US setbacks see dollar plunge to near 15-year low
 

US setbacks see dollar plunge to near 15-year low

London Telegraph | November 28, 2006
By Ambrose Evans-Pritchard


The dollar tumbled to a near a 15-year low against sterling yesterday on fresh signs of economic trouble in the United States.

An 8.3pc crash in US industrial orders and an admission by the Federal Reserve chairman that Washington does not know how bad housing really is set off another day of wild gyrations on the currency markets.

US house prices fell 3.5pc to an average $221,000, the third month of declines. Stocks of unsold homes rose to 7.4 months' supply, the highest since 1993. The US consumer confidence index fell sharply to 102.9.

The "truckers index" of tonnage shipped by US haulage companies was down 1.8pc in October, a leading indicator of contraction. Merrill Lynch called the fall "borderline recessionary".

The dollar continued its slide against the euro, dropping to $1.3194 after the Federal Reserve chairman, Ben Bernanke, said the housing slump "would be a drag on economic growth into next year". Mr Bernanke said official figures did not pick up the "sharp increase" in cancellations on house deals and might understate the inventory glut.

"Any significant effect on consumer spending arising from further weakness in housing would have important implications for the economy," he said.
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The pound briefly touched $1.95 and surged to eight-year highs against the yen.

The Japanese currency has been in freefall for months on repeated weak data. It suffered a fresh blow yesterday after retail sales fell for a second month, increasing fears that Japan's export-dependent economy may slow in lock step with America.

The OECD club of rich nations gave warning yesterday in its bi-annual economic outlook that the world's second-biggest economy was still too fragile after years of debt deflation to risk a rapid rise in rates from 0.25pc.

"The return to price stability is proving longer and less assured than expected. Further monetary tightening should wait until a fully-fledged exit from deflation finally materialises," it said.

The OECD downgraded its global growth forecast for the 30 leading economies from 2.9pc to 2.5pc in 2007, and said the US might need to start cutting interest rates next year.

Chief economist Jean-Philippe Cotis said there was no cause for alarm, arguing that the US would achieve the "soft-landing" it eluded after the dotcom bubble in 2000. "What the world may be facing is a rebalancing of growth," he said. "In the euro area, recent hard data suggest that a solid upswing may be under way. Growth should remain buoyant in China, India, Russia and other emerging economies."

In a rare piece of good news that helped calm Wall Street after the equity rout on Monday, Mr Bernanke said inflation had been "somewhat better behaved of late".

David Lereah, chief economist for the US National Association of Realtors, said there might be light at the end of tunnel for the housing market, citing a slight rise in transactions.

run for the hills!

who is to blame?

time to buy buy buy from US sites lol

foreign investment will raise now it is cheaper to do so

Bump for thoughts and feedback :thumbsup

doh....... time for a new administration and ecomonic policy

What would be a good policy? bring back the strong dollar and refuel the current account deficit??

lol

it kills me financially because it keeps meaning that I am making less money for harder work because I get paid in dollars but spend in pounds

Ouch! I think I would move myself :2 cents:

look on the bright side, next year will be great time to buy some real estate...

What would moving accomplish?

Not if you are broke, and your home is worth a lot less, with dollars half as strong as they are today. I don't think the online porn business will be as strong as it is either is this happens... :2 cents:

Food, water, shelter, porn.. Doesnt seem to go together.

Well, if you move somewhere thats 2-3 times cheaper to live, then obviously you would be accomplishing savings of your moola :2 cents:

That is not good news at all. Maybe a new prez in 2008 will help?

2-3 times cheaper means living in a hut in a 3rd world country. Not to mention that by the time she moves, the dollar could be much stronger.

I think we are just seeing the dollar come back down to earth. It was overvalued for awhile and it's coming down to a realistic level now.

A Hut? hehe, i've been to plenty of places that are very nice and much cheaper than the UK and USA. I dont think a hut is what I'm referring to :winkwink:

Perhaps the US economy is far to complicated and large a BEAST for any ONE administration to have any short-term effect. Look at what's happened... the BOOM of the 90's was ceated by the tax cuts and new economic theory's of the 80's. The beginning of this decade saw a recession started in the mid 90's when taxes were raised.

The governments best weapon to improve the economy is to encourage people to spend.. one way to do that, is TAX CUTS. Its funney how every time taxes are lowered, total tax revenue increases. And yet, some still want to raise taxes.. either they dont want American's to succedd or they are too dense to get it. Look at the past... learn from it.

Kennedy got congress to do it.. it worked!
Regan got congress to do it.. it worked better!
Bush42 got congress to do it.. it still worked!

Perhaps, the next smuck in charge will get this new disgusting bunch in congress to do it yet again.. and it will again work!

Wishfull thinking maybe on my part... :( so NO, i don't see things getting better economically until that happens.

As for that report on US econ that started this thread, one reason for the downturn in factory orders that is effecting MUCH of that report, is that the US is now outsourcing more industrial production than it is producing internally. This is the biggest longterm probelm for economic stability in the US. Pretty soon - the US will not produce hardly anything.

No doubt there will be ripples when there are changes in the political areana - but seriously doubt real progress will be made over the term of one.. or two.. or three presidencies.

One man or any political party can only encourage/discourage activity with an object of improving the economy. Tho sure, there has been a lack of fiscal policy and this has simply increased the economic damage.

The US is (least late 2004 - and prob even worse now) technically insolvent with a balance sheet deficit of $7.7 trillion plus around $45 trillion in commitments to social programs - bottom line, something in the region of $50-60 trillion in debt. That is one serious challenge for any nation and obviously requires more than "words" from the Federal Reserve.

Other factors, which are not new - is the constant draining with trade deficits. There has never been a trade surplus since 1968. It's obvious there is some serious need for investment in US manufacturing industries which can produce whatever for competitive exporting to other nations. There is something ironic about the only two items which do produce a trade surplus - wheat and arms. Farmers are doing than their share from the land - pity there is little actual industry can do to match that apart from arms trading. Arms trading is not the most wonderful industry to have a reputation for - the US exports more weapons worldwide than all other nations combined.

Only my :2 cents: - suspect a damage limitation excercise will take a decade or so before seeing any positive effects/benefits. Meanwhile large volumes of dollars are in the hands of other governments (eg China) and any policy they choose to elect in dumping lower-value dollars is not going to help the current valuation.

Been watching this carpet roll out for a few years now - and it's going almost the way I thought (tho seems to take longer to happen). It's almost the same as running a corp - you can't have revenues of one million and spend five million on an ongoing annual basis without thrusting that corp into the dirt. Suspect there will be a need, whether any president has the desire or not, to implement more stringent fiscal regimes to curb further damage. They seem reluclant to to this - prob for obvious reasons, but reality has to kick in at some point and a cessation of living off foreign loans.

My house went up $200K in 2 years..granted it has gone down a little lately, but will hardly crash..and will in any case go up in a couple years again..there is only so much california ground available..
Early next year the feds will decrease the interest rates, and guess what, the real estate market will start again..
The us stock market broke records in fall 2006.
I buy milk, butter and hookers in US$, so I could give a shit about the euro..except that sometimes I get paid in euros, but wait..then i can buy more hookers and butter for the same money..


Bottomline: The US economy is strong and not going anywhere..n

Another depression and you'll be whisteling a different tune... The USA is more than bankrupt. :2 cents:

All we're doing is waiting for the central banks to start calling in those loans. Hopefully it will be long after I'm dead :upsidedow

Yeah, i wish I had the guts to go somewhere that I would be rich on little US money. However, I have been in the UK for ten years and I finally feel like I belong and my life is all here. That is the kind of thing that money doesn't buy. I just hope that eventually it reverses and I get a boost to my finances without the extra work.

Dunno.. but inclined to agree with you on land - particularly homes when there is a economic downturn. It's not so much the value, but the fact that you got a home and a roof over your head.

Tho strong is certainly not a word I'd use to describe the US economy - it was (in 2004) running at a deficit of over $50 trillion - and hell knows what it may be now. This is reflected in the current dollar value and there is obviously going to be a debt increase as long as this low value remains.

In the spring of.. think 2003, the US Treasury issued the most comprehensive report ever on the economy - it took them 15 years to produce. An interesting, but simplified stat resulting from that report was.. if you add up all real estate value and the contents within homes etc - that represented 94% of the national debt. The situation is most likely worse now and over 100%.

The "solution" of the Treasury was to increase taxation asap up to around 60% and maintain this as long as needed, tho that sounds more than drastic - but it was their considered opinion.

Truth is, US folks work longer than in many other nations already - it makes ya wonder how much more that cow can be milked to produce an income source for govt. Despite that, spending is 160% of wages - basically helping increase the national debt in consuming of imported products - and adding to personal debt.

Who knows... but got a gutty feeling there will be some changes over the next 10-20 years. What they are, hell knows, but unsustainability can only last so long.

I guarantee whatever that solution is it wont be great for anyone but big government :2 cents:

If the average taxes went to 60%, I will be renouncing my US citizenship and moving elsewhere :2 cents:

In real cash - doubt there is any chance of spare change for bigger govt ForteCash - unless China gave more loans for it.

Only my :2 cents: but think this is one very serious scenario and getting more dangerous. Money is one thing, - the effects on people can be far more drastic. We will all survive, but why should folks have pressures dumped on them, basically resulting from decades of a lack of fiscal policy and with the "help" of "big government"? (Govt's never were the most efficent and cost-effective organizations)

Doubt that 60% taxation will ever happen - sounds as looney as the fiscal policy :)

The chinese are unloading dollars by the truck loads, but they are smart enough to know that if they dont invest the same $$ back into the US economy then the us consumer will no longer buy the chinese consumer products.. and so the world turns..
I used to live in Europe, with 60% taxation and on top of that europeans are not spenders, the prefer to save up for a rainy day, not yanks, we like to spend, and for the most part it keeps the entire world economy afloat.

Blah blah blah blah ........... The US dollar and the US economy will be fine. I heard this shit before 5 years ago. Everyone told me that paying 118K for a condo in LA is too expensive and I should wait a while becuase the market is going burst and prices will crash. Its worth $400k now. Its not luck its knowing the market and the economy. And not listening to idiots that dont have money in the game.

yups only shame is that belgian custom servvices are using a fixed $ rate to calculate taxes and import duties...

Sure... you don't want to bite the hand that feeds you. Last time the Chinese govt unloaded any amount of dollars was around 2003 tho they have been sliding some out constantly, prob because they are holding a disproportionate value in dollars. The danger is they may want do some substantial dumping if the dollar keeps the lowish value.

Other bit is China is actually fairly smart in their economic policy and aggressively expanding their commerical sphere. Seen this in a couple of places I've lived - they fund everything from water purification units, hospitals, bridges etc - they are not doing that for nothing :) They also don't depend on the US for their economic well-being and are trading with almost every country on the globe, but still sending out trade missions to reinforce that - hardly a week goes by without another Chinese trade delegation.

Hehe.. sure, there are a couple of Euro countries with silly taxation rates - I opted out at paying 40% - enough is enough :)

oh come on guys atleast the united states has freedom

seriously, when you have freedom debt doesnt matter.

we are so free that we dont worry about paying back silly loans

damn freedom haters!

if you have an american flag outside of your house and jesus in your heart anything is possible!

:1orglaugh

that cant be right on fox I heard the economy is booming lol

I feel your pain ... we've got the same problem ... our stuff is worth more than the price we're quoting ... We're being fucked by this shitty dollar ... lol

Sigh... nothing we can do :(

Same here. I play the market a little by timing when it's best to deposit my USD checks (hint: now is NOT a good time!) but that can't overcome long term averages.

Overall my USD income has grown about 30% over the last couple of years, but my AUD income has remained static. I'm working harder to make the same amount of cash in my pocket.