The Demise Of The Dollar And What To Do About It

[randallscott35]

Originally Posted by gales0678

Rnadall - correct me if i am wrong , but, i think the savings rate in this country is based on after tax dollars - so it is not including payroll deductions into 401k's and 403'bs and standard ira's. If we added those figures in the number would probably increase greatly. Back in the 50's and 60's the savings rate was high because people didn't have te ability to put in pre-tax dollars into mutal funds, they just put $ into the bank. The savings rate also does not include capital gains - so if you bought 100 sahres of exxon and paid $50 a shrare and now it is at $75 a share you are wealthier by 50 % on that $, but, that does not show up in the savings #'s published by the gov't.

Personal savings rate is based on disposable income, so yes your after tax income is basically subtracted from everything you consume...The end result is the savings rate.

You aren't wrong on stocks but realize that investing in the stock market isn't saving. The idea that stocks go up indefinitely is simply wrong. That's why buy and hold is a fallacy. Those who invested in Cisco in 2000 may get even in 2012 if they are lucky. Also consider that as the value of the dollar gets debased, you need to make a higher % stock gain to offset the decreasing currency. But if you are lucky enough to make money in the market---- most people end up spending their paper gains in stock. Heck, if your stocks are up 10 grand, you feel comfortable to spend 5 grand on a vacation. Meanwhile you haven't sold a thing or saved anything. The only years with a negative savings rate since '32 and '33 were 2005 and 2006. Part of this is unquestionably the wealth effect which in '05 made people spend based on the increased value of their homes. But as home prices have started to decline, you can't cash out on your home anymore and those with ARMs as loans are really feeling the pinch.

I guess my point here is that rainy days do happen. So a negative savings rate is really rolling the dice.

[randallscott35]

Yes, a Randall sighting. I post only on economic message boards as I've gone back to really what my background is. Love the ponies but I'm transfixed by what a cluster**** situation the economy is in.


This thread was started on May 8th of '07. Since then the dollar has weakened another 8.5%. Oil has gone from 65 to 100. And gold has gone from 680 to 870. The XHB, Homebuliders Index is down by half. All this has happened in the span of 7 months. The pundits like to point to an up market for '07 which is ridiculous. Use the gain against inflation+dollar decline and you'll see you lost money and purchasing power in '07.

I have a deli I go to everyday to eat, one of the best in New Jersey. The owner is a close friend. In the span of 6 months his wheat prices doubled. This is unheard of, he's never seen anything like it in his entire life. Look at eggs, milk, etc... The grocery store story I used in my original post simply came about far faster than I ever thought was possible. And realize the rosey inflation figures they like to give you ex out food and energy. Why? Well who wants to hear what real inflation is. Plus, the cost of living increase in Social Security each year is partially based on government figures for inflation and wage earnings....Quite a nice reason to lowball the numbers, right? The rest of the world isn't stupid which is why they are selling the dollar like there is no tomorrow.

So what's next? Well you saw unemployment tick to 5% this morning and the market tank. First let me say, I hate using the stock market as a proxy for the economy. Because it is figured in nominal terms, so much of economic weakness is hidden. Plus that unemployment rate is artifically low. Many people have stopped looking for jobs. The birth death model puts about 125,000 new jobs a month to keep up with population growth. Thus, when people get goosed by a decent jobs number they should take that into account.

Where do you go from here? Well people scream for rate cuts, mainly to save housing, because people used it as an ATM machine and a negative savings rate with a declining home value = death....That bailout plan on subprime was laughable by the way. It will help very few and simply slow the process of foreclosures. It also makes banks not want to lend with the government able to fix rates whenever they feel like it.

Now to the banks. Their balance sheets are an absolute joke. Back in August when TSHTF some of these banks chose to give writedowns in dribs and drabs. Citigroup for instance had an earnings report which literally looked like an Enron sheet, complete with a complete lack of transparency for the amount of derivatives tied to subprime loans. Since August they've gone down the shitter. And who knows what their writedowns will be going forward. I don't. You can hope that the Middle East guys flush with cash will keep cash infusions going to these banks. Give them a floor? Maybe, but its short term. And its not like they'll keep doing it when their investments continue to go down in value which they have. Bank of America gave Countrywide an infusion in August based on an 18 dollar share price. Seemed like a good deal at the time, right? Well now CFC is 8. Not a good return on investment is it.

So going forward: The FED cuts but that's not the problem. It isn't a lack of money, its a lack of lending. Who wants to lend from bank to bank when you don't know if you'll get paid? Meanwhile the cheaper money floods the system and raises everything from wheat to meat to oil to gold to fertilizer etc. etc.

Truthfully, I am bumping this(and making an appearance) because it is still so important that people realize what is going on in the economy...So if you feel like talking economics with me, I'm looking forward to doing so. It affects us all, no matter what you do for a living. Randall

[herkhorse]

Thanks for the post Randall. You have my vote for president.

[GBBob]

I regret that it took a while to find this thread because it is fascinating reading...even for an economic layman. The ticking time bomb in my World is the continuing devaluation of the RMB and the lack of focus that US retailers have given it. All major chains either refuse cost increases or hold "auctions" for low bids and keep assuming that Asia is a bottomless pit of yearly cost decreases. That is so over. The lead paint issues that surfaced this year are just the tip of the iceberg over what will happen in the next 3-5 years as China factories demand currency and labor cost equality. There are three supposedly "immoveable" parties here...the factory, the retailer and the consumer. One is about to give in a big way and everyone will feel the consequences.

I expect exporters will have a good roll.
We have been the ultimate consumer nation
for so long. Maybe this will cause us to save
more and produce more for demand in other
nations.

Lots of technostuff we make much better than
any other country. And I think we are just touching
the tip of the techno iceberg. Little stuff coming.
Nano-technology as one small example could have
a huge effect on so many things. In the field of
medicine no one touches this country.

The number of new machines coming out to measure
so many diff. medical problems. I see a big upside in our
ability here. I could go on. I am a science guy and I
have never seen so many incredible leaps (a few of which
might actually lead to some technological advance.)

I also see the economy of other nations causing huge
environmental problems. China and India are going to
experience serious health problems in their work force.
They might looking for solutions we already have sitting
but no reason to use quite yet.

Oil and inflation could be a long term blessing in disguise.
I feel this will lead to genuine ingenuity in energy.

But I could be very wrong. Nice to see you post again.