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OK I Fund Dogs Where Are You?
- Thread starter nnuut
- Start date
coolhand
Well-known member
imported post
Using Safetyguy's method I come up with a two cent (.02) gain today. Let's see if that's how it gets posted later. See below:
G-Man wrote:
Non-magician types (myself included) can get thisinfofrom the http://www.ishares.com website. Under the "Search by Category" box on the left side of the screen, select "International/Regional" > Global> MSCI EAFE Index Fund.
Once it comes up, select "Quotes and Charts" on the right side of the screen. (Sorry for the long instructions, it gives you a session ID each time and I can't copy a workable link directly to this chart.)
They seem to update the day's final price right after 4 PM ET and the percentage they show seems to be almost equivalent to the rise and fall of the I fund share price.
I picked up on this by going to the Barclay Global Investors website after reading on the TSP website, ..."Barclays Global Investors (BGI) reprices its EAFE Equity Index Fund, in which the TSP invests, after the close of the foreign markets. " The Barclays Global website takes you to the Ishares website. So today, it said the adjusted NAV (as of 4:05 PM) was down 0.06% which equated to a penny drop in share price.
There is also a disclaimer somewhere on the chart page that says "Performance charts on iShares funds will be available after fund trading begins" so maybe there is a way to track the "real" I fund performance on a 20 minute delay basis.
Using Safetyguy's method I come up with a two cent (.02) gain today. Let's see if that's how it gets posted later. See below:
G-Man wrote:
Well, you have to look at the NAVs for Far East funds (MSCI Australia, MSCI Hong Kong, MSCI Japan, MSCI Malaysia, MSCI Singapore and MSCI Taiwan)and update them asof 10:00am PST for the current business day. All other fund NAVsget updated as of 8:30 pm PST. In other words, it is really magic (and it is the way they "I" fund prices are really calculated.)
Non-magician types (myself included) can get thisinfofrom the http://www.ishares.com website. Under the "Search by Category" box on the left side of the screen, select "International/Regional" > Global> MSCI EAFE Index Fund.
Once it comes up, select "Quotes and Charts" on the right side of the screen. (Sorry for the long instructions, it gives you a session ID each time and I can't copy a workable link directly to this chart.)
They seem to update the day's final price right after 4 PM ET and the percentage they show seems to be almost equivalent to the rise and fall of the I fund share price.
I picked up on this by going to the Barclay Global Investors website after reading on the TSP website, ..."Barclays Global Investors (BGI) reprices its EAFE Equity Index Fund, in which the TSP invests, after the close of the foreign markets. " The Barclays Global website takes you to the Ishares website. So today, it said the adjusted NAV (as of 4:05 PM) was down 0.06% which equated to a penny drop in share price.
There is also a disclaimer somewhere on the chart page that says "Performance charts on iShares funds will be available after fund trading begins" so maybe there is a way to track the "real" I fund performance on a 20 minute delay basis.
imported post
Hi Coolhand! When the S and C rebound, you will get your ride in the I fund. Out mid June to G, back to C mid October and into I fundJan for a bigger ride to Euro 1.7 to the dollar. That's the surehand, maybe written in sand! But we'll see. Nice to be essentially unharmed so far! Think Tom may soon lead the charge back into stocks from his G fund fortress. He's played US stocks well so far!
Hi Coolhand! When the S and C rebound, you will get your ride in the I fund. Out mid June to G, back to C mid October and into I fundJan for a bigger ride to Euro 1.7 to the dollar. That's the surehand, maybe written in sand! But we'll see. Nice to be essentially unharmed so far! Think Tom may soon lead the charge back into stocks from his G fund fortress. He's played US stocks well so far!
G
Guest
Guest
imported post
Historically this is the strongest week in the market until the first week of November.
The next two weeks are two of the worst of the year.
Dr Dome and Glome. - However it is much easier to make money in a down market then up
. I feel like I am in Die Hard III with the 18 trucks full of gold.
Love MSO - down 40% since Martha has left the pen.
Historically this is the strongest week in the market until the first week of November.
The next two weeks are two of the worst of the year.
Dr Dome and Glome. - However it is much easier to make money in a down market then up
. I feel like I am in Die Hard III with the 18 trucks full of gold.Love MSO - down 40% since Martha has left the pen.
coolhand
Well-known member
imported post
smedlap wrote:
Always have to listen to Tom. He's almost got me poised to start speaking in technical terms. Spaf too.
smedlap wrote:
I don't doubt that smedlap. Pulled back today because the dollar is probably going to rally for a week or so. FOMC next week. Any gains will be muted by a rising dollar. C Fund may be the way to go in the near term. I did keep 20% in the I fund though. Oil may start taking a toll on this market if it doesn't decline soon.
Always have to listen to Tom. He's almost got me poised to start speaking in technical terms. Spaf too.
imported post
Hey coolhand I joined today but I forgot my password and login after returning from the desert a while back. Never got back into the message board thing. Anyway when I am out of stoks I like to sneak in and out of the I fund. Right now I am 50 G and 50 I (sorry Tom for not following you here latey haha). Yesterday when the market closed the I fund was up a hair. I check it here today and it says it was down a little as far as price per share goes. What gives? I also saw the gain in the G so it balanced out which is all I am looking for (at a minimum) when I am not in stocks. I guess my quetion is when does the I fund open and close.
Hey coolhand I joined today but I forgot my password and login after returning from the desert a while back. Never got back into the message board thing. Anyway when I am out of stoks I like to sneak in and out of the I fund. Right now I am 50 G and 50 I (sorry Tom for not following you here latey haha). Yesterday when the market closed the I fund was up a hair. I check it here today and it says it was down a little as far as price per share goes. What gives? I also saw the gain in the G so it balanced out which is all I am looking for (at a minimum) when I am not in stocks. I guess my quetion is when does the I fund open and close.
coolhand
Well-known member
imported post
BigT wrote:
BigT, what strategy do you use to play the I fund? Understand that I am an amatuer investor who is still learning how best to manage my tsp. My strategy is still evolving. Lots of good advice for consideration from many who post here.
What desert? I used to go 4-wheeling in socal around the cal/az border.
Good Luck!
BigT wrote:
Ibelieve it closes at 4:00EST. There is a currency component to this fund that also affects its share price. Yesterday the dollar was down hard against the major currencies, but equities got hammered too, in effect just about canceling each other out. In this case the lower dollar didn't quite make up for the losses in equities.
BigT, what strategy do you use to play the I fund? Understand that I am an amatuer investor who is still learning how best to manage my tsp. My strategy is still evolving. Lots of good advice for consideration from many who post here.
What desert? I used to go 4-wheeling in socal around the cal/az border.
Good Luck!
coolhand
Well-known member
imported post
With respect to how the "I" fund share price is derived I have been doing some more investigation.
In figuring outthe "I" fund priceone must use the "NAV" value (what safetyguy has pointed out before). It appears to me that the EAFE value we track on yahoo and elsewhere does not include all aspects of the true price as reflected in the discrepancies that we see in share value vs how the EAFE tracked for any given day. It is not the "NAV" value.
Here is how the government explains it... http://www.sec.gov/answers/nav.htm
What this explaination does not answer is currency valuations and its effect on share prices. At least not directly.
[align=left]NET ASSET VALUE
NAV
$163.29
Change
$-0.82
Change
-.50%
PRICE
Price
$163.70
Change
$-0.19
Change
-0.12%
http://tinyurl.com/5rasl[/b]
The "Price" columnshows one price and its associated change values. On the "NAV" columnwe seeits priceand associated change values. The "Price" valueis what is reflected in the EAFE as wetrack it through the day. I do not believe it reflects the currency component. The "NAV" valuetakes the currency values into account and provides us with the final sharevalue.
If you multiply the NAV above by the % change (-.50%) you get approx -.08 or an 8 cent drop in fund price, which is what was posted as share value yesterday.
I am still evaluating this process. As I get a little more familiar with it I'll post more info. Hope this helps.
[/align]
With respect to how the "I" fund share price is derived I have been doing some more investigation.
In figuring outthe "I" fund priceone must use the "NAV" value (what safetyguy has pointed out before). It appears to me that the EAFE value we track on yahoo and elsewhere does not include all aspects of the true price as reflected in the discrepancies that we see in share value vs how the EAFE tracked for any given day. It is not the "NAV" value.
Here is how the government explains it... http://www.sec.gov/answers/nav.htm
What this explaination does not answer is currency valuations and its effect on share prices. At least not directly.
[align=left]NET ASSET VALUE
NAV
$163.29
Change
$-0.82
Change
-.50%
PRICE
Price
$163.70
Change
$-0.19
Change
-0.12%
http://tinyurl.com/5rasl[/b]
The "Price" columnshows one price and its associated change values. On the "NAV" columnwe seeits priceand associated change values. The "Price" valueis what is reflected in the EAFE as wetrack it through the day. I do not believe it reflects the currency component. The "NAV" valuetakes the currency values into account and provides us with the final sharevalue.
If you multiply the NAV above by the % change (-.50%) you get approx -.08 or an 8 cent drop in fund price, which is what was posted as share value yesterday.
I am still evaluating this process. As I get a little more familiar with it I'll post more info. Hope this helps.
[/align]
TEUFEL HUNDEN
Member
imported post
Coolhand, Thanks for the info on the I Fund. Do you have any speculations as to why it is falling and how long it will last? I know that the US $ is gaining, but there has got to be more.
About BigT and the desert, When military members refer to the desert they are talking about Iraq or Afganistan. No 4x4'n there unless you have a FAV (Fast Attack Vehicle) I think that is what he was talking about.
Keep the info comming on the I fund. You'll be the next resident expert:^
Coolhand, Thanks for the info on the I Fund. Do you have any speculations as to why it is falling and how long it will last? I know that the US $ is gaining, but there has got to be more.
About BigT and the desert, When military members refer to the desert they are talking about Iraq or Afganistan. No 4x4'n there unless you have a FAV (Fast Attack Vehicle) I think that is what he was talking about.
Keep the info comming on the I fund. You'll be the next resident expert:^
G
Guest
Guest
imported post
Good post Cool - as all ways.
We actually have three problems.
(1) Current account deficiet (7T)
(2) Unfunded account deficiet (78T)
(3) Trade balance deficiet (666B)
The largest turd in the road is number #2 (like the pun there folks, come on I am trying here - #2-turd) - which is mainly medicare and medicade.
(3) We will never be able to correct because we can not export lawyers and personal trainers. We have no manufactoring base anymore.
Go get em! You need to get your USD changed to another currency like pronto - any currency at this point - not to be dome or gloom or anything
. I presently have $10USD to my name - only for rememberance sake and I may want to buy a cup of coffee later on.
Good post Cool - as all ways.
We actually have three problems.
(1) Current account deficiet (7T)
(2) Unfunded account deficiet (78T)
(3) Trade balance deficiet (666B)
The largest turd in the road is number #2 (like the pun there folks, come on I am trying here - #2-turd) - which is mainly medicare and medicade.
(3) We will never be able to correct because we can not export lawyers and personal trainers. We have no manufactoring base anymore.
Go get em! You need to get your USD changed to another currency like pronto - any currency at this point - not to be dome or gloom or anything
. I presently have $10USD to my name - only for rememberance sake and I may want to buy a cup of coffee later on.
G
Guest
Guest
imported post
The US dollar (Symbol $USD in StockCharts.com) is looking very sad. Again please, tell me, why do foreign central banks want our Treasuries? Is there any hope that the dollar is finding any support in this range? I think not.
[align=left]The 7 year chart of the US Dollar Index. Where is this all going to end? Why haven't the market reporters been telling us how good it is for the dollar index to go down? Isn't it still good for companies that export goods? Something is broke? And I think it's U.S.![/align]
:shock:
The US dollar (Symbol $USD in StockCharts.com) is looking very sad. Again please, tell me, why do foreign central banks want our Treasuries? Is there any hope that the dollar is finding any support in this range? I think not.
[align=left]The 7 year chart of the US Dollar Index. Where is this all going to end? Why haven't the market reporters been telling us how good it is for the dollar index to go down? Isn't it still good for companies that export goods? Something is broke? And I think it's U.S.![/align]
:shock:
coolhand
Well-known member
imported post
Hey Dr. D, good question. My response would be that foreign investors cannot afford to let the dollar slide too far so they buy treasuries to keep it propped up. If our economy sinks, so does theirs. It's a double-edged sword.
My concern is that foreign positioning isin progress to alleviate the negative impact of letting the dollar fall. It is not something a given country can react to without preparation. That's why China is not yet willing to unlink their currency from us. It would have too much of a negative effect on their economy. What happens when the rest of the world no longer needs the dollar? :shock:
It is a balancing act.
Hey Dr. D, good question. My response would be that foreign investors cannot afford to let the dollar slide too far so they buy treasuries to keep it propped up. If our economy sinks, so does theirs. It's a double-edged sword.
My concern is that foreign positioning isin progress to alleviate the negative impact of letting the dollar fall. It is not something a given country can react to without preparation. That's why China is not yet willing to unlink their currency from us. It would have too much of a negative effect on their economy. What happens when the rest of the world no longer needs the dollar? :shock:
It is a balancing act.
G
Guest
Guest
imported post
March 16, 2005
Lyndon LaRouche announced on March 9, based on a breaking pattern of developments, that, in his judgment, the world is now on the verge of a collapse of the entire dollar-based post-Bretton Woods floating-exchange-rate system. This does not guarantee the immediate crash of the dollar, and the evaporation of the entire global financial superstructure. It does mean that governments around the world, particularly the United States government, must be prepared to act, to avert an otherwise inescapable crisis at some point in the very near future.
It also means, LaRouche warned, that some circles in the financial oligarchy, typified by hard-core Anglo-Dutch operatives like George P. Shultz and Federal Reserve Chairman Alan Greenspan, will be tempted to move for immediate Schachtian austerity measures, and war provocations, as a means of blocking so much as a serious discussion about what former President Bill Clinton referred to as a "new global financial architecture," replacing the broken-down and hopelessly bankrupt current system. Since January 1997, LaRouche has been demanding the convening of a New Bretton Woods Conference, to restore the fixed-exchange-rate system, following an orderly bankruptcy reorganization of the global financial system. This, LaRouche argues, is the precondition for the massive emission of government credits required for long-term infrastructure projects, such as his Eurasian Land-Bridge.
As LaRouche emphasized in the foreword to a soon-to-be-released book, The Earth's Next Fifty Years, the collapse of the dollar system is not something that is about to happen. It is already under way. Metaphorically, the gasoline has already saturated the floor. We are merely awaiting the spark, which could come in any one of a number of forms. Events of early March, in LaRouche's estimation, signalled a density of such potential sparks.
In response, LaRouche warned, governments in the Americas and Eurasia must be prepared to abandon the false axiomatic assumptions that have plagued policymakers for the past 30 years or more—since the abandonment (by Shultz and President Nixon in 1971) of Franklin Roosevelt's Bretton Woods System of fixed exchange rates, pegged to a monetized value of gold. Until and unless the axioms of what is euphemistically called "globalization" are abandoned, the prospects of averting a plunge into a multi-generational new dark age are bleak.
The Warning Signs
Since the late January 2005 convening of the Davos, Switzerland World Economic Forum, a growing number of leading financial analysts and financial periodicals have abandoned the "see no evil" policy of ignoring the warning signs of a global financial meltdown, and have begun openly discussing a systemic collapse. Prominent figures like Stephen Roach, the chief economist of Morgan Stanley, pilloried Federal Reserve Chairman Greenspan in public at Davos, accusing him of presiding over the biggest mortgage and consumer credit bubble ever. A week after Davos, former U.S. Treasury Secretary Robert Rubin, at a London forum preceding the Group of Eight meeting of finance ministers and central bankers, directly took on Greenspan for lying about the magnitude of the dollar crisis, when he (Greenspan) claimed that the United States could continue to sustain massive current account deficits and Federal budget deficits. In meetings with Senate Democrats the day before his confrontation with Greenspan, Rubin had warned that the Bush Administration's campaign to loot the Social Security Trust Fund for "private accounts" managed by big Wall Street brokerage houses, was driven by the fear of a financial meltdown, perhaps caused by a drying up of foreign investment flows into the United States.
There was some dispute among academic economists at Davos about the amount of net foreign inflows into the U.S. bond and equity market per day that are required to avert a crash of the dollar. The bottom line figure is $2.5 billion per day, but some economists, like C. Fred Bergsten, say the figure is really now at nearly $5 billion a day.
Hence, there was panic on Wall Street when officials of the South Korean government in early March hinted that they were considering diversifying their foreign currency holdings. On March 10, the alarm bells rang again, when Japanese Prime Minister Koizumi made similar statements about Japan's plans to diversify. The dollar immediately fell to a two-month low against the euro, until Japan's Finance Minister Tanigaki stepped in to assure panicked investors that Japan would not take any precipitous measures, "because the impact would be big."
Mega-speculator Warren Buffett, of Berkshire Hathaway, released his annual shareholders letter in early March, revealing that his firm had posted significant fourth quarter profits by short-selling the dollar, and investing heavily in foreign currencies.
It's The Real Economy, Stupid
But the real heart of the collapse threat lies elsewhere: The U.S. economy, once the greatest agro-industrial economy in the world, has disintegrated; and the role of the dollar as the world's reserve currency has been decimated by that fact. Now, as LaRouche emphasized, we are facing an imminent bankruptcy of General Motors, one of the most formidable of the former American industrial giants. On March 10, the London Financial Times warned that international bond markets may not be able to cushion the shock of an anticipated downgrading of GM's debt to junk-bond status. The likely trigger for such a move by rating agencies is the anticipated bankruptcy filing of Delphi, GM's parts supplier, which was spun out of General Motors several years ago, as a means of driving down wages, and generating new inflows of cash. "The edge of the cliff appears to be drawing closer," the Financial Times reported. "If GM loses its investment grade rating, some holders of its bonds will be forced [by law and regulation, as well as fiduciary responsibility] to sell them—and it is the extent of any market upheaval this could cause, that has been unnerving many." The Swiss daily Neue Z? Zeitung added, the same day, that GM will have between $45-50 billion in debt to refinance between now and the end of 2006, and "it is unlikely that the junk-bond market could absorb such a large issuer."
Adding to the picture of the physical economic breakdown of the United States, the American Society of Civil Engineers, on March 9, released their 2005 "Report Card for America's Infrastructure." The report found, not surprisingly, that the entire hard infrastructure of the country is in a state of disintegration, requiring trillions of dollars in investment. ASCE President William Henry told a Washington, D.C. press conference that the "time has come to call for the creation of a long-term infrastructure agenda for our nation," warning, "our infrastructure is sliding towards failure."
Raw Material Costs Soar
Another major sign of a world economy gone haywire is the soaring costs of strategic raw materials, fuelled by a merger frenzy among commodity cartels, and a mad grab for control over the planet's raw material wealth, in anticipation of a dollar meltdown.
On March 9, the price per barrel of crude oil rose above $55, nearly matching the all-time high of seven months ago. The same day, the Energy Information Administration issued a forecast that gasoline prices at the pump would continue to skyrocket, projecting a $2.15 per gallon price for regular gas by the Summer.
Overall commodity inflation, particularly of key industrial metals like iron ore, skyrocketed. According to the March 10 Wall Street Journal, iron ore prices went up in mid-February by 71.5%. This was largely due to price gouging by the three iron ore mining cartels that control 75% of the world supply: Brazil's CVRD, Rio Tinto Zinc PLC, and BHP Billiton, Ltd.
Housing Bubble About to Blow?
Adding to the picture LaRouche developed is the sudden boost in long-term interest rates. During the first week in March, when the U.S. Treasury Department auctioned off ten-year Treasury bonds, which set the nation's mortgage rates, there were so few buyers that yields shot up to 4.42%, a seven-month high. A senior City of London investor, commenting on the jump in long-term Treasury yields in a March 10 discussion with EIR, warned, "If bond yields go up much higher in the U.S., things could get very nasty soon." He asked, "Is there any more capacity to take on this level of borrowing? I think not, and it will break probably sooner, rather than later." Disturbances in the ten-year bond market, he noted, directly impact on home mortgage rates; and most Americans have used their ballooning property values to sink deeper into consumer debt. "When this breaks," the source concluded, "it will get very nasty, and not too long from now." The Bush Administration is continuing blissfully ignorant of this looming "perfect storm." And that is yet another dimension of the problem.
March 16, 2005
Lyndon LaRouche announced on March 9, based on a breaking pattern of developments, that, in his judgment, the world is now on the verge of a collapse of the entire dollar-based post-Bretton Woods floating-exchange-rate system. This does not guarantee the immediate crash of the dollar, and the evaporation of the entire global financial superstructure. It does mean that governments around the world, particularly the United States government, must be prepared to act, to avert an otherwise inescapable crisis at some point in the very near future.
It also means, LaRouche warned, that some circles in the financial oligarchy, typified by hard-core Anglo-Dutch operatives like George P. Shultz and Federal Reserve Chairman Alan Greenspan, will be tempted to move for immediate Schachtian austerity measures, and war provocations, as a means of blocking so much as a serious discussion about what former President Bill Clinton referred to as a "new global financial architecture," replacing the broken-down and hopelessly bankrupt current system. Since January 1997, LaRouche has been demanding the convening of a New Bretton Woods Conference, to restore the fixed-exchange-rate system, following an orderly bankruptcy reorganization of the global financial system. This, LaRouche argues, is the precondition for the massive emission of government credits required for long-term infrastructure projects, such as his Eurasian Land-Bridge.
As LaRouche emphasized in the foreword to a soon-to-be-released book, The Earth's Next Fifty Years, the collapse of the dollar system is not something that is about to happen. It is already under way. Metaphorically, the gasoline has already saturated the floor. We are merely awaiting the spark, which could come in any one of a number of forms. Events of early March, in LaRouche's estimation, signalled a density of such potential sparks.
In response, LaRouche warned, governments in the Americas and Eurasia must be prepared to abandon the false axiomatic assumptions that have plagued policymakers for the past 30 years or more—since the abandonment (by Shultz and President Nixon in 1971) of Franklin Roosevelt's Bretton Woods System of fixed exchange rates, pegged to a monetized value of gold. Until and unless the axioms of what is euphemistically called "globalization" are abandoned, the prospects of averting a plunge into a multi-generational new dark age are bleak.
The Warning Signs
Since the late January 2005 convening of the Davos, Switzerland World Economic Forum, a growing number of leading financial analysts and financial periodicals have abandoned the "see no evil" policy of ignoring the warning signs of a global financial meltdown, and have begun openly discussing a systemic collapse. Prominent figures like Stephen Roach, the chief economist of Morgan Stanley, pilloried Federal Reserve Chairman Greenspan in public at Davos, accusing him of presiding over the biggest mortgage and consumer credit bubble ever. A week after Davos, former U.S. Treasury Secretary Robert Rubin, at a London forum preceding the Group of Eight meeting of finance ministers and central bankers, directly took on Greenspan for lying about the magnitude of the dollar crisis, when he (Greenspan) claimed that the United States could continue to sustain massive current account deficits and Federal budget deficits. In meetings with Senate Democrats the day before his confrontation with Greenspan, Rubin had warned that the Bush Administration's campaign to loot the Social Security Trust Fund for "private accounts" managed by big Wall Street brokerage houses, was driven by the fear of a financial meltdown, perhaps caused by a drying up of foreign investment flows into the United States.
There was some dispute among academic economists at Davos about the amount of net foreign inflows into the U.S. bond and equity market per day that are required to avert a crash of the dollar. The bottom line figure is $2.5 billion per day, but some economists, like C. Fred Bergsten, say the figure is really now at nearly $5 billion a day.
Hence, there was panic on Wall Street when officials of the South Korean government in early March hinted that they were considering diversifying their foreign currency holdings. On March 10, the alarm bells rang again, when Japanese Prime Minister Koizumi made similar statements about Japan's plans to diversify. The dollar immediately fell to a two-month low against the euro, until Japan's Finance Minister Tanigaki stepped in to assure panicked investors that Japan would not take any precipitous measures, "because the impact would be big."
Mega-speculator Warren Buffett, of Berkshire Hathaway, released his annual shareholders letter in early March, revealing that his firm had posted significant fourth quarter profits by short-selling the dollar, and investing heavily in foreign currencies.
It's The Real Economy, Stupid
But the real heart of the collapse threat lies elsewhere: The U.S. economy, once the greatest agro-industrial economy in the world, has disintegrated; and the role of the dollar as the world's reserve currency has been decimated by that fact. Now, as LaRouche emphasized, we are facing an imminent bankruptcy of General Motors, one of the most formidable of the former American industrial giants. On March 10, the London Financial Times warned that international bond markets may not be able to cushion the shock of an anticipated downgrading of GM's debt to junk-bond status. The likely trigger for such a move by rating agencies is the anticipated bankruptcy filing of Delphi, GM's parts supplier, which was spun out of General Motors several years ago, as a means of driving down wages, and generating new inflows of cash. "The edge of the cliff appears to be drawing closer," the Financial Times reported. "If GM loses its investment grade rating, some holders of its bonds will be forced [by law and regulation, as well as fiduciary responsibility] to sell them—and it is the extent of any market upheaval this could cause, that has been unnerving many." The Swiss daily Neue Z? Zeitung added, the same day, that GM will have between $45-50 billion in debt to refinance between now and the end of 2006, and "it is unlikely that the junk-bond market could absorb such a large issuer."
Adding to the picture of the physical economic breakdown of the United States, the American Society of Civil Engineers, on March 9, released their 2005 "Report Card for America's Infrastructure." The report found, not surprisingly, that the entire hard infrastructure of the country is in a state of disintegration, requiring trillions of dollars in investment. ASCE President William Henry told a Washington, D.C. press conference that the "time has come to call for the creation of a long-term infrastructure agenda for our nation," warning, "our infrastructure is sliding towards failure."
Raw Material Costs Soar
Another major sign of a world economy gone haywire is the soaring costs of strategic raw materials, fuelled by a merger frenzy among commodity cartels, and a mad grab for control over the planet's raw material wealth, in anticipation of a dollar meltdown.
On March 9, the price per barrel of crude oil rose above $55, nearly matching the all-time high of seven months ago. The same day, the Energy Information Administration issued a forecast that gasoline prices at the pump would continue to skyrocket, projecting a $2.15 per gallon price for regular gas by the Summer.
Overall commodity inflation, particularly of key industrial metals like iron ore, skyrocketed. According to the March 10 Wall Street Journal, iron ore prices went up in mid-February by 71.5%. This was largely due to price gouging by the three iron ore mining cartels that control 75% of the world supply: Brazil's CVRD, Rio Tinto Zinc PLC, and BHP Billiton, Ltd.
Housing Bubble About to Blow?
Adding to the picture LaRouche developed is the sudden boost in long-term interest rates. During the first week in March, when the U.S. Treasury Department auctioned off ten-year Treasury bonds, which set the nation's mortgage rates, there were so few buyers that yields shot up to 4.42%, a seven-month high. A senior City of London investor, commenting on the jump in long-term Treasury yields in a March 10 discussion with EIR, warned, "If bond yields go up much higher in the U.S., things could get very nasty soon." He asked, "Is there any more capacity to take on this level of borrowing? I think not, and it will break probably sooner, rather than later." Disturbances in the ten-year bond market, he noted, directly impact on home mortgage rates; and most Americans have used their ballooning property values to sink deeper into consumer debt. "When this breaks," the source concluded, "it will get very nasty, and not too long from now." The Bush Administration is continuing blissfully ignorant of this looming "perfect storm." And that is yet another dimension of the problem.
G
Guest
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Trade figures continue to show the depth of US deficits, which stand at 6% of GDP. The dollar is falling in value. Warren Buffett, regarded as the greatest investor in history sees this as inevitable:
"The dollar cannot avoid further declines against other major currencies unless the US trade and current account deficits improve. I think, over time, unless we have a major change in trade policies, I don't see how the dollar avoids going down. I don't know when it happens. I don't have any idea whether it will be this month, this year, or next year, but we are force-feeding dollars on to the rest of the world at the rate of close to a couple billion dollars a day, and that's going to weigh on the dollar."
------------------------------------------------------------------------
First, the numbers
Nobody has a better command of the data on the current state of the economy than Greenspan. And the picture he paints by his numbers isn't pretty. The national personal saving rate has plunged to an average of 1% in 2004, shockingly below the 7% average for the last three decades.
Indeed, we've been running up debt like there's no tomorrow. The unified federal budget (which is the budget that includes the current Social Security surpluses) is running a deficit equal to about 3.5% of gross domestic product. That deficit is only going to climb as outlays for Social Security, Medicare and Medicaid, now 8% of gross domestic product, climb to somewhere near 13% by 2030 as the baby boom generation ages and retires.
Meanwhile, the U.S. current account deficit, a measure of how much more we buy from foreigners than we sell to them, has climbed to 6% of gross domestic product. According to the Fed’s economists, you have to go back to the 19th century to find larger current account deficits as a percentage of the size of a country's economy. All this debt has been funded by an increase in the value of homes (and the size of home mortgages) on the domestic side, and the willingness of foreigners to hold IOUs denominated in U.S. dollars, such as U.S. Treasury bills and notes.
Buffett's approach is data-lite, but the data he does cite agree with the details of Greenspan's picture. Last year, we purchased $618 billion more in goods and services from the rest of the world than we sold. To pay for this current consumption, we're selling off our accumulated national wealth to the rest of the world at a rate of $1.8 billion a day. "Consequently, other countries and their citizens now own a net of about $3 trillion of the U.S.," Buffett wrote to his shareholders recently. Our overseas borrowing to fund the current account deficit is equivalent, he notes, to a family that sells off "part of its farm every day in order to finance its overconsumption."
Same data, different conclusions
What’s so striking is that from this remarkably similar picture of the current situation, Greenspan and Buffett reach almost diametrically opposed conclusions.
To Greenspan, it's no biggie. Even though we're running that huge trade deficit, the dollar's real exchange value, despite its recent decline, remains above its 1995 low, he told the Council on Foreign Relations. Interest rates on Treasury notes maturing 10 years in the future remain very low, despite the size of the federal deficit and the huge retirement obligations we're putting on the books. And there's no evidence that households are facing "inordinate financial pressures as a consequence of record-high levels of household debt relative to income."
The United States, Greenspan notes, almost with surprise, "appears to have been pressing a number of historic limits in recent years without experiencing the types of financial disruption that almost surely would have arisen in decades past."
Buffett, on the other hand, believes that we're headed for real trouble. "A country that is now aspiring to an 'Ownership Society' will not find happiness in -- and I'll use hyperbole for emphasis -- a 'Sharecropper's Society.' But that's precisely where our trade policies, supported by Republicans and Democrats alike, are taking us."
Buffet sees dire consequences
Buffett isn't forecasting economic collapse because he believes that foreigners will continue to lend to us: Foreign investors, he wrote in his letter to shareholders, "may view us as spending junkies, but they know we are rich junkies, as well."
But the consequences are still dire, Buffett believes. If current trends continue, a decade from now, just at the time when we'll need every dollar to pay for the retirement benefits of baby boomers, the United States will be sending 3% of its current annual output to the rest of the world as interest on the debt run up by its past consumption.
That royalty would run forever, unless we export more and consume less. And given the way global trade policies work, Buffett concludes, massively expanding U.S. exports isn't likely. Hence paying off this royalty would require a huge decline in U.S. consumption, Buffett says, with all sorts of nasty consequences for the global economy and the lives of U.S. workers and retirees. Don't pay it off and the already-projected squeeze on such frills as health care and education spending just gets worse.
Greenspan: The landing is soft
Don't worry, Greenspan says. We're headed for a soft landing. Foreigners will continue to send us their savings without demanding a huge increase in U.S. interest rates. Market forces --a fall in the price of the dollar and a consequent rise in U.S. exports and a drop in imports -- will gradually defuse the potential bomb represented by the huge increase in the U.S. trade deficit.
What's his logic?
Because the federal budget deficit, the run-up in consumer debt, projections of huge future retirement liabilities and the buildup in the trade deficit haven't resulted in the expected crisis to date -- and, in fact, haven't even produced the big projected hike in U.S. interest rates or a crash in the dollar -- something must be different this time. "Has something fundamental happened to the U.S. economy that enables us to disregard all the time-test criteria for assessing when economic imbalances become worrisome?" Greenspan asks.
Answering his own question, it's the increasing globalization of capital markets that has made all the difference. What Greenspan calls the "home bias" that kept investor's money in their national financial markets has eased so that investors seeking higher returns or diversification have sent more of their savings overseas. And the United States has been the prime beneficiary of that trend. (As you'd expect from Greenspan, he has data to support his belief in a decline in home bias: One measure of the propensity to invest at home for the developed countries representing four-fifths of world GDP has declined to 0.8 in 2003 from 0.97 in 1990.)
My problems with Greenspan's theories
I've got two problems with Greenspan's formulation. First, as Greenspan admits, a change in home bias doesn't solve the U.S. current account deficit; it just delays the reckoning. But since economists don't really know -- and can't reliably project -- the lag between trade deficits and deficit corrections, we don't really have any idea whether we are currently just in the lag period for a business-as-usual correction of the trade deficit or whether we've entered some unspecified lag period created by Greenspan's increasingly global financial markets.
It's an interesting theory. But as a guide to investing strategies, it leaves me completely without a road map or timeline.
Second, we've been down this "it's different this time" path with the Fed chairman before. Sometime after his more famous remarks about the irrational exuberance of the stock market, Greenspan became an apologist for higher valuations by citing the extraordinary productivity gains in the U.S. economy in the late 1990s. Historical measures of danger weren't valid for the then-current situation because the U.S. economy was growing so much faster than it had in other periods. Frankly, having bought into the first "it's different this time" argument to my pain and chagrin, I'm reluctant to buy into this new version.
The rate of capital-markets globalization remains vague. And while we know there must be some point at which foreigners will stop putting money into U.S. dollar-denominated investments, home bias or no, we have no idea where that point might be.
I've also paid attention to Greenspan's recent characterization of the problems of using productivity growth as a guide to policy. If you change "productivity" to "financial globalization," they're a warning to anyone who wants to use the newest version of "it's different this time" financial globalization to guide policy in the current global economy. "Productivity is notoriously difficult to predict . . . We have scant ability to infer the pace at which such (productivity) gains will pay out and, therefore, their implications for the growth of productivity over the longer run."
Trade figures continue to show the depth of US deficits, which stand at 6% of GDP. The dollar is falling in value. Warren Buffett, regarded as the greatest investor in history sees this as inevitable:
"The dollar cannot avoid further declines against other major currencies unless the US trade and current account deficits improve. I think, over time, unless we have a major change in trade policies, I don't see how the dollar avoids going down. I don't know when it happens. I don't have any idea whether it will be this month, this year, or next year, but we are force-feeding dollars on to the rest of the world at the rate of close to a couple billion dollars a day, and that's going to weigh on the dollar."
------------------------------------------------------------------------
First, the numbers
Nobody has a better command of the data on the current state of the economy than Greenspan. And the picture he paints by his numbers isn't pretty. The national personal saving rate has plunged to an average of 1% in 2004, shockingly below the 7% average for the last three decades.
Indeed, we've been running up debt like there's no tomorrow. The unified federal budget (which is the budget that includes the current Social Security surpluses) is running a deficit equal to about 3.5% of gross domestic product. That deficit is only going to climb as outlays for Social Security, Medicare and Medicaid, now 8% of gross domestic product, climb to somewhere near 13% by 2030 as the baby boom generation ages and retires.
Meanwhile, the U.S. current account deficit, a measure of how much more we buy from foreigners than we sell to them, has climbed to 6% of gross domestic product. According to the Fed’s economists, you have to go back to the 19th century to find larger current account deficits as a percentage of the size of a country's economy. All this debt has been funded by an increase in the value of homes (and the size of home mortgages) on the domestic side, and the willingness of foreigners to hold IOUs denominated in U.S. dollars, such as U.S. Treasury bills and notes.
Buffett's approach is data-lite, but the data he does cite agree with the details of Greenspan's picture. Last year, we purchased $618 billion more in goods and services from the rest of the world than we sold. To pay for this current consumption, we're selling off our accumulated national wealth to the rest of the world at a rate of $1.8 billion a day. "Consequently, other countries and their citizens now own a net of about $3 trillion of the U.S.," Buffett wrote to his shareholders recently. Our overseas borrowing to fund the current account deficit is equivalent, he notes, to a family that sells off "part of its farm every day in order to finance its overconsumption."
Same data, different conclusions
What’s so striking is that from this remarkably similar picture of the current situation, Greenspan and Buffett reach almost diametrically opposed conclusions.
To Greenspan, it's no biggie. Even though we're running that huge trade deficit, the dollar's real exchange value, despite its recent decline, remains above its 1995 low, he told the Council on Foreign Relations. Interest rates on Treasury notes maturing 10 years in the future remain very low, despite the size of the federal deficit and the huge retirement obligations we're putting on the books. And there's no evidence that households are facing "inordinate financial pressures as a consequence of record-high levels of household debt relative to income."
The United States, Greenspan notes, almost with surprise, "appears to have been pressing a number of historic limits in recent years without experiencing the types of financial disruption that almost surely would have arisen in decades past."
Buffett, on the other hand, believes that we're headed for real trouble. "A country that is now aspiring to an 'Ownership Society' will not find happiness in -- and I'll use hyperbole for emphasis -- a 'Sharecropper's Society.' But that's precisely where our trade policies, supported by Republicans and Democrats alike, are taking us."
Buffet sees dire consequences
Buffett isn't forecasting economic collapse because he believes that foreigners will continue to lend to us: Foreign investors, he wrote in his letter to shareholders, "may view us as spending junkies, but they know we are rich junkies, as well."
But the consequences are still dire, Buffett believes. If current trends continue, a decade from now, just at the time when we'll need every dollar to pay for the retirement benefits of baby boomers, the United States will be sending 3% of its current annual output to the rest of the world as interest on the debt run up by its past consumption.
That royalty would run forever, unless we export more and consume less. And given the way global trade policies work, Buffett concludes, massively expanding U.S. exports isn't likely. Hence paying off this royalty would require a huge decline in U.S. consumption, Buffett says, with all sorts of nasty consequences for the global economy and the lives of U.S. workers and retirees. Don't pay it off and the already-projected squeeze on such frills as health care and education spending just gets worse.
Greenspan: The landing is soft
Don't worry, Greenspan says. We're headed for a soft landing. Foreigners will continue to send us their savings without demanding a huge increase in U.S. interest rates. Market forces --a fall in the price of the dollar and a consequent rise in U.S. exports and a drop in imports -- will gradually defuse the potential bomb represented by the huge increase in the U.S. trade deficit.
What's his logic?
Because the federal budget deficit, the run-up in consumer debt, projections of huge future retirement liabilities and the buildup in the trade deficit haven't resulted in the expected crisis to date -- and, in fact, haven't even produced the big projected hike in U.S. interest rates or a crash in the dollar -- something must be different this time. "Has something fundamental happened to the U.S. economy that enables us to disregard all the time-test criteria for assessing when economic imbalances become worrisome?" Greenspan asks.
Answering his own question, it's the increasing globalization of capital markets that has made all the difference. What Greenspan calls the "home bias" that kept investor's money in their national financial markets has eased so that investors seeking higher returns or diversification have sent more of their savings overseas. And the United States has been the prime beneficiary of that trend. (As you'd expect from Greenspan, he has data to support his belief in a decline in home bias: One measure of the propensity to invest at home for the developed countries representing four-fifths of world GDP has declined to 0.8 in 2003 from 0.97 in 1990.)
My problems with Greenspan's theories
I've got two problems with Greenspan's formulation. First, as Greenspan admits, a change in home bias doesn't solve the U.S. current account deficit; it just delays the reckoning. But since economists don't really know -- and can't reliably project -- the lag between trade deficits and deficit corrections, we don't really have any idea whether we are currently just in the lag period for a business-as-usual correction of the trade deficit or whether we've entered some unspecified lag period created by Greenspan's increasingly global financial markets.
It's an interesting theory. But as a guide to investing strategies, it leaves me completely without a road map or timeline.
Second, we've been down this "it's different this time" path with the Fed chairman before. Sometime after his more famous remarks about the irrational exuberance of the stock market, Greenspan became an apologist for higher valuations by citing the extraordinary productivity gains in the U.S. economy in the late 1990s. Historical measures of danger weren't valid for the then-current situation because the U.S. economy was growing so much faster than it had in other periods. Frankly, having bought into the first "it's different this time" argument to my pain and chagrin, I'm reluctant to buy into this new version.
The rate of capital-markets globalization remains vague. And while we know there must be some point at which foreigners will stop putting money into U.S. dollar-denominated investments, home bias or no, we have no idea where that point might be.
I've also paid attention to Greenspan's recent characterization of the problems of using productivity growth as a guide to policy. If you change "productivity" to "financial globalization," they're a warning to anyone who wants to use the newest version of "it's different this time" financial globalization to guide policy in the current global economy. "Productivity is notoriously difficult to predict . . . We have scant ability to infer the pace at which such (productivity) gains will pay out and, therefore, their implications for the growth of productivity over the longer run."
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coolhand wrote:
Yields on the 10yr will hit 8-9% in hours.
Foreign investors cannot afford to hold on to dollars anymore....the music is going to stop soon. Who is going to be left holding the bag? It will be anyone holding USDs.
:?
coolhand wrote:
It is getting to the point that their GDP is getting hurt by holding USDs. There will be a run for the door and it is going to be ugly. Like I said, probably German is going to start dumping first...then the USD will fall to 74 overnight.
Yields on the 10yr will hit 8-9% in hours.
Foreign investors cannot afford to hold on to dollars anymore....the music is going to stop soon. Who is going to be left holding the bag? It will be anyone holding USDs.
:?
imported post
All this gloom & doom stuff guys just because the dollar is sliding a little! Here I'll just add two cents to thiswhole thing. I don't read much of what any economist thinks because I feel 90% of the time they are just full of air. We take this deficit thing and make a big deal of it but in reality lets take a different view maybe one much more accurate.
We claim this is going to be a huge burden on our children but in reality it is going to benefit our children for many years. The US government if it builds a bridge or road will do it and put the whole thing against the budget for that year. You can just imagine what this does to the budget. To put it in respective that is treating it as a current expense instead of long terming it. This benefits everyone including the children of the future. This thing is very big so for an example say the government runs a $150 billion dollar deficit this year and we expand the national debt 2%. But at the same time we grew the econmy 5% then the national debt would actually shrink inrelative to the economy as a whole. Keep this up a few years and this ain't as huge as everyone may think.
Also their is another factor too in the mean time that helps and it is called research and development. I do not dny the importance of a balanced budget but you can see it is basically skrewered by the way we treat it. I just thought I would throw this out there. Have a good week end everyone!
All this gloom & doom stuff guys just because the dollar is sliding a little! Here I'll just add two cents to thiswhole thing. I don't read much of what any economist thinks because I feel 90% of the time they are just full of air. We take this deficit thing and make a big deal of it but in reality lets take a different view maybe one much more accurate.
We claim this is going to be a huge burden on our children but in reality it is going to benefit our children for many years. The US government if it builds a bridge or road will do it and put the whole thing against the budget for that year. You can just imagine what this does to the budget. To put it in respective that is treating it as a current expense instead of long terming it. This benefits everyone including the children of the future. This thing is very big so for an example say the government runs a $150 billion dollar deficit this year and we expand the national debt 2%. But at the same time we grew the econmy 5% then the national debt would actually shrink inrelative to the economy as a whole. Keep this up a few years and this ain't as huge as everyone may think.
Also their is another factor too in the mean time that helps and it is called research and development. I do not dny the importance of a balanced budget but you can see it is basically skrewered by the way we treat it. I just thought I would throw this out there. Have a good week end everyone!
G
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cowboy wrote:
We owe 85T USDs and there is only 9.5T USDs in existence. Think about that we own 9x more then there is USDs in the WORLD. Our debt is over 366% of our GDP.
If the govt spent $0 the next 33.8 years that is how long it will take to pay off the current 85T USD debt. However they are over 650B in the red for 2005.
In 2009 (at the current rate) our whole GDP will go to pay for interest payments for foreign central bankers - MEANING OUR WHOLE ECONONY IS GOING TO PAY OFF OUR CREDIT CARD INTEREST.
We have NOTHING to worry about. All is well.
Saraho Part Deux.:shock:
cowboy wrote:
Down 71% in 7 years is a little??? 33% in the last two years.
We owe 85T USDs and there is only 9.5T USDs in existence. Think about that we own 9x more then there is USDs in the WORLD. Our debt is over 366% of our GDP.
If the govt spent $0 the next 33.8 years that is how long it will take to pay off the current 85T USD debt. However they are over 650B in the red for 2005.
In 2009 (at the current rate) our whole GDP will go to pay for interest payments for foreign central bankers - MEANING OUR WHOLE ECONONY IS GOING TO PAY OFF OUR CREDIT CARD INTEREST.
We have NOTHING to worry about. All is well.
Saraho Part Deux.:shock:
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We are the #1 Exporter - Exporter of debt. Thank you very much.
How do you know when it is bed time in Michael Jackson's House? When the big hand is over the little hand....with that - have a great weekend.
One more - What is black and white and comes in little white cans? Michael Jackson.
Been a great week....going to kick back.
In the past, foreign citizens accumulated U.S. dollars so they could purchase American-made goods. Today, foreign central banks accumulate dollars so that Americans can purchase foreign-made goods. In the past, profits from her exports allowed America to become the world's greatest lender. Today, in order to fund her gargantuan trade deficit, America has become the world's greatest borrower. The dollar's reserve currency status allows "rich" Americans to continuously borrow what "poor" foreigners save, and consume what foreigners produce. Without such status, America's consumption would be limited by its own production, and its borrowing confined by its domestic savings. In such a world, Americans would have a standard of living far lower than the one currently enjoyed.
The U.S. dollar index, which has fallen over 30% in three years, rose for the first week in five, after ending last week within 2% of its all time record low set back in 1992. With the dollar's technical and fundamental outlook deteriorating, a test of those lows is imminent. A significant break below this long term support could send the dollar tumbling. Without considerable, coordinated, global central bank intervention, the dollar's value could be halved. Even if massive, unprecedented intervention is successful, its effects will be temporary at best. This looming dollar crisis cannot be prevented, only delayed, and only at the expense of exacerbating the collapse.
The dollar was originally accepted as the world's reserve currency mainly because America flooded the world with low-cost, high-quality manufactured goods (being convertible into gold also helped). In America, the words "it's imported" were synonymous with "it's expensive." If a product malfunctioned, a common expression was "it must have been made in Japan." In fact, the Japanese had such a hard time overcoming this stereotype that they actually name a city in Japan, USA, so they could label their product "made in USA." Today the exact opposite is true, as imports are inexpensive, while domestically produced products are high cost. Japanese manufactures now enjoy the reputation for quality that American manufactures lost.
The main reason America was so competitive was that it had a comparative advantage in freedom. American business incurred lower taxes and faced fewer regulations than business in any other country. Further, Americans themselves were among the world's most frugal, with high domestic savings financing capital investments. Limited government and high savings combined to allow American business to pay the highest wages in the world while still producing the least expensive products. Today America is just as highly-taxed and regulated as most other countries, and more so than many, and Americans themselves are now among the world's most profligate.
For a time, America has been able make up for its lack of exports by offering its trading partners the promise of greater financial returns on their dollars investments. However, since America now has the lowest real interest rates in the world (they are, in fact, negative) and the most over-valued stock and real estate markets, private foreign investors have no compelling reason to accumulate dollars. Not surprisingly, the principal buyers have been foreign central banks, who after all are spending taxpayer's money. There can be no question that panicked foreign central banks, which bow to political expedience, not rational self-interest, are the buyers of last resort, and that the dollar's days as the world's reserve currency are numbered.
The main reason that the US dollar is still the world's reserve currency is that few understand how completely the fabric of the American economy has been rewoven. In fact, the US economy functions in a manner which would be completely impossible were it subject to normal market forces. However, by issuing the world's reserve currency, it has been immune to these forces, and thus its economy has evolved in a most unnatural way. Recent trial balloons launched by various Asian central banks, concerning diversifying their foreign exchange reserves; indicate that the dollar's reserve currency status may already be at risk. Once that status is lost, the process of returning to economic viability will be quite painful, and will involve substantial austerity from both the US government and its citizens.
We are the #1 Exporter - Exporter of debt. Thank you very much.
How do you know when it is bed time in Michael Jackson's House? When the big hand is over the little hand....with that - have a great weekend.
One more - What is black and white and comes in little white cans? Michael Jackson.
Been a great week....going to kick back.
In the past, foreign citizens accumulated U.S. dollars so they could purchase American-made goods. Today, foreign central banks accumulate dollars so that Americans can purchase foreign-made goods. In the past, profits from her exports allowed America to become the world's greatest lender. Today, in order to fund her gargantuan trade deficit, America has become the world's greatest borrower. The dollar's reserve currency status allows "rich" Americans to continuously borrow what "poor" foreigners save, and consume what foreigners produce. Without such status, America's consumption would be limited by its own production, and its borrowing confined by its domestic savings. In such a world, Americans would have a standard of living far lower than the one currently enjoyed.
The U.S. dollar index, which has fallen over 30% in three years, rose for the first week in five, after ending last week within 2% of its all time record low set back in 1992. With the dollar's technical and fundamental outlook deteriorating, a test of those lows is imminent. A significant break below this long term support could send the dollar tumbling. Without considerable, coordinated, global central bank intervention, the dollar's value could be halved. Even if massive, unprecedented intervention is successful, its effects will be temporary at best. This looming dollar crisis cannot be prevented, only delayed, and only at the expense of exacerbating the collapse.
The dollar was originally accepted as the world's reserve currency mainly because America flooded the world with low-cost, high-quality manufactured goods (being convertible into gold also helped). In America, the words "it's imported" were synonymous with "it's expensive." If a product malfunctioned, a common expression was "it must have been made in Japan." In fact, the Japanese had such a hard time overcoming this stereotype that they actually name a city in Japan, USA, so they could label their product "made in USA." Today the exact opposite is true, as imports are inexpensive, while domestically produced products are high cost. Japanese manufactures now enjoy the reputation for quality that American manufactures lost.
The main reason America was so competitive was that it had a comparative advantage in freedom. American business incurred lower taxes and faced fewer regulations than business in any other country. Further, Americans themselves were among the world's most frugal, with high domestic savings financing capital investments. Limited government and high savings combined to allow American business to pay the highest wages in the world while still producing the least expensive products. Today America is just as highly-taxed and regulated as most other countries, and more so than many, and Americans themselves are now among the world's most profligate.
For a time, America has been able make up for its lack of exports by offering its trading partners the promise of greater financial returns on their dollars investments. However, since America now has the lowest real interest rates in the world (they are, in fact, negative) and the most over-valued stock and real estate markets, private foreign investors have no compelling reason to accumulate dollars. Not surprisingly, the principal buyers have been foreign central banks, who after all are spending taxpayer's money. There can be no question that panicked foreign central banks, which bow to political expedience, not rational self-interest, are the buyers of last resort, and that the dollar's days as the world's reserve currency are numbered.
The main reason that the US dollar is still the world's reserve currency is that few understand how completely the fabric of the American economy has been rewoven. In fact, the US economy functions in a manner which would be completely impossible were it subject to normal market forces. However, by issuing the world's reserve currency, it has been immune to these forces, and thus its economy has evolved in a most unnatural way. Recent trial balloons launched by various Asian central banks, concerning diversifying their foreign exchange reserves; indicate that the dollar's reserve currency status may already be at risk. Once that status is lost, the process of returning to economic viability will be quite painful, and will involve substantial austerity from both the US government and its citizens.
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