama bin Laden threatened to bankrupt the United States. And, as recently as two days ago, al Qaeda's deputy leader al-Zawahiri said he was going to force our economic collapse. Well, reality presents a far different picture. The U.S. and the world economies have prospered mightily since September 11, 2001.

The bulk of this credit goes to the ingenuity, entrepreneurship and stick-to-itiveness of Americans who go to work everyday. These hardworking men and women are an optimistic lot. They possess a great deal of faith in our nation, in our future, and in God.

Federal policies to cut interest rates and tax rates set the backdrop for this economic recovery and growth. Since that fateful day five years ago, non-farm payrolls have increased 4 million. 7.7 million more people went to work according to the household survey, which registered a declining unemployment rate.

Real GDP, total business investments, and household consumption all increased around 15 percent.

Inflation has run slightly above 2 percent. Household net worth has grown by 32 percent. American trade with the rest of the world increased 61 percent."

Hey surasak,

You're the only poster I know who is stateside ... could you tell me what's been going on with gas prices the last month or so ?

Originally Posted by Larrry Kudlow

They possess a great deal of faith in our nation, in our future, and in God.

There goes Larry's credibility...

Gasoline prices? Stuck where they've been for months. Around $2.80 for regular, $3.00-$3.09 for premium.

Larry ought to look at BLS statistics. Since Bush's election in 2000 the percentage of people with jobs as a function of population has declined. Unemploylment is still higher than prior to 9-11. Yeah more people are working. Duh, there are more people period. As a whole the ratio is declining meaning there are more people going into the workforce than there are jobs. This means the so-called job expansion isn't keeping up with population growth.

Originally Posted by surasak

Gasoline prices? Stuck where they've been for months. Around $2.80 for regular, $3.00-$3.09 for premium.

Gas prices fall nearly 11 cents in a week - Oil & Energy - MSNBC.com

"The average U.S. retail price of gasoline fell by almost 11 cents last week to $2.62 a gallon -- the lowest it has been in more than five months. The federal Energy Information Administration said Monday that U.S. motorists paid $2.618 a gallon on average for regular grade last week, a decrease of 10.9 cents from the previous week."

Oil: Prices plunge below US$64 - 13 Sep 2006 - Business

Want me to take a photo to prove to you that's wrong? It's an average.

Here's a link:

http://www.portlandgasprices.com/Por..._SW/index.aspx

Paying in anything but $$ would wreck the U.S. economy because we rely on a strong dollar to keep our debt burden down.

If China starts dumping dollars for Euros the U.S. is fucked both ways up the fudge highway. But they won't do that because China needs the U.S. to have a strong currency to purchase everything made in China.

Originally Posted by surasak

Paying in anything but $$ would wreck the U.S. economy because we rely on a strong dollar to keep our debt burden down.

Call me a rookie but isn't that backwards? If the currency devalues then GDP in dollar terms goes up provided the production remains constant. In other words if the dollar dropped to 80% of its current value and your debt is held in the domestic currency (which it should be), then the net present value of your debt drops by 20% without paying a cent. Granted this would cause 20% inflation on imports but it would not affect overall domestic inflation quite so much.

The thing that would screw you is that in order to fund future deficit spending you would need a huge increase in interest rates to attract people to once again buy your currency. This then would have the effect of bolstering the dollar once again. On the other hand if interest rates go up in the US the huge debt loads people are carrying would cause many bankruptcies, a possible meltdown in both the equities and real estate markets and general grief for the poor schmucks. On the other hand it would be the perfect time for people with a bit of money set aside to step in and buy stuff at bargain basement prices.

No, it's like this:

The decisions of citizens to invest in another country can have a significant effect on their domestic economy. In the case of the U.S., the desire of foreign investors to hold dollar-denominated assets helped finance the U.S. government's large budget deficit and supplied funds to private credit markets. According to the laws of supply and demand, an increased supply of funds — in this case funds provided by other countries — tends to lower the price of those funds. The price of funds is the interest rate. The increase in the supply of funds extended by foreign investors helped finance the budget deficit and helped keep interest rates below what they would have been without foreign capital.

The rising demand for dollar-denominated assets also had a negative effect on the U.S. economy. The stronger dollar increased the attractiveness of foreign goods in the U.S. Many price-conscious U.S. consumers responded by purchasing more imports and fewer domestic goods. This did help keep inflation under control. But at the same time, U.S. exports were more expensive to foreigners who tended to buy fewer U.S. goods. As a result, the trade deficit widened as U.S. exports decreased and U.S. imports increased.

Strong Dollar, Weak Dollar:Foreign Exchange Rates and the U.S. Economy - Consumer Information, Federal Reserve Bank of Chicago

Strong dollar = low interest = cost of borrowing is smaller = lower overall debt burden. Your debt burden is the amount you borrow plus the cost of the debt (interest).

Would you like to borrow money with low interest rates or high interest rate?

The dollar is a commodity like any other. People who own dollars want a strong dollar because it allows them to buy foreign assets cheaply. People who loan us their currency want a strong dollar because if it declines they make a killing.

If the dollar drops and you owe $100 dollars of debt from yesterday's prices then the burden of the debt increases if the foreign holder of your debt's currency increases in value.

For example, say I owe you $100 and I borrowed it when the terms were 100 dollars = 4000 baht (in reality, I'm borrowing 4000 baht from you, not $100 dollars). Now, say the dollar weakens and the baht becomes 30 to the dollar. I still have to pay your 4000 baht because that was the terms of the loan. So, now, in real terms my debt suddenly becomes $133. That's a huge negative for me but good for you.

China, for example, has a currency pegged to the dollar. Dollar goes up then the yuan goes up. Hong Kong had the same scheme.

Most countries, on the other hand, allow free movement of their currencies within reason. The baht, for example, floats between 35-41 to the dollar. Weak baht means cheap vacations for U.S. residents and cheap Thai imports.

Hear all the screaming from Washington to get China to free float the yuan? That's because the value of the yuan will drop, thus, allowing our real debt burden to drop while at the same time causing Chinese made goods to lose in value.

The reason why the dollar is strong is because it's traded for oil and because the U.S. government's credit is excellent and relatively risk-free. If the demand for dollars declines we're screwed. Why do you think we are so interested in Iraq and Iran? The whole idea is to stop oil producing states from accepting Euros instead of dollars because if they do the price of oil for the United States goes through the roof.

So why doesn't England want to convert to the Euro ?

Because the sterling is stronger than either the dollar or Euro.

You give me a choice and I'll take a quid over the other two.

I've always wondered if that isn't nothing but smoke and mirrors. Why is it strong ? Their economy isn't that great ... the have high unemployment and a host of other economic issues.

Have you ever compared various salaries ? I've compared the salaries of our militaries a few years ago and if I remember right a person with the equivalent number of years in the Royal Navy doesn't get as much as their peers in the USN. And their retirement program leaves alot to be desired.

I don't know the answer but what's a comparison of median incomes look between the UK and US ?

If the dollar drops and you owe $100 dollars of debt from yesterday's prices then the burden of the debt increases if the foreign holder of your debt's currency increases in value.

For example, say I owe you $100 and I borrowed it when the terms were 100 dollars = 4000 baht (in reality, I'm borrowing 4000 baht from you, not $100 dollars). Now, say the dollar weakens and the baht becomes 30 to the dollar. I still have to pay your 4000 baht because that was the terms of the loan. So, now, in real terms my debt suddenly becomes $133. That's a huge negative for me but good for you.

Call me rookie too but the bonds we issue are in dollars so we payoff in dollars. The bonds are sold at a discount and payoff at the face value. If the value of the dollar drops the holders of the bonds get screwed. If people don't have faith in the stability of the dollar the government must offer a higher rate of interest to encourage buyers of the bonds.

The stability of the government and its ability to pay back money owed is a substantial part of the risk and liability in case of default. The U.S. has never defaulted yet because U.S.A., Inc. is a fairly robust company (issuing shares called U.S. Dollars) with lots of consumption (provided someone is willing to loan us the money to keep us buying foreign goods). By financing our debt, for example, China lets us keep money available to buy all the stuff we get from China. If China didn't do this then the imbalance would weaken us and we'd have to finance our own government through higher taxes, etc. This would leave us little money to buy foreign goods.

The ideal situation for a foreign government is to buy bonds or T-bills when the dollar is strong and then redeem them when the dollar is weak. It's like gambling. We pay off in dollars but somewhere along the way those dollars were exchanged for yuan, baht, yen, or some other currency.

For example: we buy something made in China. Dollars are exchanged for yuan, and, in the process we lose wealth while China gains some (trade deficit). They then take this wealth and buy bonds or T-bills with it, effectively, loaning our original dollar back to us so we can continue financing the war in Iraq. At some point in time they will want their dollar back plus interest. If the dollar is strong then the interest is low and the cost of borrowing that dollar back is low. If the dollar weakens its a big penalty for us because their original dollar was invested at a time when the dollar was stronger.

Think of it like this: when I first went to Thailand the baht was trading at 41 to the dollar. Recently it went to around 38 to the dollar. Had I changed $1000 in 2003 and kept the money it would be 41,000 baht. If I exchanged it when it was 38 to the dollar I would have lost money.

Now, what if I had converted my $1000 to baht and loaned it to someone in Thailand? If I had loaned someone 41,000 baht at that time and then demanded repayment when it was 38 to the dollar I would have turned a profit because my currency got stronger while yours got weaker. If I simply loaned the person $1000 instead I would have gotten back $1000.

Depending on the currency loaned I made a profit in one case and nothing in the other despite my original amount being identical.

So, you see? The Central Bank of China loans us our own dollars via conversion of yuan to dollars. Then they demand dollars back, and, then reconvert to yuan. Nice profit if the dollar weakens on top of the standard interest payable.

See how it works? That's why dollars are so valuable and why they are taken worldwide. The Euro threatens this and it's one reason why we are so interested in Iraq and Iran.

Our economy is 'strong' because foreign governments finance our own government's debt. This allows us free capital to buy things from overseas. In short, like a gigantic credit card. By using our credit card (Treasury bonds/T-Bills) we have cash to do other things. Taxes are lower because someone else loans us the money to finance our goverment. This in turn gives us the money to buy homes, cars, computers, etc. As long as we pay interest on the debt (money we borrow) nobody minds and nobody cares. The foreign goverments make money and despite political sabre rattling over things like Iran or Taiwan everyone's happy with the status quo.

Now, what happens if the dollar loses value? What happens to a company when people stop buying shares and trade them for another company's shares? Disaster. Capital is the lifeblood of capitalism and without cashflow companies die. If we ever default on our debt payments or the dollar sinks we're screwed because we can't sustain ourselves (hence why we are the biggest debtor nation).

Every time we buy a barrel of oil wealth is lost and transferred to another country. We get most of that back through arms sales. What happens if Saudi Arabia, Inc. wants Euros instead of dollars? Then we lose because suddenly they'll want to buy military equipment from countries dealing in Euros (so they don't lose on the exchange rate). What if the yuan becomes valuable?

A lot of pressure is there to keep the American Dollar the choice of international trade.

So, wouldn't switching away from the US$ as the oil currency be as formidable a weapon as relentless acts of terrorism, for the radical Arab/Muslim oil producers and those others aspiring to global disruption?

After all, if you want something I have and which I do not care whether you purchase or not, it is for me to decide the form of currency or barter.

keda

After all, if you want something I have and which I do not care whether you purchase or not, it is for me to decide the form of currency or barter.

Not if I have big guns and have proved I am prepared to use them.

^ Good answer.

Dollar diplomacy. Keep using the dollar or we invade and replace your government.

The power of the dollar comes down to the victory in World War II and the creation of OPEC. Dollars used to backed by gold but now the real backing of the dollar is oil. Oil is what gives the dollar its international appeal.

Remember how the support or opposition to the Iraq war came down? U.S. and Britain for (Britain takes dollars for oil). Major European countries and Russia opposed? Russia takes Euros for oil. Europe uses the Euro. Iraq was selling oil in Euros along with several other Arab countries prior to the invasion. Saudi Arabia? We promised protection to the monarchy if they sold oil for dollars. Saudi Arabia is the only OPEC country without quotas. Wonder why we don't do anything against Saudi Arabia when they are known to sponsor much of the terrorism? Wonder why we are the only major power threatening Iran? Wonder why Britain won't switch to the Euro? It's the dollar.