Your Seattle home lost 7% of it's value in September
Yes, you read that correctly. The dollar has begun a free fall. Gold is up some 7% against the dollar. The euro is up some 7% against the dollar. So is the loonie and pound.
So pop quiz hot-shot. What does it mean when every currency in the world not artificially tied to the dollar (I'm looking at you yuan) is up some 7% or more against the dollar during September? Simple, it means every dollar based asset you own is worth 7% less than it was before.
So pop quiz hot-shot. What does it mean when every currency in the world not artificially tied to the dollar (I'm looking at you yuan) is up some 7% or more against the dollar during September? Simple, it means every dollar based asset you own is worth 7% less than it was before.
Comments
<devil's advocate mode = on>
I get paid in dollars and save in dollars. So everything I have lost 7%, including all those products I'm going to be buying in the future. So things pretty much look the same to me.
What does it mean to me? Nothing, except our Boeing planes sure are going to be looking cheap to those international airlines. Same with paper products and software! Woohoo! Go Boeing! Go Microsoft! Buy houses!
Sucks for those needing to travel abroad (like, me) but it's great for tourists visiting the US, and hence it's great for the US retailers, as long as they're buying stuff from China of course.
Except that we import nearly everything and it now costs more in USD to make those products.
Oil is on a world market. The dollar has lost puchasing power for oil. That will make prices go up within the US.
You will definately begin to feel that 7% loss as time progresses.
Thank you, because someone was going to bring this up anyways and I much prefer it in 'devil's advocate mode' than by some irrational loony.
The short answer is akin to what Alan said. You get paid in dollars, so your income was just clobbered 7% as well. Any asset you own which cannot be sold globally (most of your assets actually) also just lost 7%. But the replacement cost of things just jumped. You didn't see it jump yet, because it takes time but you will. In short, we probably just saw 7% inflation created in September, and we'll all be feeling it seep through for the next 6 months.
Good point. I would also recommend caution when discussing the advantage of a cheap dollar for Microsoft. Free alternatives to registered Windows are extremely common off shores. This includes illegal copies of Windows and Linux. Couple that with recent EU rulings against MS and the waters get even muddier.
that's not true, unless you are getting paid in Euro your asset/liability balance is the same.
now if we have high inflation, having a bunch of debt is going to look pretty smart, and those of us with tons of savings are going to look pretty dumb..
Intersting post over at Mish's blog that suggests the Fed is actually tightening money supply while it loosens credit. That should control inflation.
Safest thing is to get your cash out of the US peso, however.
Actually, Mish does not agree with that analysis (ie inflation is under control). Mish was commenting on Gary North's article by showing the same data that North used. North was claiming that base money is decreasing as shown in the charts. Mishe's reply to Gary (towards the bottom of the page) was
"....Thus it's a serious mistake to look at base money, M1, or M' in isolation just as it is to look at M3 in isolation. One must also look at Fed policies to see whether interest rate polices foster enormous expansion of credit.
....A rapid expansion of money supply tends to lead to outcomes as seen in the Weimar Republic or Zimbabwe, but a rapid expanse of credit is what we saw prior to the great depression....
....To predict price stability, one also needs to look at what central bankers worldwide are doing. It is foolish to believe the Fed can directly control prices (and more importantly wages) in a global economy where every day the U.S. is becoming less and less relevant....
....If one uses M1 or base money as the sole measure of deflation, then we are indeed close. But if one believes that inflation/deflation is the expansion or contraction in money and credit, then as of now we are not close "technically speaking". But that can change on a dime....
....I certainly thought this credit bubble would have ended by now. When it does happen, it will hit businesses like a brick wall."
I think Mish os more worried about credit bubble than anything else.
I had a different interpretation of Mish' response. I think he agreed with Gary's assertion that M1 was the important measure - and thought the data interesting - but was taking a wait and see attitude.
I generally think Mish is super-bearish so I wasn't really pointing out his commentary so much as I thought the data was interesting. Later realized I should have just linked to the source post