Is the U.S. economy going to tank this winter?

Economists trying to get attention always try to make the situation sound as bad as possible, and besides many of them instinctively pick numbers on the worse end of the scale rather than the better just so it can’t be said after the fact that they didn’t predict a disaster. The trade imbalance and the fact that interest rates are artifically low is a problem. Whether it will blow into a “crisis”, well, we don’t know that right now. I’m certain that Asian currencies must eventually rise against the dollar, that some industry in China must shut down because it won’t be profitable to make some goods over there and sell them here. But what percentage of the total will that be? Probably not all, and I would say probably not even half will be eliminated.

One other consideration on the interest rate thing. After the '92 election many conservatives fumed at Greenspan because they thought his rate increases had cost the original George Bush the election. I suspect that a desire to avoid repeating that experience led him to push only microscopic rate increases in the runup to this election. But hey, election’s over. He can go hog wild now.

Well, the thing of it is, when I said this stuff in 2000, I got looks from people that really made me think I must be the crazy one.
Now, everyone and his brother is saying it.
To quote Joe Granville, “If it’s obvious, it’s obviously wrong.”
The trade on the dollar collapsing is just way too obvious at this point. You could probably fire a cannon at a building supposedly full of dollar bulls and hit no one.
Longer term, a dollar collapse is inevitable: I’ve posted elsewhere that I think $5000 gold is a lock, and I really think it is. Just not tomorrow, or anytime soon.
There’s a few obstacles in the way: China is not going to just up and float the yuan tomorrow; China, Japan, India, Korea, Malaysia, Taiwan and Singapore aren’t all going to decide to convert their reserves from dollars to euros and yen all at once any time soon; private international investors are still going to find US equities attractive, from time to time. And with Bush re-elected, Saudi Arabia is going to do whatever it takes to make sure oil continues to be priced in dollar terms.
And as I posted before, whether deliberately abetted by the Fed or not, there’s a de facto Operation Twist going on. That was a deliberate effort in 1961 to raise short-term rates while lowering long-term ones, so that international investors would find US bonds to be a good deal, since their prices rise as their yield falls. The 10 year has actually risen in price, and fallen in terms of yield, since the Fed began raising rates, so the same dynamic is in operation today. Anyone who thinks that Greenspan, a goldbug with an encyclopedic knowledge of financial history, is going to allow the dollar to collapse is simply underestimating the man.
When he goes, it will be time to begin the Dollar Death Watch. For now, we could see a spike down in the dollar and an accompanying upward spike in euros and gold, but in gold terms I would be very surprised if we went past $500 per ounce. 79 on the yen is the low we got to back in the early Nineties. We could see that again too. Once again, I’d be very surprised if it went lower than that in this cycle.
Then again, I could be all wet. Wouldn’t be the first time, Lord knows.

It was actually China that I was wondering about. I hadn’t thought about the Japan angle that way before. Interesting. The discussion about a weaker dollar not too long ago makes this conflict seem even more absurd.

Even Greenspan’s worried:

http://money.cnn.com/2004/11/19/news/economy/fed_greenspan/index.htm?cnn=yes

I have two co-workers who have been predicting this since I started work - 3 years ago. The best answer that I can give is: No one, ever really knows. But I have been betting against them for 3 years and continue to win that bet every Christmas.

Hmph. That’s mighty unusual. I mean, for him to say this in public.
Mighty unusual.

:eek: That’s disturbing.

Article in yesterday’s WSJ:

“Chinese Are Losing Dollar Faith/Selling of Greenbacks for Yuan Creates Problems for Beijin.”

And this is a currency (yuan and renminbi are the same thing) that is pegged to the dollar. And ordinary Chinese are still dumping bucks below the official rate. Egad.

Also, yen just above 102 right now…

Will there be a chaotic collapse? Well, the US and those governments are going to fight it like hell, and they wield a lot of power to stop it. But you could really start to hear the gears grinding. I can’t imagine the yen not sinking into the mid to low 90s within the next 6 months, and the 80s wouldn’t surprise me at all.

Of course, that’s in dollar terms, not calories. The US is still, of course, calorie self-sufficient.

From what I read in the WSJ, a lot of what’s causing the monthly ag-trade deficits is the importation of highly value-added goods: wines, cheeses, olives, etc.

But this brings us back to the greatest debt-based consumer binge in world history.

Since the Euro succeded to the ECU, with an identical value, you could take into account the ECU/Dollar exchange rates during the last thirty years.

You mean, Greenspan?

Greenspan says the best way to deal with the problem is to reduce the federal budget deficit. But what are the odds of that? We certainly can’t expect Bush to reverse his tax cuts in the next four years, and with the war and all, what is there in the budget that could plausibly be cut?

Well, if we eliminated the Department of Labor ($60 billion a year), the Department of Agriculture (~$100b), the Department of the Interior (~$31b), the Department of Energy (~$18b), the Department of Transportation (~$54b), the Department of Health and Human Ser… Wait a minute, can’t get rid of all HHS 'cause the seniors gotta have Medicare and Medicaid. We’ll get rid of all the other HHS bits, though (~$90b).

There’s $353 billion right there, wasted on beauracracies that the market could easily handle on it’s own. That oughta be enough for the Iranian War. :wink:

One is pleased to jest, no doubt?

From http://en.wikipedia.org/wiki/Federal_Government_of_the_United_States:

None of these are functions most of the American people would be willing do without, and I don’t see how “the market” could adequately handle any of them.

Yes, that’s why there was a “;)” immediately after my comment.

Here’s where it gets debateable. There’s an awful lot in that wikipedia glurge you quoted that the American public could do without (do we really need to spend money to foster good relationships between employees and employers?). There’s even more that the public could do without if, for example, “the Department of Labor is a left-wing anti-business waste of money” becomes a talking point and repeated ad naseum by Limbaugh, et al.

I picked those organizations not because I believe they should be cut but because there are plenty of influential people on the right who think they should be.

But they won’t be. The Cato Institute is Libertarian – a very different branch of conservatism than George Bush’s.

Brain Glutton, the point is that Greenspan is not supposed to say a word about this sort of thing in public. That he did so indicates both major concern on his part with what’s happening, and possibly major dissent with Administration policy. I quote from this Saturday’s Financial Times (subscription only area, sorry):

True, but they still have influence in the Republican party. I’d say they’re “libertarian” as opposed to “Libertarian.” I don’t think Bush is going to close all of them, or even close any of them. The point was, there is a good chunk of money being doled out to those agencies–some of their programs we can all agree are pork that should be cut, others are open to ideological debate. But there is a potential for stuff to be trimmed there. The question is “Is there enough fat there to close the deficit?”

Update – essentially a followup to the entry quoted in the OP – from Kunstler’s “Clusterfuck Nation Chronicle,” http://www.kunstler.com/mags_diary12.html:

:frowning:

:rolleyes:

:dubious: