So BBC has it before CNN which is odd considering the story comes out of the US. A half point drop is no good at all for the Dollar. I spend a lot of time in the Czech Republic and over the past 5 years or so have watched the USD:CZK rate go from $1=37 Kc to $1=19 Kc.
That’s 50% folks. In five short years, spending power cut in half.
I can see the day quickly approaching when the USD gives way to the EUR as the worlds defacto currency to hold.
Sure, it may prop up the subprime sector for a few months, but the long term and even mid term prospects for the USD are dire.
While the power of the dollar has declined quite a bit against many other currencies, I don’t think it’s an accurate example to compare it to a single currency and declare that it’s spending power has reduced by 50%.
I wouldn’t be surprised to see the Euro overtake the dollar sometime soon, though.
Are we in some type of contest where the highest rate currency wins at the end of the year? Currency that trades at unrealistically high levels can be very bad and there is little reason to strive for that goal in the first place. A weak dollar helps our exports which are vital for a healthy economy and that can help promote growth overall. A weak dollar sucks when you are an Amercian that travels abroad but is hardly indicative of the sky falling and not even anything all that negatives. Dollars are an abstraction anyway as are all other currencies.
A weak dollar absolutely helps the likes of Boeing, but the vast majority of products purchased by American consumers are imported, and a falling dollar does not inspire the Chinese to continue buying US debt.
Dollars are an abstraction… thus the recent climb in the price of gold. At least my foreign holdings will be worth much more when/if I return to the US. I have made vastly more on the exchange rate than I ever could in any remotely-safe investment.
Not all of it, but I’ve done pretty well - I still have EU-based real estate, but the EUR/CHF/GBP I have convert nicely back to USD when I go back to visit. I just wish my income was not in USD.
Aside from what you note above, I’m sickened by the rationale for it, which is mainly to support the large banks and investment firms who sucked up the securitized sub-prime mortgages when they knew they were inherently risky and turned a blind eye to the lack of due diligence displayed by the mortgage brokerages in originating these things to wholly unqualified buyers.
So Wall Street gets it both ways. Congress is subsidizing even more credit to feed their bad habits, which are inherently profitable for them as long as they don’t ever have to absorb the losses (essentially the tax payers now do). Couple this to the $16B or so in funding the Fed dumped into the market two weeks ago, and the bill the House passed today to back refinanced loans for people who sought these loans so they could essentially live beyond their means based on the teaser rates (the rest of us will now pick up the tabs for the re-fis).
I have 401K and defined benefit plan, both whose overall performance and long term prospects are tied the market, but frankly I’m PISSED.
Why? Because I’m one of the few poor saps who purchased a reasonably-priced house that I knew I could pay off in 15 years based on my then current salary, rather than overextending myself and living beyond my means. Because part of my portfolio and cash-on-hand is in safe money market accounts and CDs whose yields are shit b/c Congress decides its better to subsidize those who are irresponsible than those of us who are not.
Stupid move, for all the reasons you mention. The US Government is only encouraging the kind of personal fiscal behavior that is ultimately going to sink the country. Its disgusting.
I am not sure if that is the entire rational but I agree that the government should let the housing market and the financial companies associated with it crash and burn as hard and fast as they need to. That is called a market correction and is very healthy in the long-term. That way, all the parties involved won’t be so stupid next time and people looking to buy a house responsibly now can get a better deal and not subsidize the idiocy of those those that came.
Exports account for a very small percentage of real U.S. gross domestic product, almost nine-tenths of which consists of domestic private final demand. So it’s going to take a hell of an export pickup to overcome the drag on consumer spending linked to 1) the end of the houses-as-ATMs phenomenon made possible by rising property prices and 2) the drying-up of stock sales by U.S. households to companies buying back their own shares or private-equity bidders.
See the August note here for a cite on the composition of real U.S. GDP.
Yes…thats part of the frustration. I would like to move soon…8 months ago I could have sold my house for 20% more…but paid as much on the next one, I suppose.
I have no beef with those trying to purchase a residence with limited means, but the reality seems to be that most of those being rescued are not that type - it’s the speculators who obtained easy credit to buy multiple homes for investment purposes. They thought they could continually flip them and and make a buck. Nothing wrong with trying that, but the rest of us assume the risk with our own investment ventures, and these people are getting bailed out, no harm done.
What’s interesting is that we’ve not seen the asking prices of housing come down, but if you track it sellers are accepting considerably less than list. I suppose the benefit is that it is now a “buyers” market, but even now it seems most can’t afford b/c they are already overextended (and part of that reason is the relatively low interest the Fed extends to banks, which makes it easier for them to loan money. The problem is they did too much of that, and with the govt cutting rates will continue to do so as they don’t assume their own risks or have to absorb the losses (which in retrospect, seem to have been inevitable).
The dollar has dropped to a new record against the euro today, and I’d say expect more declines. The Treasury and the Fed will let the currency go in an effort to save the economy – foreign holders of dollars don’t vote in U.S. elections, after all.
True, but they do fix the price of oil. Rising prices in the US will lower spending power, slow the economy etc. I guess it’s ultimately a juggling act.
Of course. If we’re going to have a bailout, I’d like to see some tests applied to make sure the money goes to people who actually bought a house with the intention of living in it, not to speculators who were flipping houses. Barring telepathy or a perfect lie detector, nothing will work perfectly, but some sort of test to screen out speculators might be helpful. Say bailing out only people who were buying their only home- if you got in over your head buying a second or third home in addition to the one you live in, too bad. There would be foreclosures under this system, but fewer, especially fewer in which the owner loses their only home, and those of us who didn’t overextend ourselves to buy homes might resent the bailout less.
Problem is, if the sellers bought the home recently, they may owe their mortgage lender more than their house is currently worth. AIUI, at least in some places you have to get the bank’s approval if you’re going to sell your house for less than you currently owe on your mortgage. If their bank won’t work with them, they’re stuck- they can’t make their mortgage payments, and they can’t sell the house that is the cause of those mortgage payments.
I think Mr. Neville and I might have looked at a house in Pittsburgh where the sellers were in that situation. The house had been on the market for a year, and our realtor told us the sellers ended up taking it off the market and renting it out. That works in a market like the part of Pittsburgh we’re in, where the rent a house brings in is at least close to a reasonable mortgage payment. It wouldn’t work in the Bay Area where we used to live, though- we were renting an apartment for a little over $2000/month, while there were condos being built a couple of blocks away that were comparable to our apartment (1000 sf, 2br/2ba) that cost a million dollars. Someone who was stuck with one of those couldn’t earn back their mortgage payment by renting out their condo, because any potential renters would just go down the street to the apartments where the rent was half as much.
