Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

US Recession Avoidable - The Falling US Dollar and the US Economy

Economics / US Economy Nov 26, 2007 - 11:55 AM GMT

By: Gerard_Jackson

Economics What a week that was. Australia's conservative government gets thrashed by a bunch of unioncrats, lefty journalists and an economic illiterate with intellectual pretensions while at the same time as the US dollar goes high diving. These are certainly interesting times.

The falling dollar has got a number of people running around like headless chooks, as we say down here. What is generally overlooked is that the dollar has been declining for years. Anyone with a basic grasp of supply and demand analysis would know why. Regardless of what some commentators think the law of supply and demand applies to money just as it applies to all other economic goods.

I have occasionally pointed out that though the boom-bust cycle has a fundamental cause not every cycle share identical characteristics. It seems that it was only yesterday -- and maybe it was -- that bears were predicting an imminent recession. My opinion, however, was that the US economy still had steam in its boiler. To begin with, manufacturing is still expanding and investing, though at a somewhat slower rate, and productivity seems to be growing. Even if manufacturing was contracting it can still be a fairly long time before unemployment rises.

This was certainly the case with the Clinton recession where consumer spender actually increased. It now appears that current consumer spending is advancing at an increasing rate. (As Yogi Berra said: "It's like deja vu all over again"). In addition, I also figured that a depreciating dollar would stimulate the export of manufactures and that this in turn would help prolong the boom. And this certainly appears to be the case.

The textbook tells you that a depreciating currency has the effect of closing current account deficits. Although there certain conditions, it's pretty clear that the textbook is right for a change. (I have to admit that my 'latest' textbook is more than 30 years old). Exports are quickly shrinking the deficit and it has now dropped from a record 7 per cent of GDP to 5 per cent and still shrinking. The same monetary process is basically responsible for reducing the domestic deficit to about 1 per cent of GDP.

The sheer size of the US economy and the importance of the dollar ensures that the depreciation is likely to play havoc with European economies as their own exports to the US fall off and imports of US goods, including services, rise. This situation will be aggravated by China's dollar peg. Now this can only be maintained by China flooding the market with its own currency in an effort to prevent the yuan rising against the dollar, causing the prices of Chinese goods in terms of European currencies to fall even further. Naturally this state of affairs cannot continue indefinitely.

What we are witnessing is monetary disorder, a product of two dangerous monetary theories: the one theory has it that central banks should maintain a stable price level while the other theory maintains that interest rates should be used to control economic activity so that the economy is "not too hot or too cold". This is like trying to square the circle: something has to give and it has. The Fed knows that further cuts in rates could drive the dollar even lower. On the other hand, if it does not make more cuts the economy could come to a halt. My guess -- and it is only a guess -- is that Bernanke will go for further cuts. (Let us not forget that the spirit of Keynes is still abroad in the Fed).

All the doomsaying about the sub-prime mortgage crisis has, as I predicted, come to nought. It was argued that mortgage write offs would be at least $400 billion and this would come out at about 3 per cent of GDP. But as I have pointed out so many times before, GDP is not a genuine gross figure. Total spending is about $30 trillion which means that the write offs would amount to about 1.3 per cent of the true gross figure. As for the "mortgage crisis" hurting car sales by curbing bank lending, doomsayers are overlooking the fact that car companies have their own financing arrangements.

As usual the pessimists are looking in the wrong places. Although a recession is on its way it has still yet to arrive. When it does -- please blame monetary policy instead of the market.

By Gerard Jackson

Gerard Jackson is Brookes' economics editor.

Gerard Jackson Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Brian Ages
30 Dec 08, 09:42
PMI Private Mortgage Insurance Requirements

Can you discover what happened to the PMI premiums designed to protect investors for losses on loans over an 80% loan to value?

PMI has been required on all loans (other than VA) that involved less than a 20% down payment. During our real estate boom years these funds collected a lot of money with very little payout. This insurance was purchased to protect the lender in the event of defaults and value loss.

I believe the banking crisis is based on the second trust deeds which have no protection and the greatest risk. I also believe that something is seriously wrong with the managing or investment of the PMI funds. For some reason no one has discussed this issue.

Did AIG have anything to do with the PMI market?

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules