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is an "economic tsunami" on the way?

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So Ankur, what's your story? You're a genius with economics so I'm guessing you're at least majoring in something economics?
Biology, if I recall correctly.
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well... wiley is only 33% right.

 

 

i started with CompEng/ElecEng. did four years of it. was close to graduation and then decided to ditch it.

i graduated a year later in biology.

but while i am working, i am working on post bacc bs in chemistry... just for giggles.

 

 

my depth in economics is one macroeconomics course which was boring as hell. but most of my knowledge stems from reading yahoo finance, bloomberg, etc etc on a daily basis. toss in some journals, articles from financial sources, some analyst talk from the brokerages, read the scripts of greenspan and other fed members talking... so on and so on... and you get a rosy picture. its not tough. economics, to me, seems very logical.

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If it were to happen or is happening, investors would be changing their investing strategies accordingly buying options that gold will go up and buying US treasury bonds (if Japan sells US debt, the US will have to offer a higher interest rate to get them to buy 'em back).

 

If i think that TS is going to HTF, why would I possibly want to buy US treasury bonds? Wouldn't I worry about losing my principal? Foreign investors would possibly buy, but a US citizen would have to be out of their mind considering it would be an IOU to themselves minus a handling fee.

 

There are problems with the US economy, but we have a fed determined to keep inflation in check so I strongly doubt we'd have stagflation again. I do think the above scenario could happen, I think it would be 4-5 years away only if the US keeps up what it's doing and changes investors' expectations.

 

My china article mentioned that we'll have a new fed in a year and he may be inexperienced. I don't know when TS will HTF but I can't imagine it taking any longer than five years unless some serious measures are taken to steer the US back on track. And with Bush divorced from reality and his administration possibly fracturing I'm not too confident in the government's ability to do it.

 

for example, anything greenspan says you must read between the lines. he is 100% aware of how carefully he must speak his lines because the whole world hiccups and shits bricks at the mere tone of his voice. therefore, his news tends to be underplayed because he is trying to settle the markets, give them pause and stability. so anything greenspan says must be amplified in order to evaluate its truth in reality.

 

on the other hand, you get these doomsday economists from morgan stanley, goldman sachs etc, and they are making statements about the markets direction, but they have a vested financial interest in causing panic selling/bubble buying. so you try and dumb down those words.

 

Don't they hype markets to get suckers in on a bubble? Or do they also profit by shorting and selling doom? I think the doomers are in the stability crowd. For instance, in Stephen Roach's The Shoestring Economy he analyzes but refrains from a strong opinion. But in private meetings (check link from prev. post) he says we're likely headed for Armageddon. And Warren Buffet had an interview around March where he gave a similar analysis but he said the US would still remain dominant. Why am I wrong?

 

in my opinion, oil prices over the mid and long term have no where to go but up. while i dont subscribe entirely to hubberts peak theory, oil prices are vastly undervalued. and worse still, gasoline prices today (at ~2.90-3.00$ / gal) only reflect 25% of the true cost of consumption.

 

I agree that gas won't go down. Unless oil is abiotic in origin and it's being produced at the rate we're pumping it (teehee), oil production will peak. There's no way to predict when it will happen, and oil production probably won't follow a bell curve. This is dangerous :( I think we need alternative energy sources and to kill suburbia ASAP.

 

so sooner or later, you are going to be paying 10$ a gallon at the pump.

 

BTW, Matt Simmons said we could see $10/gal this winter. Take that for what it's worth ;)

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matt simmons is full of shit.

 

america is staring at a whirlpool... but how far we get sucked down depends on a lot of factors:

i. what will the new fed do?

ii. what will the tax situation look like in the coming five years?

iii. what shape is the federal balance sheet in?

iv. what is the trend for GDP vs debt?

v. at what point do foreign banks begin to sell american treasuries and bonds?

etc etc.

 

its not entirely possible to say that america IS headed for self destruction nor is it entirely possible to say we WILL remain dominant. there are too many near term changes which will drastically affect the outcome. however, we can talk probabilities. the probability of a complete financial meltdown to ground zero - quite unlikely. the probability of a 90's style roaring boom? very unlikely. the probability of a serious recession on the horizon, one which will redistribute wealth from its current pattern to one in which wealth is highly concentrated in the hands of fewer individuals - even more likely.

 

i agree. killing sprawl is a fantastic idea. sprawl is the one reason why public transportation is insolvent and "scary" and sparse coverage. in my opinion, we need to institute a stepwise gasoline tax until gas is at least six or seven dollars a gallon in today's dollars. this will instantaneously pay for the transportation bill which is a huge bottomless sea of red ink on the government worksheet. it will also force many consumers to consider relocating to an urban area which can provide public transportation. at worst, carpooling, and corporate excesses will be limited. all of this translates to cleaner air which has immediate health benefits, the solvency of public transportation system balance sheets (so amtrak and septa dont need to be bailed out by government), and frees up additional tax revenue to supplement a transition towards a more efficient energy economy.

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uhhh... you DO realize, of course, that gold is trading at an 18 year high? gold has skyrocketed on the commodities exchanges. in fact it went up almost 10% in just the past 2 months!

 

But historically how high are they? That's the real question. When we had serious inflation problems gold went up to 850 dollars. Right now it's a little more than half of that.

 

i have a troll following my posts around docking my rep. lol. i disgust people so much that i have a stalker! this is AWESOME

 

Don't blame me, I like talkin to ya. You always make at least 2 good points for every 3 bad ideas and that ain't bad.

 

 

If i think that TS is going to HTF, why would I possibly want to buy US treasury bonds? Wouldn't I worry about losing my principal? Foreign investors would possibly buy, but a US citizen would have to be out of their mind considering it would be an IOU to themselves minus a handling fee.

 

I don't know what TS and HTF are, but it's a simple concept why you would want to buy Treasury bonds if you think there's gonna be a collapse. When the Chinese or whoever start selling their bonds they will do so b/c they don't think the interest rate on the ticket is high enough to compensate their risk. This means that the US will have to increase their interest rate on the treasury bills. That means you make money.

 

The US has serious problems with its economy, but not enough to bankrupt the US to the point where they'll default. That ultimately means that you'll make more money for a somewhat risky bond, but really one that you'll get paid off for.

 

but I can't imagine it taking any longer than five years unless some serious measures are taken to steer the US back on track.

 

In economics five years may as well be 50, anything could happen.

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But historically how high are they? That's the real question. When we had serious inflation problems gold went up to 850 dollars. Right now it's a little more than half of that.

 

well... what you originally said was...

 

I've been reading about this scenario happening for over a year and a half and I don't think it's going to happen any time soon. If it were to happen or is happening, investors would be changing their investing strategies accordingly buying options that gold will go up and buying US treasury bonds (if Japan sells US debt, the US will have to offer a higher interest rate to get them to buy 'em back).

 

to which my response was that the shift is already happening. whether gold is at its highest inflation adjusted point is quite irrelevant. your analysis clearly indicates that the turning point is a shift in commodity investment strategy, which i respond with "uhhh, the shift is already happening..."

 

make that three good points for every 3 bad ones ;)

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the probability of a serious recession on the horizon, one which will redistribute wealth from its current pattern to one in which wealth is highly concentrated in the hands of fewer individuals - even more likely.
Recessions are redistributionist??? Stick to the hard sciences, my brother... ;)

 

As for the economy, I wouldn't start to worry about recessions until the Treasury yield curve inverts...

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read my posts. nice of you to be able to take a statement regarding a specific recession and turn it into a global generalization. i love how your mind has ceased functioning these days. stick to inherency shu, because clearly english and rhetoric as well as economics are far out of your reach.

 

THIS recession will be redistributionist. why? because THIS recession will be brought on by price inflation which the fed will be unable to check. i am not as worried about the currency markets as i am about price inflation.

 

energy prices --> price inflation which the fed will be unable to stop. this means a higher yield per widget for the producers of necessary goods - energy, clothing, agriculture, etc. even if consumers arent out buying 56" hitachi flat plasma tv's with all bose surround sound home theater systems, they still need to buy gas to get to work. across the board, prices are going up for the industries which are energy sensitive.

 

one industry which is relatively insulated from energy woes is agriculture and produce.

http://data.bls.gov/cgi-bin/surveymost?ap

 

then look at this link

ftp://ftp.bls.gov/pub/special.requests/cpi/cpiai.txt

i arbitrarily took september data all the way back to 1950. i entered it into excel, and did a year by year inflation line chart. see a pattern? gas crisis years? you see a spike, there was a recession. first bush's term, spike and a recession. now its going back up. what do you think is on the horizon? my point is still the same. energy prices lead the way into inflation and recessions. if you dont clamp down energy prices, then you're setting yourself up for a big tumble.

 

but now i am on a tangent....

 

back on track... as evidenced already by the energy companies, with higher energy prices, they are the leading profit generators right now on wall street. if the price of oil goes down, exxon's profit margins go down. exxon is loving every second of the public's misery right now. who owns exxon? the 17 year old kid working behind the counter at 7-11? now you might say "well the kid could buy stock in exxon!" which would be quite foolish... because...

 

the problem with price inflation is that it crushes the disposable income for the average american family. this disposable income which could be earmarked for savings/investment is wipedout by the need to buy gas and feed and shelter one's family. the middle class is economically and functionally demarcated by the existence of a disposable income. the absence of one crushes upward mobility and redistrbuted earnings towards the hands of the wealthy business owners.

 

the simple fact of the matter is that for the past five years income growth has not kept up with gdp growth, corporate profit margins, inflation, or unemployment. the american public is LOSING ground. you cant dodge your way out of this shu. the numbers speak for themselves. the american public is making less now than they did last year and less last year than the year before and thats BEFORE you account for the weaker dollar.

 

all of this means that the current recession and the one we just finished are both redistributionist. and its only further cemented by the fact that the big guys keep getting bigger... the wealth of top grossing americans keeps growing and the wealth of middle income earners is falling.

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When gold hits 500 it will be overvalued by many investors compared to the amount of inflation we're actually experiencing. Some investors are changing their strategies, but if all of them did, we'd see gold much higher than 500.

 

because THIS recession will be brought on by price inflation which the fed will be unable to check.

 

By this argument we would technically be having stagflation...

 

i am not as worried about the currency markets as i am about price inflation.

 

What happens in currency markets is 10x scarier. Currency markets determine a lot of important stuff.

 

On the note of energy price increases leading to price inflation: I just don't think that this can happen ceteris paribus. I have never been able to buy the argument. If energy prices increase, prices in other things will go up if they use energy, but the quantity purchased will go down. Reducing the demand for energy, pushing the long-run price down of energy and many other things. If you have energy price increases with an accelerating money supply, then I'll buy the argument. I've seen some concerning statistics about money supply growth, but not too bad.

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When gold hits 500 it will be overvalued by many investors compared to the amount of inflation we're actually experiencing. Some investors are changing their strategies, but if all of them did, we'd see gold much higher than 500.

 

still nonresponsive because you said investors would START to change. now you say some are changing but not enough? so which is it? ;) hee hee.

 

 

 

By this argument we would technically be having stagflation...

one which i am more likely to agree with. wages are going no where. unemployment is holding steady but far from full employment. inflation is creeping and getting worse by the month. i agree, it wasnt a worry one year ago... the signs of it as a distinct possibility were not evident at that time. however, the signs of a possible impending stagflation crisis are on our doorstep. to simply ignore the signs as a legitimate possibility is reckless. now understand i am not saying that this WILL happen, but its a distinct possibility and even changing one of the precursors makes a big difference. i agree the fed is on the right track by stamping down inflation, except they only have the power to stamp down their "core inflation" energy and agriculture are functionally out of their purview and its scary what higher energy costs can do. just look at the 70's. we're closing in on that marker rather quickly. this is no gradual change.

 

 

What happens in currency markets is 10x scarier. Currency markets determine a lot of important stuff.

 

but the fed can help control the currency markets to a larger degree. they can see the problems developing and address them. they cannot address energy issues.

 

 

On the note of energy price increases leading to price inflation: I just don't think that this can happen ceteris paribus. I have never been able to buy the argument. If energy prices increase, prices in other things will go up if they use energy, but the quantity purchased will go down. Reducing the demand for energy, pushing the long-run price down of energy and many other things. If you have energy price increases with an accelerating money supply, then I'll buy the argument. I've seen some concerning statistics about money supply growth, but not too bad.

i agree, quantity of things purchased goes down, but ONLY if the item is a luxury item bought with disposable income. the problem is that there are so many things today which are functionally not luxury items. they are a part of daily life which are indispensable. whether you like it or not, a computer is part of our lives now and saying "i will use less electricity by not using my computer" is simply not an option americans are willing to accept let alone consider. we are using considerably more energy today than we did five years ago and more five years ago than ten.

a good example of your example being false is the airline industry. prices are going up and there are more flyers today than ever! the cost of doing business today requires international and national travel on an unprecedented scale. a major exception to the supply/demand curve which is fundamental economics IS energy. because technology advances, because our businesses have gone global, because everything is becoming faster and better and improved, it all requires more and more energy.

we dont eat more and more bread per person. we use more BTUs.

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I've noticed several misguided attempts to quantify a substantial "investor" market benefit. It seems here unemployment, in the traditional sense, would not result in a "tsunami" but rather a "tidal wave". Please examine the latest economic data concerning job rates before entirely dismissing my argument:

figure3.png

The research is principled, and this argument is proven by the dynamics of the stock market crash. When FDR first declared a bank holiday, an unprecedented ripple effect was seen, heard, measured, and smelled throughout most of the 3rd-world upper class. Allow me to clarify -

a good example of your example being false is the airline industry. prices are going up and there are more flyers today than ever! the cost of doing business today requires international and national travel on an unprecedented scale. a major exception to the supply/demand curve which is fundamental economics IS energy. because technology advances, because our businesses have gone global, because everything is becoming faster and better and improved, it all requires more and more energy.

we dont eat more and more bread per person. we use more BTUs.

This concept of supply and demand is fundamentally skewed for several reasons. Technological advance, as a means to an ends, but not an end in and of itself a means, is not perceived as you describe. More precisely, in order to implement the alogirthm from previous economic trends, we need to identify certain operands and operators. We both agree, now, that the first operand may very well be the airline industry. But is it an operand AND an operator, in the larger context of socioeconomic determinism? The answer is a qualified "maybe".

 

On one side of the economic spectrum we have so-called "free personality": by definition it is possibly compulsive, but not necessarily. Free personality in economics has neither conflict nor dream. The desires of the populace, as we well know, are transparent, and this is part of the sine qua non of concious financial predictions; any discernable pattern would alter quanitity and intensity, which means these arguments in the end are asinine and unfounded.

 

There is little in them that is natural, irreducible, or culturally prescriptive. In all probability,the economic predictions create bonds themselves that are nothing but the mutual reflection of these self-secure integrities. Where is the hall of mirrors in a room full of radioactive waste?

 

If a new spirit is to be infused into this old country, the possibility of energy prices ever rising again is questionable.

 

It is up to the Australian people to carry out this ambitious act of economic reform. But this current form of pseudo-science is despicable.

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Othersider, I quite agree

 

3.1 inflation rates really ain't that bad if you consider the global deflation rates of the annual consumer income indices. Take the average of that, you'll find that a steady increase of about 21.3991% is not uncommon overall in the modern non-industrial sector. Non-modernized countries find that this growth is actually not in keeping with the incremental growth of beef and rice futures that trade in importing countries.

 

This has some very important implications in the growth evaluation discussion. Luxury items decrease exponentially in an inverse interest curve if you look at stagflation in the early 20th century - any 6th grade history text book covers that. Much to the Bush administration's dismay, the economic homogeneity that's usually desired in South Asian is being torn to pieces given the current energy situation. The simple fact is that we're finding some very unhappy farmers with nuclear reactors in their backyard who want to expand and eventually shut out the luxuries market.

 

As for currency, Othersider is again right on track. Currency markets dictate the overall trading discrepancies that can spring up in between non-aligned marketplaces, often as a byproduct of rapid globalization. Startling as it is, inflation is almost inevitable when growth follows an overall average decrease/increase curve. Alternatively, energy prices can interact and spike the current 10.2% average, diluting the overall market content.

 

It's pretty indisputable that luxuries flood the barriers that uneven globalization tendencies manifest. Computers are nice for classrooms and scientists but give one to the average consumer and he'll have no idea where to even start using it. Farming and currency futures provide more stable alternatives than so-called energy does. That's not a reason to stop using gasoline altogether, just to indirectly affect the decreasing average potentials to un-invert (re-re-invert) the growth declination. If we do that, we'd have a whole lot less of a problem with those pesky sunspots and a lot of diamond miners would be much happier.

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wow. gibberish.

did you steal that figure off the MIT fake paper generator? it seems oddly familiar... specifically signal to noise versus teraflops.

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Inflation Soars on Surge in Energy Prices By MARTIN CRUTSINGER, AP Economics Writer

44 minutes ago

 

 

 

WASHINGTON - Inflation at the wholesale level last month soared by the largest amount in more than 15 years, reflecting the surge in energy prices that occurred following the Gulf Coast hurricanes.

 

The Labor Department reported that wholesale prices jumped 1.9 percent in September, led by surging prices for gasoline, natural gas and home heating oil after the widespread shutdowns of refineries and oil platforms along the Gulf Coast. Food prices, which had been declining, posted the biggest increase in 11 months as the price of eggs shot up by a record amount.

 

Excluding the volatile energy and food sectors, the so-called core rate of inflation also posted a worrisome increase of 0.3 percent after showing no increase at all in August.

 

The news on wholesale prices followed a report Friday that consumer prices had risen by 1.2 percent in September, the biggest one-month increase in a quarter-century as gasoline prices at the pump climbed by a record 17.9 percent.

 

While the core rate of inflation at the consumer level was well-behaved, rising by a tiny 0.1 percent, the worry is that the sizable increases in energy will soon begin to spill over into more widespread inflation pressures.

 

A number of Federal Reserve officials in recent weeks have expressed such concerns. In a speech in Tokyo on Tuesday, Federal Reserve Chairman Alan Greenspan said the jump in energy prices "will undoubtedly be a drag from now on."

 

Greenspan did not quantify how much of a slowdown will occur, but private economists are forecasting that the hit from Katrina and Rita could shave as much as a full percentage point from economic growth in the final six months of this year.

 

Analysts believe the Federal Reserve, which boosted interest rates for an 11th time last month, will keep raising rates in November and December in an effort to keep the energy price surge from becoming embedded in more widespread inflation pressures.

 

The 1.9 percent jump in wholesale prices matched a similar rise in January 1990. The 1.9 percent jump has not been surpassed since a 2 percent jump in November 1974, a period when the country was coping with surging energy prices following the 1973 Arab oil embargo.

 

Over the past 12 months, the Produce Price Index, which measures inflation pressures before they reach the consumer, has risen by 6.9 percent, the biggest 12-month change since a rise of 7 percent in the 12 months ending in November 1990.

 

For September, energy prices jumped by 7.1 percent, the biggest one-month gain since a 7.5 percent rise in October 1990. The increase reflected a 12.7 percent rise in the price of gasoline, a 9 percent increase in natural gas and a 4.8 percent increase in home heating oil.

 

The price of food shot up 1.4 percent last month, reflecting a record 49.3 percent increase in egg prices. Vegetable prices rose by 16 percent, reflecting big increases for snap beans, tomatoes, cabbage, potatoes and broccoli.

 

Outside of food and energy, the 0.3 percent increase in core inflation was the biggest rise since a 0.4 percent increase in July. Over the past 12 months, core inflation at the wholesale level is up 2.6 percent.

 

The price of new cars was up 0.9 percent in September with the price of light trucks up 0.5 percent.

 

The PPI showed inflation pressures showing up at earlier stages of production. The price of intermediate goods rose by 2.5 percent, the biggest increase in 31 years, while the price of crude goods jumped 10.2 percent, the biggest increase in more than two years.

 

The concern is that businesses, which so far have held the line on passing on the higher cost of their materials, may be forced to start raising prices to cope with surging energy costs.

 

 

 

 

 

 

 

 

 

moral of the story - wages arent going up and the consumer must pay more for the carton of eggs. this recession will be redistributionist.

shu- you lose.

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http://economist.com/agenda/displaystory.cfm?story_id=5078354

 

IT BEATS the Oscars any day. For months, markets have been giving odds on who would replace Alan Greenspan when he retires at the end of January after 18 years as the world’s super-banker. The name that George Bush came up with on Monday October 24th was hardly a surprise: Ben Bernanke, once Princeton professor, recently Federal Reserve governor and currently chairman of the Council of Economic Advisers, was the odds-on favourite. But it did much to cheer dollar bulls. Waiting for the news to be made official, the greenback skidded as investors were forced to face Mr Greenspan’s official mortality. Hearing his successor, it rallied. Is Mr Bernanke good for the dollar?

 

Something certainly is. The currency has gained more than 10% this year, hitting a two-year high against the yen last week and a three-month peak against the euro. This is despite an American current-account deficit even wider than last year’s and apparently reduced enthusiasm among Asian central banks for dollar-denominated assets. Buttonwood was among those early in the year who expected the dollar to go every which way but up. How wrong can a columnista be? Why didn’t the currency behave as she told it to? Don’t deficits matter?

 

The answer seems to be that they do, but only when relative returns are not compelling and other news looks likely to be gloomy too. Coming into 2005, the dollar had been sliding, broadly since 2002 but specifically since the summer of 2004. Investors were worried that global economic growth, the highest in 20 years, was set to slow along with America’s. Asian central banks were propping up the US Treasury market, in an attempt to keep their own currencies from appreciating, and the word was that they wanted to diversify away from dollars. Though the Fed had started raising short-term rates in June 2004, the difference between the yield on three-month dollars and that on three-month euros was still only 17 basis points (hundredths of one percent) in December. The dollar kept slipping and, with their eyes on America's mountainous trade and fiscal deficits, a lot of people bet against it, including Warren Buffett.

 

How different things have been in 2005, thanks mainly to the widening gap between American interest rates and those of most other big developed countries. Despite hurricanes, higher oil prices and indeed higher interest rates, America’s economy has grown more strongly than most people expected. And Mr Greenspan’s Fed has shown an increasing amount of anti-inflationary zeal: it has raised the federal-funds rate 11 times, to 3.75%, and is likely to do so again on November 1st. In the slow-growing euro area, by contrast, the European Central Bank (ECB) has left its rate untouched at 2% for more than two years, while the Bank of Japan is still looking at virtually free short-term money. So investors have stopped worrying about America’s deficits and started salivating over the returns it offers.

 

Then there is the vanishing central-bank scare. Those who feared that Asian central banks would get tired of buying depreciating dollars, causing the currency to collapse and long bond yields to shoot up, have also had to think again. Though official statistics capture only a fraction of what the banks do with their fast-growing foreign-exchange reserves ($2 trillion higher since 2000), central banks are certainly a shadow of their former selves at Treasury auctions these days. The dollar has strengthened nonetheless, and ten-year bond yields are only a little higher than a year ago. Now that dollar bonds look a plausible investment, the central banks that used to buy them to foster their own export-led development have been able to retire, while private investors have stepped up to the plate.

 

So too, intriguingly, have the oil-exporting countries, whose current-account surpluses—far larger than China’s—cast a long shadow over financial markets these days. The impact of petrodollars on the ordinary sort is hard to pin down. Economists at Credit Suisse First Boston, for example, have calculated that for every increase of $10 a barrel in oil prices, the daily demand for dollars just to carry out transactions increases by $300m (though other transactions may be crowded out because energy-consumers don’t have money for both).

 

More important is where the petrodollars end up invested. Though credible figures are elusive, a fair whack has certainly found a home in dollar-denominated assets, some in corporate bonds and some in short-term paper. In the longer term, much of it will flow to Europe and Asia—to Germany, for example, which exports the kind of capital equipment the Gulf states need to develop their infrastructure. For the moment, however, the sharp rise in oil prices this year may well have helped the dollar.

 

Other circumstances, too, are boosting the greenback. The Homeland Investment Act offers American firms a tax break if they repatriate foreign earnings held abroad by the end of this fiscal year and use them for vaguely-defined useful things. After a slow start, more companies are showing interest. The total brought back is likely to be some $200 billion-300 billion, reckons Thomas Stolper, global market economist at Goldman Sachs, and about a third of it will have to be converted to dollars. There is probably another $30 billion still to come through the foreign-exchange markets. And another point: China’s mini-revaluation in July made it clear that the dollar had nothing to fear for the moment from a significant Asian realignment.

Handle with care

 

Yet if all this sounds too Goldilocks to be true, it probably is, for a couple of reasons. Any big upward movement in the dollar’s exchange rate is probably limited by the perception that there are sellers of dollars out there waiting for right price (central banks, especially). “Non-commercial traders” have longer net positions in dollar futures than almost ever before, on figures from the Commodity Futures Trading Commission—always a bad sign. As the dollar strengthens, American investors themselves are pouring money into foreign markets, which in time could blunt the greenback’s rise. Some of Japan’s normally risk-averse investors are stripping off their currency hedges to capture higher yields in America; they could flee at the slightest sign that the dollar is in trouble or Japan’s economic recovery is finally starting to lift the yen. And the euro has lost 12% in value since the beginning of the year. If the ECB starts raising interest rates in the first half of next year just as the Fed stops, it might gain it back.

 

So though many on Wall Street have raised their forecasts of where the dollar will be trading three to six months from now, fewer are as sanguine about the outlook in a year’s time. Much will depend on how Mr Bernanke handles his inheritance and how he is perceived to handle it. He has received a rare unanimous welcome from economists and politicians and, tellingly, from former students. But only time will tell whether he is as tough on inflation as his predecessor (who perhaps talked a better game than he played). He may well find the federal-funds rate at 4.25% when he takes office: high enough to do damage if the next move is the wrong one. For now, he has won the prize, and the plaudits. But he has miles to go before he sleeps.

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As for the economy, I wouldn't start to worry about recessions until the Treasury yield curve inverts...

 

Part of the yield curve inverted in February. Will it continue to have issues?

 

I've seen a few interesting things on TV in the past week. First, I saw an Invest Japan commercial on cable. Then today I saw Pat Robertson talking about the economy. He said the dollar will lose "substantial value" in the next few years. He also said he's invested in natural resources and gold.

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