From: Mike Lorrey (mlorrey@yahoo.com)
Date: Sun Jun 15 2003 - 22:10:21 MDT
--- Paul Grant <shade999@optonline.net> wrote:
>
> Keep in mind also, the Columbian cartels and the guerrilla groups
> that have many billions of dollars in the bank seem to be dumping the
> dollar as a tactic of financial combat against the backer of their
> enemy. This is becoming a pig pile tactic by many countries which
> import more from the US than they export and don't like our "we're
> not a punching bag anymore" foreign policy.
>
> Me: I pretty much attribute the drug war to a way to keep interest
> rates higher, and of course, establish the greenback as a world-wide
> currency.
I wouldn't say so. Its competition between domestic producers of
artificial psychochemicals and foreign producers of natural ones. I
encourage others to read this month's issue of New York Magazine about
how well medicated Manhattanites are these days with psychiatric
prescriptions, to the point that home hobby experimentation and
medication swapping is commonplace, and many such individuals find the
prescription pills like Ritalin, Prozac, Adavan, etc are of superior
quality and effect with fewer side effects than drugs like coke or
smack. Dealers in illegal drugs are now dealing in both markets and
finding the psych market to be more lucrative, more respectable, and
less risky.
>
> Keep in mind that deflation is not the same thing as devaluation.
>
> Me: Fair enough; I don't really differentiate because in my mind, the
> two are fundamentally linked. Short-term effects though, do require
> descriptive differentiation...
Actually, they tend to be inversely related when all other factors are
equal. When prices deflate, it is because the dollar is increasing in
value. Inflation results in devaluation (which is why you frequently
see banana republics devaluing their currency vs other national
currencies by fiat as a means of halting hyperinflation domestically.)
>
> Deflation is when prices decrease (normally occurs when the value of
> the dollar increases), while devaluation is when the dollar is worth
> less of competetive currencies. Most of the deflationary pressure is
> from falling energy prices (and prices that are impacted by energy
> prices). Since energy prices were previously inflated solely due to
> war jitters, this should not, IMHO, be considered a bad thing, and
> the deflation is not a sign of anything systemically wrong with the
> economy.
>
> The dollar, somewhat contradictorily, is also devaluing, mostly
> because many countries pissed at our foreign policy are changing
> how their own currencies are anchored, from a dollar standard to a
> euro standard. This also IMHO is actually a paper tiger that is
> more likely to help us than hurt us. It gives the French the
> false prestige they crave, while at the
> same time inflating the prices of their exports, which will
> negatively impact their economy.
>
> Me: Agreed regarding the devaluation of the dollar (since it is in my
> opinion, pumped up artificially).
If it is pumped up artificially, it is done so more by foreign
governments in order to keep their exports to the US artificially
cheaper. The only people here in the US that overvalued money helps are
the bankers and other money people.
>
> With decreased demand for dollars overseas, this makes our money
> cheap internationally while at the same time paradoxically of high
> value domestically.
>
> Me: cute, I didn't make this connection :) You're basically saying
> that more money will flood in to our country, at the same time the
> foreign imports go up in price...
> similarly, inflation will rise for domestic goods because there will
> be more money floating around, unless of course, the fed raises
> interest rates or reserve requirements...
No, domestic product prices will deflate (not inflate, as you infer) as
dollars become cheaper vs other currencies, while prices of foreign
imports to the US will inflate. The only possible inflationary
pressures on domestic products would be if overseas demand for US
exports causes increased domestic product scarcity here.
This will not be so noticeable in areas where so many domestically
finished products are made with foreign parts (like the car market).
>
> This can only be a good thing for the US, and will result in a return
> of many manufacturing jobs to the US, especially skilled blue collar
> jobs. Imports will decrease and exports will increase. The trade
> deficit, an artifact of our currency being the lingua franca of
> international finance, will fade from view and might even become
> a trade surplus. I predict that within a decade the US economy
> will resemble Japan of the 70s and 80's. Consumer savings will
> skyrocket. A speculative bubble of a size never before seen will
> occur across the entire economy, which will
> last as long as people are confident that they are making rational
> decisions (and so long as the facts they are basing those decisions
> on remain accurate).
>
> Me: sadly, I'm just starting out in my fiscal historical analysis :)
> I don't have many years of experience watching the markets on the
> like; I can't comment...
My primary experience was being involved in the late 80's real estate
development industry and watching it implode and melt down when the
reserve ratio got screwed with.
>
> So, out of curiousity, what do you think about the housing market? I
> think its going to tank bigtime, but my father is of the opposite
> opinion..
Which housing market? There are a number in various regions. Here in
northern New England, years of anti-growth local politics is running
head-on into development pressures due to a labor shortage and a
housing shortage. If NH gets selected as the Free State target state,
it will have another 20,000 people and their families moving in,
increasing an already dire market in many areas. Prices will go up more
before they get better, but they won't retreat below levels of a year
or so ago.
Other regions of the country have their own macroeconomic conditions in
play beyond national issues. The real estate market only goes to hell
nationally when the fed either raises interest rates significantly, or
if they change the reserve ratio their nationalized banks are required
to retain in liquid reserve assets (i.e. cash vs. loans) by a
significant amount in a short period (this was the cause of the burst
of the late 80's real estate bubble, instigated by a democrat appointed
by Bush I as a concession to DNC controlled congress.)
When lots of banks are forced to call in large numbers of loans (to
reduce liabilities and increase liquid assets) on developments that are
not selling well, you get a catalytic wave of bankruptcies that
triggers a greater avalanche of insolvency.
> My reasoning is that fundamentally, it doesn't matter how low the
> market rates go, if people are unemployed and getting laid off. I
> personally don't think he (Bush) is going to be able to create
> enough jobs... I'm predicting there's going to be a wave of
> foreclosures coming within the next 2-3 years... Especially given
> that the housing market is way overpriced, and anybody who still has
> savings is dumping it into their house for equity because
> the stock market is so flat, and the bond market's return is so
> neglible... My father is banking on the election year theory
> (self-explanatory).
>
> What's your opinion?
See my comments above. I don't regard the market as overpriced in most
areas. Anti-growth laws and politicians create inflated demand, which
inflates real estate prices until the laws are changed or politicians
are removed from office and development that meets market demand is
allowed to occur. The key difference between today's real estate bubble
and the late 80's is that then people were blowing smoke out their
asses, while today it is a matter of politicians creating artificial
demand by restricting property rights. The end result may be the same
if developers rapidly oversupply the market, but it all depends on how
it is handled by the various powers that be. If change occurs too
rapidly, the insulin shock could certainly cause problems. I don't
think it will happen before the election, though, because luddite
politicians won't lose their offices until after that election. Expect
movement next summer one way or the other. Until then expect moderate
economic growth linked to deflating energy costs and a sea change in
the import/export picture.
=====
Mike Lorrey
"Live Free or Die, Death is not the Worst of Evils."
- Gen. John Stark
Blog: Sado-Mikeyism: http://mikeysoft.zblogger.com
Flight sims: http://www.x-plane.org/users/greendragon/
Pro-tech freedom discussion:
http://groups.yahoo.com/group/exi-freedom
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