There are two primary reasons why the dollar could continue to fall. First, because as the rest of the world slows down, non-petroleum exports could decline.
Second, the governmental deficit is likely to rise much further.
I am unsure whether it will rise or fall. But there are reasons to believe that the dollar continues to be overvalued, at least regarding some currencies.
But the catch is that the very factors contributing to the decline in oil prices and therefore a likely future decline in the petroleum deficit, namely a stronger dollar and weaker foreign economies, will at the same time likely end and maybe reverse the decline in the non-petroleum deficit.
"Non-petroleum exports are dropping sharply..." That should be "imports" I think.
By the way, the real deficit is at its narrowest since August of 2002. Nominal exports rose 4% in June even though aircraft exports were off 8%. That's a pretty good trick.
Some of the factors that have served to improve the real deficit and keep the nominal deficit from widening are beginning to fade. The US still needs to pursue policies that will raise the national savings rate through the business cycle.
The economies in the rest of the world are cratering. We should not get all misty eyed about the strength of the dollar. It just means that as bad as our economy is, the rest of the world is in worse shape. Small consolation!
The $ rise in exports over the past year is made up largely by the fall in the dollar. In other words, the same number of machines priced in foreign currencies, were worth 15% more in dollars. That's good for corporate profits but, unless it's sustained for a couple years, it doesn't do much for employment.
The dollar's recent climb, if sustained, will work in the reverse way next year.
In addition, since June there has been a marked slowdown in the rest of the G7 countries and many of the emerging markets. So as the cost of oil imports falls, so may the value of exports in dollars.
The longer the period of the loan, the more the fiction of sterilizaton is exposed ( to grok that - work backwards from "a sale, which would be regarded as unsterilized money addition, is an infinite period loan").
On which "deficit" will the decline in the price of oil have a "significant impact"? On the trade deficit certainly, but also on the federal budget deficit? That's less clear, and it weighs pretty heavily on the dollar.
As I recall conjure went long C @ $24, just before it went to $14.
USD may show relative strength because of the US military dominance during what may be a turbulent period. I don't know what has been juicing it really, but I think it has to weaken further to keep exports moving.
Real, inflation-adjusted goods exports were up 13.4% y/y in June, while nominal goods exports were up 23.0%, so 58% of export growth over the past year has been due to increased units (or a shift to more valuable exports) while 42% is accounted for by inflation and foreign exchange shifts.
The Utah Department of Transportation is looking at postponing about 30 road-improvement projects this year because of asphalt scarcity, which was just made worse by the bankruptcy filing of Sen Material, which supplied about 60 percent of UDOT's asphalt.
The asphalt industry is in crisis because the material is a bi-product of oil refineries. Because they can make higher profits in gasoline production now, they are not producing as much asphalt, causing shortages all over the country.
UDOT was already facing a crunch because the price of the asphalt oil jumped from about $350 a ton at the first of the year to $900 a ton this month, said UDOT spokesman Nile Easton. He said major projects like the Legacy Parkway will still go forward, but about 30 other projects slated for this year will likely be held for at least a year.
Mark Nelson says when the project was bid, asphalt was selling for $210 to $220 a ton. Now the cost is close to $600 per ton. Thats added a half million dollars to the cost of the project.
Nelson says discussions between the city, Mo-Dot and the contractor have been productive in finding cost-saving measures, such as reducing the amount of asphalt placed on the main roadway. The discussions have resulted in about $300,000 in savings.
Should the county move forward with a road project that was bid $75,000 higher than anticipated, or wait and see if material and transportation costs may drop in the near future and rebid the project? The Houston County Board pondered that question during the Aug. 5 meeting.
County Highway Engineer Marcus Evans informed the county board the lone bid received by Mathey Construction, Inc. of Onalaska, Wis. was $429,000. The county had budgeted $350,000 for the resurfacing project on CSAH 26 in Money Creek Township.
We sent out plans to three different companies and only received one bid, Evans noted. And this bid is 38 percent higher than the engineers estimate. Its mainly due to increased material (oil-base asphalt) and transportation costs. Last year we were getting asphalt for $43 a ton. Right now the prices have ranged from $68 to $74 per ton, depending on how far the material has to be trucked.
OK lets work this defit thingy out, how many goods produced by dead people were traded for zimbabwain currency and how many goods were purchased by those just born using the BLS stat model? Just curious////
Agree completely. Substitute "lots" for "most" and your initial post stands. If anticipated shifts in interest rate differentials and growth differentials and risk differentials favor the US, the dollar will continue its rebound. That and weakening demand overseas will combine to reverse the gains in nominal trade, and the gains in real trade. The whopping assist the US economy is getting from trade is vulnerable to growth contagion from the US.
We shouldn't be fooled by the change in the non-oil trade deficit into concluding that lower oil prices==>lower overall trade deficit.
The overall trade deficit is purely a function of different savings rates between countries. If we save relatively less than others, we will always have a trade deficit.
Changes in oil prices only change the mix of oil vs. non-oil imports. When oil prices are higher, we have less money to import other things. When oil prices go lower, we import more other things.
If you care about the trade deficit, focus on the blue line and get Americans to save more, and get other countries save less.
Ways to do this:
--higher interest rates to reward saving
--lower taxes to increase returns on capital
--eliminate housing subsidies (Fan & Fred, free $500k cap gains, int rate deductions, etc) to provide oxygen for other investments
--tax preferences for savings like give Roth 401ks to every American on 1% of their earnings
Probably true in the long run, but in the short run, them elasticities get in the way. Our ability to adjust to changes in energy prices in the short term is limited, so we can be forced to borrow more (save less) to meet energy needs. There is also a tendency to smooth consumption (and a bunch of other stuff) which gives oil prices the power to swing the nominal deficit in the short term. Longer term, though, it all comes down to savings. Of course, savings comes down to growth, investment opportunities and differential cultural discount rates...
first!
p.s.-
I love tanta
haloscan must die
Maybe it has bottomed, maybe not.
There are two primary reasons why the dollar could continue to fall. First, because as the rest of the world slows down, non-petroleum exports could decline.
Second, the governmental deficit is likely to rise much further.
I am unsure whether it will rise or fall. But there are reasons to believe that the dollar continues to be overvalued, at least regarding some currencies.
Wow, 8 visitors online, I didn't realize how much of the stickiness was due to the comments...
But the catch is that the very factors contributing to the decline in oil prices and therefore a likely future decline in the petroleum deficit, namely a stronger dollar and weaker foreign economies, will at the same time likely end and maybe reverse the decline in the non-petroleum deficit.
...and this might mean the dollar has finally bottomed.
IMHO "A" bottom, but not "The" bottom. May be a bottom for quite a while, though.
"Non-petroleum exports are dropping sharply..." That should be "imports" I think.
By the way, the real deficit is at its narrowest since August of 2002. Nominal exports rose 4% in June even though aircraft exports were off 8%. That's a pretty good trick.
Some of the factors that have served to improve the real deficit and keep the nominal deficit from widening are beginning to fade. The US still needs to pursue policies that will raise the national savings rate through the business cycle.
Oh,...what Stephan said...
Conjure is long $US.
I'm with Conjure.
Conjure knows the USD is weak excepting for all the other currencies. Wait until Aug 25th and China economic revisions.
if it looks like and sounds like it probably is...
Crash Course Chapter 16: Fuzzy Numbers - consumer price index | Crash Course Videos at Chris Martenson - consumer price index, cost of living, data manipulation, deficit, economic statistics, economy,, GDP, growth rate, hedonics, Inflation, Medicare, rece
i think this is what we all want to get CR to show in his charts...
turn the media on to this....
Conjure, as you are probably aware, went long $US yesterday.
He has not, however, defected from the bear camp.
The economies in the rest of the world are cratering. We should not get all misty eyed about the strength of the dollar. It just means that as bad as our economy is, the rest of the world is in worse shape. Small consolation!
Make no mistake. Bucky will be crucified for our sins. We are all nothingburger now.
I think dollar may have bottomed provided that Fed/Congress will not do anything really stupid. But I wouldn't count on that.
Meanwhile back at the ranch -
Expired
The $ rise in exports over the past year is made up largely by the fall in the dollar. In other words, the same number of machines priced in foreign currencies, were worth 15% more in dollars. That's good for corporate profits but, unless it's sustained for a couple years, it doesn't do much for employment.
The dollar's recent climb, if sustained, will work in the reverse way next year.
In addition, since June there has been a marked slowdown in the rest of the G7 countries and many of the emerging markets. So as the cost of oil imports falls, so may the value of exports in dollars.
Meanwhile back at the ranch -
Expired? .v=2
Bill
The longer the period of the loan, the more the fiction of sterilizaton is exposed ( to grok that - work backwards from "a sale, which would be regarded as unsterilized money addition, is an infinite period loan").
Bucky's dead.
-skk
Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress.
Yahoo! 404 - Page Not Found
Bucky's dead.
-skk
Its ghost keeps rising!
(OK, only until it stops.)
"Dollar has bottomed"
So have home prices. yee haaw!
House prices edge higher in June
Expired
Ok, I can't stand it anymore. Who or what is bucky?
"It just means that as bad as our economy is, the rest of the world is in worse shape."
You wish. USA is basically giant Las Vegas now without customers.
context liz-- bucky=$
On which "deficit" will the decline in the price of oil have a "significant impact"? On the trade deficit certainly, but also on the federal budget deficit? That's less clear, and it weighs pretty heavily on the dollar.
"Conjure is long $US"
As I recall conjure went long C @ $24, just before it went to $14.
USD may show relative strength because of the US military dominance during what may be a turbulent period. I don't know what has been juicing it really, but I think it has to weaken further to keep exports moving.
I still think we'd do better with bucky balls. Much sturdier. My apologies to conjure.
Bob,
Real, inflation-adjusted goods exports were up 13.4% y/y in June, while nominal goods exports were up 23.0%, so 58% of export growth over the past year has been due to increased units (or a shift to more valuable exports) while 42% is accounted for by inflation and foreign exchange shifts.
Ll,
I suspect "Bucky" is the dollar, personified.
Some perspective.
Yoy June 2008 import prices increased 20.5% - a record. Excluding petroleum, yoy June 2008 import prices increased 7.3%. Clearly, it's not just oil.
Yoy June 2008 agricultural export prices increased 33%! That's up from the 2007 increase of 18.2% Is anyone expecting food prices to decline.
Currency wars are like conventional wars. Many are sacrificed for the benefit of a few.
k harris,
OK, I stand corrected. But that 42% will be lost or reversed if the dollar stabilizes/gains, and the 58% is in danger from world growth slow down.
The asphalt industry is in crisis because the material is a bi-product of oil refineries. Because they can make higher profits in gasoline production now, they are not producing as much asphalt, causing shortages all over the country.
UDOT was already facing a crunch because the price of the asphalt oil jumped from about $350 a ton at the first of the year to $900 a ton this month, said UDOT spokesman Nile Easton. He said major projects like the Legacy Parkway will still go forward, but about 30 other projects slated for this year will likely be held for at least a year.
Nelson says discussions between the city, Mo-Dot and the contractor have been productive in finding cost-saving measures, such as reducing the amount of asphalt placed on the main roadway. The discussions have resulted in about $300,000 in savings.
County Highway Engineer Marcus Evans informed the county board the lone bid received by Mathey Construction, Inc. of Onalaska, Wis. was $429,000. The county had budgeted $350,000 for the resurfacing project on CSAH 26 in Money Creek Township.
We sent out plans to three different companies and only received one bid, Evans noted. And this bid is 38 percent higher than the engineers estimate. Its mainly due to increased material (oil-base asphalt) and transportation costs. Last year we were getting asphalt for $43 a ton. Right now the prices have ranged from $68 to $74 per ton, depending on how far the material has to be trucked.
OK lets work this defit thingy out, how many goods produced by dead people were traded for zimbabwain currency and how many goods were purchased by those just born using the BLS stat model? Just curious////
of course it's all good since the Fed just released $25B to be loaned out.
Crisis averted.....(heavy sarcastic tone)
The real fallacy here is that they call them temporary and auctions.
Ciao
MS
Two-thirds of U.S. corporations paid no federal income taxes between 1998 and 2005, according to a new report from Congress.
I pay taxes so Angelo Mozilo doesn't have to.
Note to self: Buy asphalt in Wisconsin, sell asphalt in Utah and Missouri.
bearly- "As I recall conjure went long C @ $24, just before it went to $14."
Sorry, but you recall incorrectly. Conjure bought C at 21 and change, but sold at 23 even when the rally failed.
I pointed that out here, but you must have missed the memo.
Because they can make higher profits in gasoline production now, they are not producing as much asphalt, causing shortages all over the country.
The good news is, trains don't need asphalt to run, and they can go pretty much anywhere.
Bob,
Agree completely. Substitute "lots" for "most" and your initial post stands. If anticipated shifts in interest rate differentials and growth differentials and risk differentials favor the US, the dollar will continue its rebound. That and weakening demand overseas will combine to reverse the gains in nominal trade, and the gains in real trade. The whopping assist the US economy is getting from trade is vulnerable to growth contagion from the US.
We shouldn't be fooled by the change in the non-oil trade deficit into concluding that lower oil prices==>lower overall trade deficit.
The overall trade deficit is purely a function of different savings rates between countries. If we save relatively less than others, we will always have a trade deficit.
Changes in oil prices only change the mix of oil vs. non-oil imports. When oil prices are higher, we have less money to import other things. When oil prices go lower, we import more other things.
If you care about the trade deficit, focus on the blue line and get Americans to save more, and get other countries save less.
Ways to do this:
--higher interest rates to reward saving
--lower taxes to increase returns on capital
--eliminate housing subsidies (Fan & Fred, free $500k cap gains, int rate deductions, etc) to provide oxygen for other investments
--tax preferences for savings like give Roth 401ks to every American on 1% of their earnings
Curmudgeon,
Probably true in the long run, but in the short run, them elasticities get in the way. Our ability to adjust to changes in energy prices in the short term is limited, so we can be forced to borrow more (save less) to meet energy needs. There is also a tendency to smooth consumption (and a bunch of other stuff) which gives oil prices the power to swing the nominal deficit in the short term. Longer term, though, it all comes down to savings. Of course, savings comes down to growth, investment opportunities and differential cultural discount rates...
--lower taxes to increase returns on capital
2/3 of US companies didn't pay taxes between 1998 - 2003.