Friday, December 01, 2006

As I was saying . . .

Good ol' Mr. Washington isn't dropping his jaw over the new Britney Spears photos.


While this most recent decline in the USD has been under way since November of last year, the real dramatic slide began just after Columbus Day. Up to yesterday, the broad dollar is -2.4% and the major currencies dollar is -3.3% over just these seven weeks. And as usual, dollar decline is vented upon the European currencies first and foremost: the USD is -5.4% against the euro and -5.8% against the pound since 10/10.

It will be interesting to see the October 2006 TIC data when it comes out on December 15. For the 12 months up through September 2006 the US was importing in net terms around $75bn per month of both long-term and short-term portfolio investment. That figure is a bit deceptive, however. In recent months, foreign net short-term portfolio investment has completely dried up. Perhaps long-term purchases have begun drying up, too, over the last two months. We'll have to wait another two weeks for a peek at the data.

In the grand scheme of things, this is not a bad outcome for the US. It would be better if dollar decline could vent against the Asian currencies more, but overall decline is a good thing in the big picture. One just needs to hope that these tremendous global imbalances unwind relatively slowly rather than precipitously. I'm the last person in the world who wants to see Volcker Shift II.

9 Comments:

At 3:18 PM, Anonymous Chuck Roast said...

Mon Generale...

This is not a good outcome. Despite the 60's, I do remember one or two things, and one of the two is that people who are not wealthy have a high propensity to consume. The second thing is that domestic currency depreciation acts as a very big tax on the non-wealthy who may not have access to adequate substitute products.
Check out Robert Sinche's comments in Weisman"s NYT column today..."Let's say China revalues by 10% overnight. Then prices at Wal-Mart go up 10%. So we then see worse inflation numbers, the Fed tightens monetary policies, and we end up with higher inflation, higher prices and higher interest rates. Remind me again why that's what we want."
Well, Weisman got it right for once, and Sinche (who ever he is) should be writing Weisman's column.
This is not going to be a lot of fun for the working stiffs all over the US who have no alternatives but Wal-Mart.

 
At 5:59 PM, Blogger Glassishalfempty said...

Mon General
Would I be incorrect to assume that the fed would prefer inflation to deflation? Not that they would welcome inflation, but left with a choice, opt for inflationary policies.

 
At 3:19 PM, Blogger brad said...

me thinks the fall off in short-term flows in august and september reflected a shift into longer term bonds by a few big official players (brazil and norway for sure, anecdotally some asians) after they had accumulated lots of short-term claims in the first half of the year -- note that total s-term claims in the 12 months thru september 06 are well above the total in the 12 months thr sept 05 ... there was a big build up of shortish -term stuff in the us data in h1 and an even bigger buildup if you look at the international banking data. cheers

 
At 1:08 AM, Blogger Keyur said...

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At 4:47 AM, Blogger Mark said...

The low dollar rate will still effect the economy for the time being

mark
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At 1:11 AM, Anonymous worldpeace254 said...

Very informative articles here.

 
At 5:15 AM, Anonymous Sam said...

Brad, you are totally right! Well, great post...

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