Wednesday, November 01, 2006

A Whole Lot o' Dollar Manipulation Goin' On?

Sirchartsalot has got some interesting information in this post that conjectures a few underhanded slights-of-data on the part of some central bankers (most notably, Japan) to prop up the dollar. I repeat the word "conjecture," because I'm certainly not sure that Sir Chart has got his own data correct, never mind his hypotheses.

[Thanks to for this great photo, with the caption: "Why Women Live Longer Than Men. And, yes, that's a MIG welder that he's using right under the gas tank."]

But in the same spirit as my exchange with Idaho Spud from my before-last post, I'd like to throw out this viewpoint to add to the debate. If there is some dollar-propping going on, then the outcome will likely be all the more distructive. I don't think that's ever been pulled off successfully, at least not yet. But who knows? Maybe they're getting the hang of it.


Blogger Idaho_Spud said...

Nice graphic. If everything came together just right, this guy could conceivably win *two* Darwin Awards!

Katy, I wonder if you could impose on you to briefly comment on this blog post.

The reason I ask is because this fellow seems very dedicated to the proposition that he expects deflation in *everything*, commodities included. He makes some very convincing points, one of them is that joe sixpack can't *afford* to pay higher prices.

Seemingly it all comes down to whether or not the Federal Reserve (and other central banks, as you mentioned) decision to drop helicopter money. That decision would have to be brought on by a serious crisis, like the "Great Depression - part 2" wouldn't it?

I don't see that - as yet. Everyone who isn't paying attention thinks that everything is going swimmingly :)

6:34 AM  
Blogger Katy said...

I don't read this guy as saying commodity prices will deflate, although of course that could happen. I read him as saying manufacturers' raw materials prices have fallen, and some of those materials may be commodities, but some are not. My index of commodities (the CRB) is not showing any real and permanent falling as of yet, although it fluctuates.

The rest will depend on the dollar, as we discussed earlier. If the dollar drops, expect commodities to rise further. It is the demand/supply ratio rise that pushes commodities prices up higher, but it is also the speculators who cause the commodities market to rise when inflation expectations rise.

On the other hand, joe sixpack's salary is rising, according to the stats (in general, although yours, your buddies', and/or mine may not be), so according to some pundits, he *can* afford to pay a little more (at least for now), and indeed this is what is saving our GDP from tanking at the moment -- that plus the fact that liquidity (inflating) is not leaving the system and there's still cheap money to be had. Furthermore, the Fed is reluctant to tighten this liquidity out of the system as long as the general economy is not giving signs of booming. Apparently, they can stand the bubbles, but not the booms, which is why I think they prefer not to raise rates and why I'm down on the dollar and bullish on gold, et al. Or put it this way: They've been able to convince the masses (which includes most of the professional economists) that these "bubbles" are not really bubbles. They couldn't do that with a booming economy, however.

The Fed's stance could change at a meeting in Frankfurt soon -- see my October 31 post -- but I doubt it will. I believe that they can't, given the Catch 22 position they're in, described in our previous discussion.

The decision about helicopter money, I think, will come as soon as the marketplace begins to show serious signs of worry about the economy, and that may be well before Great Depression II sets in. If it doesn't happen, and everyone sits tight and waits this out, the Fed can continue to do nothing for a while. On the other hand, markets can seem irrational (although their emotional "instability" is based upon collective reasonable men's expectations), and the sense of foreboding could come any day. This is unpredictable. I refuse to speculate here.

The only time the Fed would raise rates is if the economy (as seen in GDP and CPI, remember) heated up further, which it seems not to be pointing toward doing in the immediate future. Lacker is the only Fed hold-out in this direction what with the lackluster GDP. He's on our side, but he's a loner and a courageous man -- although he could be a savvy man, positioning himself for the future if things go awry.

10:28 AM  
Blogger Katy said...

PS: There is also the approaching elections. If Democrats begin to show strength, as they seemed to be doing until recently, the marketplace will begin to be fearful. In fact, this may already be factored into this week's stock market hesitancy and into gold's sudden rise yesterday and today, alongside the global dollar doldrums. Of course, this could be just a temporary glitch. Markets are unpredictable, especially in the short term.

10:36 AM  

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