Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: zonder who wrote (268528)	11/24/2003 11:57:59 AM
From: GraceZ	Respond to of 436258

If you recall, we came to this point because you felt calling for tax cuts aimed at the poor rather than the rich was a communist thing to do No, taking from those who produce and giving it to those who "need" it is. I think you confuse what Bush said with what others say he said. Republicans aren't the party that thinks demand needed to be stimulated, what they attempted to stimulate was job creation and this is always done from the investment side. The consumption boosting measures were compromises with the Democrats, if you knew how the sausage was made in this country, you'd know this. There is not "implied hypothesis" nor any "desired conclusion. Any government with a printing press has ZERO risk of default in t-bills of its own currency. That is fact. The risk "those who fund governments" take is NOT default risk but currency risk - i.e. what that currency will be worth against others & gold upon maturity. All monetary instruments have currency risk and inflation risk. If you think all government bonds have zero default risk you aren't familiar with the entire history of government bonds. If you are going to insist the Fed did not talk down the dollar over the past year, I'd rather end this line of exchange here so as not to damage that view. Well it is annoying, I'm sure, to hear someone contradict popular misconceptions. The first thing you have to know is that almost everything you read about monetary policy and dollar policy written by various "experts" and Fed watchers is invariably incorrect and arrives at specious conclusions that support the writer's current prejudice. Back when Volcker was Fed chairmen there was a group that used to take recordings of his speeches and subject them to an electronic voice stress test, so they could tell where he was lying. This kind of thing goes on in that if the Fed says "this is not a problem" there is going to be a group that will immediately interpret that statement to mean the exact opposite. The Fed almost never talks about the dollar and never sets "dollar policy". The reason for this lay in the fact that dollar policy is under the purview of the Treasury. This is because dollar policy involves the currency of other countries. This involves trade agreements and treaties with other sovereign nations. The Constitution gives the power to make treaties to the current administration, the president. The Fed merely follows instructions from the Treasury when it comes to it's actions in regards to the dollar. If the Fed were setting dollar policy you wouldn't have seen AG come out a day after the trade sanctions were announced lecturing the current administration on the dangers of protectionism. AG doesn't work for the current administration, the Fed chairman is independent of the current administration and his duties are narrowly confined to monetary policy. The thing you are confused about is that you confuse the management of the internal value of the currency and the external value. The Fed sets the money supply, sets policy in regards to inflation, the value of the dollar in regards to goods and services, but does not set the policy for the dollar as it relates to other currencies. Dollar policy is completely out of the purview of the Fed. The two policies can have an effect on each other, of course, but they don't necessarily move in the same direction. Back in the 70s they did, we had double digit inflation and the dollar fell. While the EU is experiencing a rapid rise in it's currency in relation to other currencies it is still most likely losing value in regards to goods and services just as the dollar did for years and years. The 30% rise in the Euro against the dollar hardly resulted in a 30% increase in the currency's value internally, most likely you lost a figure somewhere between 2-4% inflation. In theory, monetary inflation will moderate during a time of a rise in a country's currency but not necessarily so. A fall in currency should result in higher priced imports, yet as I pointed out to you earlier we're still experiencing falling import prices from our Asian trade partners. Also deflation of a currency doesn't necessarily mean that it will rise in relation to other currencies. The Japanese have had deflation for some time while the Yen has only recently started to rise against other currencies along with the prospects for their economy. The best that a country can do is manage it's fiscal policy and monetary policy in such a way that it has the optimum effect on the economy and allow the currency to rise and fall where it will. This is something that was learned after so many failed interventions in the past. This is why I can make the statement that abandoning the "strong dollar" policy has little consequence. Primarily because it wasn't what was holding up the dollar in the first place. What made dollar denominated assets attractive in the past was that there was no where else that offered the same return for the risk in such large amounts and there still isn't. While you can say that in the EU there is far less trust for the US dollar assets as opposed to assets in EU, this is certainly not the case in Asia. You have to ask yourself, why is it that they trust the EU less? You assume that they are in a situation where they have little choice but there is far more to it.