I think that this, however, is a risk that I think they are willing to take. If the dollars falls enough, people will want to use something more stable as a key currency. Of course, in this scenario, France and Germany would hope that it’s the Euro.

I agree with your assessment, though. If Europe puts the dollar into free fall, they will be cutting off their noses to spite their faces.

There are people betting on a MAJOR, decades-long depression that will bring about not only the collapse of the dollar, but possibly the market system we know. What these people don’t realize is this: What makes them think that, if such a collapse were to occur, they will be able to keep any gains from short-selling America and the market?

A big problem will be if OPEC switches over to the Euro for oil contracts.

But say China, Japan, Europe, and OPEC lets the dollar into freefall, they’re basically killing their biggest customer and market for their goods.

It is also an industrial metal.

Might the relative price rise indicate increasing demand in the electronic/electrical sector which has been in the doldrums for the last 3-4 years?

Via Econopundit.

http://news.ft.com/cms/s/7f2f70b6-3d3f-11d9-abe0-00000e2511c8.html

Wonder how much Soros is going to make.

So, in order to prosecute the war when advantageous to us, President Bush has apparently given Congress their pork in exchange for sufficient credit to properly project American power. Unlike Theodore Roosevelt, Bush seems to lack the ability to bully Congress to take the necessary action to properly use American power.

I believe President Reagan also took this “I let you spend, you let me spend” approach to push the Cold War to a happy end.

I recall from the history books that when Congress jacked up military spending in 1898, the Spanish were shocked that we could spend so freely without having our credit adversely affected. From the present interest rates, it seems that we are able to do it again in 2004.

I also am loathe to engage in a deflationary fight with the euro. This was one reason we went into the Great Depression: France bought our gold, and we cut the money supply to stop the outflow of gold. Dumb move.

I don’t know if you are right about France and Germany, but time will tell. Kudlow says essentially that the inflation situation and the economy generally look good, but that the gold rally may indicate trouble ahead. Malpass is cautiously optimistic but concerned about inflation. IOW, nobody knows and nobody is making strong predictions. We’ll all have to wait and see what happens.

I agree that the war comes first, but I think we’d be less likely to have excessive inflation if we cut domestic spending. The genesis of the inflation of the 1970s was in LBJ’s guns-and-butter spending policies in the 1960s. There are some parallels between then and now, at least WRT govt spending.

However, my guess is that the French and Germans are engaging in (what they hope is) mild deflation, which would cause the dollar to slip against the euro. Deflationary policies to keep up with the euro would put the USA in a position where there may not be enough credit to prosecute this war against terrorism.

We ARE in a war. War is no time to engage in anti-inflation programs, especially if inflation seems to be in check (as the interest on the US Treasury instruments indicate).

I am concerned that if we were to intensify an anti-inflation program, we may suffer a deflationary economic collapse of the likes to make the Great Depression look like rip-roaring prosperity.

—

So, who’s buying?

Goldfinger?

Once things quiet down, if gold stay up there, *then* we should worry about inflation.

So “making substantial progress” means that he made a campaign promise? Campaign promises were made to be broken, I’ll believe it when I see it.

When dealing with politicians, there is a decided difference between “said” and “did”.

Call me back when he actually cuts something from the budget.

Maybe it’s my unique take but wasn’t the ’87 market crash and the eventual ’90 recession the result of Greenspan’s over-reaction to the conditions we are seeing today, i.e., “twin deficits”? My recollection is that the dollar was way overvalued (too strong) in the 80′s. Inflation was higher then, but it wasn’t outrageous especially compared to where it was a few years earlier.

“The Administration appears to be making substantial progress limiting the growth in discretionary spending without yet having to resort to vetoes.”

I must have completely missed this development, where was I?

At this point my decidedly non-expert opinion has waffled back and forth so many times on whether the Fed is creating too much money or not that I don’t know where I stand anymore. You can make a good case for either viewpoint.

The bright spot in Malpass’ comments:

–Importantly, we note big policy opportunities, partially offsetting the damage from dollar risk. The Administration appears to be making substantial progress limiting the growth in discretionary spending without yet having to resort to vetoes. A growth-oriented tax reform based on reducing the compound double taxation of savings is under discussion.

–Apart from the risk of a weak-dollar trend, the economic platform is solid in our view. We note the 5.5% unemployment rate, high levels of liquidity, the relatively low U.S. government debt/GDP ratio, strong corporate profit growth, and growth-oriented tax cuts.

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Relatively low US gov’t debt/GDP????

How can that be??????

And does MSFT’s $32 billion (?)pump help at all? Even psychologically?? What about Intel’s doubling of its’ divvy?

Now if we can get Buffet to knock off…. a few more billion into the Treasury and a boon to certain parts of medical research…….

They can’t go lower forever, either.

On these data Bear Stearns’ David Malpass warns:

Stock and bond prices fell with the dollar this morning in a so-far mild case of capital flight from the U.S. They were responding to Fed Chairman Greenspan’s comments in Frankfurt linking the value of the dollar to the U.S. trade deficit. The gold price topped $448, signaling the weakest value for the dollar since the 1987-1988 dollar crisis (when the stock market crashed and gold nearly hit $500.)

Until today, dollar weakness had not hit U.S. stock or bond prices….

More at his site.

Is the price of food pegged to what food cost in 1948 or is that just food stamps?

And how do the hurricanes factor in???

I know the energy component factors in there as well.

“Nito, you owe $10 billion on your American Express”

“No problem, let me grab my checkbook.”