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Three Pieces on the Dollar
Today I am going to summarize three articles I have received recently which have to do with the US dollar. I've been watching this closely for about ten years, as our original plan was to retire early and expatriate. The plan was to have a better life yet spend less money, but we may have missed the window of opportunity. I am often reminded of all the stories I heard as a child, about growing up in the Great Depression. To make it all more creepy, I know people struggling to live abroad, and people on the USS Lincoln (off the coast of Iran), which makes our current economic mess all the more personal and ominous.
Dollar's fall forces new standard of frugality
Americans have been living large, often on borrowed money, as consumer spending represented more than 70% of our commerce and we bought more than we made and sold. Our trade deficit is $800,000,000,000, about 7% of the economy, aside from our budget deficit and national debt. Our news is all about what is rising (debt, unemployment, price of oil, war fatalities) and falling (value of the dollar, quality of life.) Foreigners are wary of investing in our economy, after lending us money to stop til we dropped and joining us in propping up sub-prime lending. As the feds push down interest rates, investors yank their money and put it to work where there is a higher rate of return. The dollar has lost 17% against the euro in one year's time. Our economy had grown since the end of WW2 but now it's the turn of China, India, a united Europe and Latin America.
As a country, we are tightening the belt on our collective fat stomach. Sales are up for rice, down for casinos. People do not normally cut back their standard of living. When food and fuel go up, values of homes and retirement funds drop, and it's hard to get credit, French wines, restaurant meals and imported cars go first. With increases in oil and foodstuffs, basic necessities are also affected. Credit is harder to get, which affects home buyers, those needing cars to get to work, and students needing to borrow money for school. Assets like home value and retirement funds shrink, so cannot be drawn on and no longer represent as much security. The upside is that people may actually have to put money down to buy a house. They may be given credit based on their actual ability to pay back loans. There may be more enthusiasm for clean energy and buying local.
The Dollar's Down But We're Not
Americans living abroad, such as those who work for foreign companies and pay in dollars, are having a hard time. They report cutting out mineral water, then restaurant meals, even at small neighborhood bistros. By now, those in Europe are absorbing the equivalent of a 50% pay cut. A Parisian quotes these prices: $50 for a dozen croissants, farmed salmon for $23/pound, $4 for a newspaper. Wine and soda are both too expensive, and some people have bought potted plants as they can't afford flowers any more. Many are selling their cars or even returning to the states (which means quitting jobs or stopping studies.) Any trips or returns to the States mean hours on-line, desperately seeking bargains or ways to cash in frequent flier miles.
A woman in Paris says:
"I think of stopping our subscription to Le Figaro, but not to the International Herald Tribune, without which we'd be lost. Cooperatives for exchanging the New Yorker have sprung up. I pass on my Times Literary Supplements and New York Reviews of Books to my friend Eric in Germany."
On top of it, people at home may not be sympathetic, not realizing that expats have to pay taxes in both countries and don't want to uproot their kids. Some specialities do not translate into jobs in the US. Doesn't the envy also suggest that people wonder if there might be places better to live than the US? Some people will accept fairly major reductions in quality of life in order to stay in Europe.
US Beats War Drum as Iran Dumps the Dollar
Let's hope this doesn't mean what it sounds like. A "senior military official" leaked to the press plans to publicly reveal evidence of weapons caches found in Iraq which can be traced directly back to Iran. They are the type of roadside bombs often used against occupying US forces. The plan to present this evidence of Iranian support for Shiite militias inside Iraq comes at the same time that Iran has dumped the dollar for oil trades. They will deal, like a certain supermodel, in Euros or yuan, rather than the dollar.
A second US aircraft carrier has arrived off the coast of Iran. Gates calls the carrier a "reminder" and not a threat elevation. Another "anonymous senior official" says the USS Lincoln replaces the USS Truman, which is returning to its home base. Some analysts believe that Saddam Hussein's decision to switch from the dollar to the euro precipitated "regime change," to protect American interests. Others wonder if others around the world may follow suit and dump some of their reserves of US Federal Reserve notes. This would bring the dollar down further and the cost of fuel upwards.
(graffiti from Belgium & Spain, where the dollar is currently worth US $.6459)
5 Comments
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Don't we know all this, DiAnne! We are close to (we hope!) selling our house, while we still can (DC is still OK for home sales, but next week, who knows?) We will pay off ALL our debt, buy some land in another country, and start to build. We are LUCKY. We have something to sell that people still want to (and some are still able to) buy.
We would have liked to have kept the house, fixed it up and enjoyed being in the neighborhood we grew to love, but we also grew to mourn for that neighborhood. And we feel it is a little too close to horrific sights and sounds.
Seriously. If we lived next to a toxic cesspool, we would not be more upset than we are, daily, by what is bubbling up from the underworld on Capitol Hill.
Honestly DiAnn I think the air craft carriers enhanced profile in the Persian Gulf has more to to with Iran's nuclear soon to be "capabilities" than monetary policy. And by the way with nuclear proliferation expanding around the globe, where exactly are you going to move to? You had better get out your map and see what countries will not be affected by this new global threat. Maybe Antarctica is still taking dollars, although I'm not sure about housing values. It is already evident that the Democrats in Congress do not have the Gravitas to deal with this issue, so if a Democrat gets in the White House, you will see more of the same squared.
Last week, Russia, England, China, Germany, France and the U.S. all negotiated with Iran offering them monies, energy hardware, security guarantees and technology to stop their enrichment program. The Iranian supreme leader Ayatollah Ali Khamenei responded with: "No world power can make Iran retreat from its path." Sounds promising right? Well maybe a visit with Barack Obama and a nice cup of tea will settle it. The dollar will never recover if the world is allowed to sink into a morass of nuclear proliferation, especially when terrorists get a hold of these weapons. If they are willing to strap on an explosive suicide bomb, heck why not step all the way up to the plate and go nuclear. Then we'll see where your house value goes.
out.
Welcome HOBOBOH.
You said:
"Well maybe a visit with Barack Obama and a nice cup of tea will settle it"
I very much doubt that tea will be a factor in negotiating with the Ayatollah. I doubt that political pressure, threats, sanctions, bombings, etc. will be either.
What COULD be a factor, however, is something called diplomacy, which shallow thinkers tend to mock, but which has genuinely worked over the past few hundred years, ever since nuanced thinking and higher order cognitive skills have, on occasion, superceded the tendency for boys to want to blow things up.
There are solutions to problems between countries, and religions, and even family members. Those solutions involve WORK.
Hmm...maybe if we could stop inventing money in order to bail out investment firms or overspeculated banks...if we stopped intentionally devaluing the dollar...if we stopped spending billions of dollars on things that go BOOM...
On the flip side, I have a couple of foreign bank accounts which are doing rather nicely. And I guess I invested in international stocks at the right time...
Whoever our next president is will have a sh*tstorm of a financial mess to deal with. It may well sink him or her. Talk about looting the coffers before you leave the WH...this beats taking the china and the "W" keys off the keyboards, for sure.
Gee Karen, that's a novel idea. Diplomacy. Gosh, why hasn't that been tried before? Are you serious? I won't comment further (actually I will) since you must not be paying attention to the geo-politics since 1979. Guess you missed all those "teas" from Carter to today. Guess you missed two decades of European "teas" . They called it "critical dialogue" (fancy). All for naught.
There are two faces of Iran Karen. One is the nation state and one is the revolutionary state. The nation state knows how and wants to behave, the other does not. One can be negotiated with and one simply CANNOT. What is in power now (headed by Mahmoud Ahmadinejad) is an Islamic revolutionary republic bent on world conquest under the guidance of the "hidden Imam". If you don't know who the "hidden Imam" is, you need to do a bit of homework. Negotiations are futile whilst Iran remains in this mode. I'll give you a very recent quote by Ahmaddinejad to help you along.
Ahmadinejad: " You have nothing to say to us. We object. We do not agree to a relationship with you! We are not prepared to establish relations with with powerful world devourers like you! The Iranian nation has no need of the United States, nor is the Iranian nation afraid of the United States. We do not accept your behavior, your oppression and intervention in various parts of the world."
it takes two to dance and it takes two to negotiate. It has been thirty years of "talks" and the western world is no closer to understanding how to deal with a country like Iran which refuses to act as a nation state in totem.
I could go on further and there are other nuances and subtext which will weave a more complete image of the situation, but I'm keeping it short. Hope this helps.
Obama comes across as naive when he makes such foolish statements. if he is going to win a general election, he had better stop showing off his total lack of understanding of world politics. Maybe he'll get lucky and the 57 states of America won't notice. You didn't .. so maybe there is hope for him yet. Of course you may have to trade in your hope for him to have his. Good luck with that one.
@ V
Can i just assume you're joking? It must be difficult to write on swiss cheese.
out.