« Jobs, Feb '08 vs Year Ago | Main | FQ.08.11: Favorite Quote for This Week »


how bout a value rating against the whole sale price of oil??
500 percent down since 1996??

em butler - the chart that Steve posted accounts for the price of oil. It's 'trade weighted' and our trade includes oil.

OK, I understand this chart, but how does the recent government action not create real inflation?

Example: between the rebate checks $145 bill and the recent liquidity deal $200 bill, doesn't that mean the government has effectively "created" $345 billion in new money, just in the last month or two? Where does the "value" for this new money come from?

Is this inflation, or is there another way to look at it?

Trying to understand.

It doesn't create "new money" - it creates new "future money". That $145 Billion "rebate" package simply transferred that money from the pockets of investors who buy T-Bills to the pockets of tax payers who will receive the rebate checks. Those investors willingly give that money to the taxpayers in exchange for future money - the money they loaned plus a set amount of interest when their bonds are due.

This doesn't necessarily cause inflation if the demand for money (I.E., the amount of goods and services in the economy) has grown by the time this "future money" has to be paid back.

workindev --

But, both increase the deficit, right? And, by some magic of macroeconomics that I don't understand completely, that has the effect of increasing the trade deficit, which (getting back to the point) increases inflation by making goods produced overseas more expensive.

In other words, the graph will probably continue to slope downward for a bit longer.

Guess what folks who were recently shocked with exploding credit payments will do with the 'stimulous' package do...

They will pay down debt...

That will not spur the economy.

Another reason folks will pay down debt is to improve cash flow. But, folks aren't expecting to purchase new items with that enhanced cash flow – they are expecting to pay ‘enhanced’ taxes!!! Gota start now to drop the old credit card payments by $200+ to pay the Obama/Clinton retroactive tax hike, eh…

That does not bode well for our economy, eh…

Yes, but if you look at those currencies which trade widely outside their native countries (http://research.stlouisfed.org/fred2/series/DTWEXM?cid=105)
the dollar has been in a constant slide. Translation: The US has been sliding against every other major economy. It's only a matter of time before that shows up in the trade-weighted exchange as well, especially if other countries start dumping their dollar reserves.

Yes, but if you look at those currencies which trade widely outside their native countries (http://research.stlouisfed.org/fred2/series/DTWEXM?cid=105)
the dollar has been in a constant slide. Translation: The US has been sliding against every other major economy. It's only a matter of time before that shows up in the trade-weighted exchange as well, especially if other countries start dumping their dollar reserves.

I strongly suggest that you read the 6 "Money Series" articles that Steve wrote (link is at the right). Fiscal policy doesn't cause inflation - monetary policy does. When the Government deficit spends, it increases the supply of publicly held Treasury bonds, not the money supply, and that really isn't inflationary at all.

Fiscal deficits don't really cause trade deficits either. If you look at history, the only thing that has improved our trade deficit is a weak dollar and a contracting economy. However, when the dollar is strong and the economy is growing, trade deficits increase.

What do you think the bank will do with all of that money that people pay back to them with their rebate checks? Does it go in the incinerator? Or does it end up in the hands of other borrowers who will spend it and help the economy?


The banks will hold incoming cash in reserve for a while. They have to in this environment. They don't have the reserves to support a recession. A nice result of 'just in time' money management, eh.

The question really isn't what the banks will do - it is what the consumer will do...

Will the consumer borrow money like they did from 1995 through 2005, or will they start paying those 'loans' back. What are you doing. Do you want to live the variable rate credit crunch livestyle when you know Obama/Clinton will raise taxes on you? Will the IRS or CapitalOne accept your story?

And, then we get to the baby boomers. How many oldsters buy McMansions. Ford Explorers. Start a business. ??? How many oldsters trade their McMansion in for a condo on the beach. Totter about in a 10 year old car. Pull money out of their stock holdings in retirement. ???

That is our current environment.

So, here is the situation as I see it. Banks want reserves (my weakest argument) and customers don't want to borrow money.

Boom boom over.


This is only because major trading partners have been printing money as furiously as the US to keep their dollar peg.

Middle eastern countries are reconsidering the wisdom of this, and so is Beijing.

When the decoupling completes, the psycological barrier will be gone and USD will be left to flounder on it's own.

Actually I don't understand relative currency values, as to what principle applies.

I suspect heavy government intervention accounts for all of it.

It ought to be that values of commodities plus transportation would be the same across boundaries, and the currencies adjust to do that.

And all the currencies adjust so that every country does something cheapest.

A bunch of simultaneous equations.

Where are the additional effects coming from?

Looking at the 'budget' - actually the MTS for February - tells me we are in for California style trouble.

We ain't got nobody willing to make the hard calls to cut spending a bit.

And, my guess is that folks and countries are starting to purchase with non-dollars. They don't want the trash we print. Their credit is drying up. Our country ain't getting no more credit card offers in the mail.

Can we turn it around???

Yup, because Europe is not real safe either. But, folks don't seem to see that right now. Japan, come on!!! China, yuk yuk - they depend on us and my guess is that we don't want our toddler guzzlin' lead and our oldsters makkin on bad pills, eh.

We just need Americans to stop buying government debt.

From the city known as 'Enron by the Sea'. A city that still cannot borrow from the bond market. A city of the future.

Boghie from San Diego...

What was so different in 1996 that the dollar at the same level was not so much a concern?

Oh, right. Democrat president then, Republican president now. So, there's a good chance all these concerns will magically disappear in eight months with the election of a new president if from the right party.


The difference is the slope.
The vision of the future.
The immediate past.
The trend.

In 1996 the dollar would be stronger next week than it is today.

Now, not so much.

People - including United States citizens - have many places where their money can be invested. And, once their money is invested in Singapore it ain't really dollars.

We had a chance in 2005/2006 to wipe out the annual Federal deficit - but, our elected leaders (my fiscally 'conservative' ones) just couldn't do it, eh... That would have given us some wiggle room and some respect. But, not so much.

Now, we have an economic bump. Not too bad. Some real estate speculators are getting blown out - but that is what speculators do. However, we don't have a couple of months of reserves. We is flat broke - but, we can print money!!! Print, print, print.

Personally, I want this thing to wash out without government intervension. The speculators will have to bail out. The surviving banks will hold a bit more cash. The mortgage companies will do their job. And we consumers will gain a healthy respect for the dollar.

Print, print print - but at least the Treasury uses the right colors when they print our cash...


With every post of yours you continously smooch a big government politician or bureaucrat. If it is not a smooch, it is a kiss in the a$$. Your love affair with central economic planning is a disease that needs to get treatment. Like all mad men, it will be difficult for you to recognize that you suffer from a serious deficiency of the mind. I am just being a messenger.

You and other mad men cheering this country on, while it is on a path to ruin is a truly saddening experience.


Yeah, but it's going to be O.K. because NOW our trade deficits are going to correct themselves and we are going to grow more jobs because our exports will go up under all those marvelous "Free" and "Fair" trade agreements. Right. They're good for us, especially when the dollar is weak. All those markets we've opened up are finally going to pay off. We'll be more competitive without even having to retrain a single Michigan assembly line worker. Hey John, used to be my candidate McCain, if we get to 5.0 dollars per Euro instead of 1.56 maybe those Michigan jobs WILL come back! Right now we’re at about a 30% across the board reduction in prices for our friends in Europe. Kind of like China has maintained for two decades by manipulating their currency and look how their exports have boomed.

So, I’m looking at your graph and it shows the dollar dropping since about 2003. So how does this happen, “U.S. trade deficit with China has continued to soar every year, hitting more than $256 billion in 2007, up from $232 billion in 2006. In January, the deficit widened to $20.3 billion from $18.8 billion in December.” Aren’t those the last few years when the dollar is tanking on your graph?

Exports should rise the trade deficit will shrink and the value of the dollar will recover as we stop offshoring our dollars to Communist China and the Middle East. Right because India, China and Europe will be able to afford more of our products and the "free" and "fair" trade agreements will ensure we have "access to their markets." Isn’t that the explanation I have been hearing for two decades from you globalized free traders, Steve?

Oh, but wait here’s what the Chinese government had to say recently, March 12th.


Chinese Foreign Minister Yang Jiechi said, "China is willing to increase imports from the U.S. As a matter of fact, China is the fastest-growing exports market for the United States," he told reporters, Xinhua reported.

Yang used the occasion to say one obstacle to bilateral trade is the tight U.S. restriction on export of high-tech products to China.

“They’re willing to let more of our products in, but they really want our high tech stuff.” They’re willing to let in more if we give them the high tech stuff. Yeah, then they wouldn’t have to pay Ben Laden to get a look at one our cruise missiles again. “Willing to let more U.S. products in,” is that how you define an “open market” Steve? They open the gate a little bit if we let them have the high tech stuff. Gee this sounds more like their family planning policies than free trade and open markets?? Kinda smells like bridery. Of course what would a communist Chinese cadre know about that? MAYBE, WE SHOULD LET IN, IN THE SAME PROPORTIONS THAT THEY LET IN? What would happen to the value of our dollar then? All those greenbacks circulating in the lower 48 instead of communist China!

Of course the uptick in exports so far has been that 80% of the cargo containers leaving the California ports for Asia are now filled instead of empty ……. But filled with our scrap cardboard and scrap metal and not actual products. Hmm I'm sure those Chinese store shelves are just brimming with our cheaper more competitive stuff. Are we shipping by airfreight??? Of course this assumes we have the same access to their markets as they have had to ours. Oh maybe we need to send a delegation with the next Mattel VP’ visit, to ask, “Pretty, please would you let us sell our stuff.” I vote for Debrowski again, they like him.


All that access you guys have created to those markets are really going to pay off now. So Steve, when do our products start shipping??? How about a chart that tracks how our manufactured exports rise, as the value of the dollar drops against other currencies, like your economic models say they're supposed to??? Let's do exports of manufactured products to South America, Europe, China and then the rest of Asia. Four lines climbing as the dollar weakens. Wouldn’t that be a good barometer of how all those deals have opened markets for all us good old USA taxpayers? Hurray for the weak dollar. Maybe we will stop funding the militarization of a totalitarian, communist cadre. Hurray for economic policies that have lowered the standard of living for American citizens so that China can have better nuclear submarines, cruise missiles and intercontinental ballistic missiles. Oh and let's not forget the better good old fashioned diesel subs, one of which popped up in the middle of our Pacific fleet, while it was in the middle of battle maneuvers last October. SURPRISE we can take out one of your aircraft carrires now. Thanks, China for letting us know. Nice going. Steve, which economic model takes that into account???


Milton's new book should be "The World Was a Hole" and the American economy was been dumped into it? Can’t wait to see those charts.

Hmm, Steve? Steve? You're silence is quite deafening, eh?

Nero- My memory is failing me; aren't you the Fed conspiracy theory believer?

JC- You sound overly concerned. Some of us take a few days off with family every now and then. Send me a private email and explain, please.

The comments to this entry are closed.