U.S. housing collapse spreads overseas
U.S. housing collapse spreads overseas
I've been waiting for articles like this. I've been trying to decide if I should put a significant % of my net worth in foreign currency. My gut says there's a bubble in major foreign currencies, alternatively a negative bubble in the US dollar, that will be popped when housing bubbles worldwide pop. The counterargument says that the US is wasting money to a far greater extent than other countries are, so the US dollar is toast in the long run. The truth may be somewhere in between. What do you think?
I've been waiting for articles like this. I've been trying to decide if I should put a significant % of my net worth in foreign currency. My gut says there's a bubble in major foreign currencies, alternatively a negative bubble in the US dollar, that will be popped when housing bubbles worldwide pop. The counterargument says that the US is wasting money to a far greater extent than other countries are, so the US dollar is toast in the long run. The truth may be somewhere in between. What do you think?
Comments
I think the opportunity to get your money into foreign currencies was ~6+ months ago - and I expect them to come back in line with the USD again as the same factors come home to roost in their markets. I am betting the USD will strengthen considerably against the Pound/Euro/Canadian/Yen in the next year.
Getting your money out of $ now will just result in your getting whip-sawed, IMHO (which is worth what you paid for it
The global credit bubble created a global housing bubble which played out in most developed countries. One of my wife's classmates now lives in Australia, and they are seeing the same type of housing bubble that we are here (they even flipped their first house and built a new one).
When this bubble pops, the whole world is going to get wet.
I entirely agree. Right now, the US fed is pretty much the only one out there dropping rates. The Euro bank is holding steady. Once they start to falter, as the containment spreads
http://www.bloomberg.com/apps/news?pid= ... fer=europe
"Oil rose to a record $113.93 a barrel today. In France, consumer prices increased 0.8 percent from February, the biggest monthly gain on record. France's 3.5 percent inflation rate matched the euro-region average in March, which is the fastest in almost 16 years. "
"``We'll set rates so that inflation moves toward that objective and inflation expectations are anchored,'' ECB council member Ordonez, who heads Spain's central bank, told reporters in Madrid. Inflation is ``what has caused us since June not to lower interest rates when other banks have been doing so.''
I am not an economist, but this just seems wrong to me. In the US, the Fed has a dual mandate to price stability *and* employment, which roughly translates to economic growth and stability. The ECB, however, simply responds to the inflation figures. This makes me wonder why they don't replace the ECB with this highly complex algorithm:
if (inflation < 2%)
rate = rate - 0.25%
else if (inflation > 4%)
rate = rate + 0.25%
else
print "thinking...."
print "thinking...."
rate = rate
It seems to me that inflation is high right now in Europe because things are getting more expensive (duh) due to demand and not because there is too much money in the system. If food and energy prices continue to go up due to external factors of demand at the same time as the economy falters, you end up with the worst of both worlds: expensive things, and no job to pay for them.
The ECB mandate of simply relying on statistics seems to be a way of not having to make decisions. You can simply shrug you shoulders and say "hey, ze inflation iz too high. I cannot lower rates". You can't ever be wrong if you're just following policy...
stabilize the dollar.
As for the Fed vs. the ECB... Many people view the actions of the Fed after the 2001 recession as having engendered more of the climate of moral hazard (with the Greenspan/Bernake "put" supporting whatever leveraged bets wall street could think of), sent real interest rates negative which ignited the housing bubble, failed to recognize the obvious housing bubble and do anything about that kind of asset inflation, and then applied massive monetary easing in harder times which prevents the natural corrective forces of the market from correcting overbuilt sectors of the economy and returning it to health.
IMO, the failing of the fed in that situation was *not* to lower rates that low, but it's failure to raise them soon after. They didn't need to be *that* low for so long, in hindsight, although it was the fear of deflation that probably caused them to do this.
Both were absolutely mistakes. Everyone cites the dual objectives of the Fed, which is managing inflation and managing economic growth. But perhaps a better objective, one that encompasses the other two, is that the Fed exists to maintain economic stability. In the best world, this means something like 1% growth with 0% inflation. But periods of variation are not exactly a bad thing. If we have small negative growth for part of a year every decade, that's OK too. The Fed overreacted during the dotcom bubble, probably because they were worried that the combination of an economic crisis and a political crisis (9/11) would do too much harm. In short, they overestimated that risk and that mistake is one of the many we are facing today.