House of Paine

price change and dollar exchange

there seems to be 
    a confusion here

in the public ham hocking
over the dollars decline 
against say the euro 



===============


here's are small giant booby 

" 
Nearly all of the increase 
in public debt over the last four years
 -- some 1 trillion dollars -- 
has been financed by foreigners, 
lending us the money. 
But who wants to lend more and more 
to a drunken sailor? 

Foreigners are bailing out of dollars. 
Even the Chinese and Japanese,
 who have kept lending 
so we’ll keep buying their exports,
 are starting to wise up.

American exporters are cheering
 because a lower dollar 
makes everything they sell abroad cheaper.

 But it’s bad for the rest 
of us because 
as the dollar drops
 everything we buy from abroad 
-- including oil -- 
becomes that much more expensive. 
And these higher prices 
will ripple through the economy,
 threatening inflation and higher interest rates 
-- and, ultimately, 
reducing our living standards"

  well booby none of this is at all that straight forward
you are dealing in phrases as old dean would say
that are
"clearer then the thruth"  

----------------------------
taking them in random order...


first off
there's the interest rate spike

the media go at this 

   like well

this

the dollar falls to a point where
"foreigners demand a higher rate of interst
 to comp them for the loss of relative value"

 well

why get to that point

take bobby above

if indeed its the nipo-han cartel thats scrafing up these excess dollars (thru their nation's large surplus with uncle )
at a certain exchange rate 
and then buying treasury bonds and notes 
why ?

why not ?

what should they do with em different ?

if they think the dollars falling against the euro 
which it damn well is
and that the dollar interest rate is not higher then the euro bond rate enough to comp em 
then sure 
they can buy euros 
sending the euro to dollar deal 
lower faster 
hey maybe they're doing some of that 
but i doubt thats what the euro economies want 
they want the dollar to stop falling and the yen and yuan to start rising 
but the y-y cartel say
no no 

we want low price position to fuel our exports

besides it ain't as bad as it might seem 
if the dollar economy haslittle  inflation 
the purchasing power of their dollar bonds 
   is not changed much
long as they have that much uncle junk worth buying

and hey worse case
the gooks by
up timberland and  super busy 
urban cross section corners 

heres a fact 

 even if the dollar 
comes unhinged and you can't get any eurosto take  a dollar
still  your dollars 
 can be  spent to buy american  stuff

hey this ain't thailand 
gettin caught holdin bahts is another story 

look at it this way

dollar trades 
one  for one with
100 yen today 
then the perfect shit storm hits uncle

the dollar tanks in one second 

now the dollar trades for 50 yen 

if the dollar economy raise prices 
immediately 
         by 100%
the yen folks face no real purchasing power advantage 
in trading in their yen for dollars 
at the new rate 

but their dollar holdings 
are now worth 
half what it was
in dollar economy goodies

see thats the croaker

the change in  dollar prices 
on american junk

moral 
before you transact
check out both

the dollar decline rate 
and the dollar inflation rate 

the difference is the real purchasing power  adjustment

practically speaking

how did the dollar drop so far ( 30% against the euro)
in the same period interest rates
 were also falling

because interest rates 
among other relationships
are " perhaps"
 inflation related

but since  inflation has remained negligible 
thru this decline 
there has been no need to consider rate increases 

point two 

"everything made over seas 
gets more expensive as the dollar falls "

the argument:

inflation in the dollar economy
is effected  by exchange rates
 thru foriegners
raising import prices to get the same home currency prices 

but what 
if import prices aren't rising
what if importers hold the price line more or less?

then there is no link 

now to a very large exstent
         foreign corporations 
to hold their dollar econmy market shares
heavily damp their price response 
to a dollar exchange drop

if like the drug companies 
they have effective price setting powers
in each seperate currency market they are in 
then
they will set prices 
differently in different markets
as a matter of course

even after variations 
in real cost are thrown in 
these price sets will be based
on a calculation 
so simple as 
 same net margin 
from sales in all markets
as figured  in home currency 

that would be required to get bobby's
 above "everything "

this is an area where gut intuition 
dosn't exist
but foolish text book  analytic models 
give off black and white signals

 great for homilitics
like booby spins

but not good  science 
and definately 
 not straight forward  policy guides 

examples of price spreads:

for the U.S.
our  drug companies 
patsy charge us all
 twice what canadians pay 

japs pay more 
for  home built toyota's
 then ohioans  

get the picture

the real
 MARKET SYSTEM
HAS  COMPLEXITY 
part the real nature of costs and profit functions
and part
the reality of a finite dynamical system
"finding its way " 

things don't relate
in linear fashion 
and intuitively obvious results
are not only modified
 but  
 even in the same cases reversed 

the system producing the opposite result of what is expected 
and not because of random independent shocks
but because the real actions of the agents and players
are not as the model specifies 

so fuckin watch out
no matter how big 
they claim their computer is
and how complex and detailed 
their model 


theres plenty of reason and past evidence
that the global system we have today 
CAN  ALLOW
UNCLE TO DROP THE DOLLAR
SIGNIFIGANTLY 
 AND NOT IMPORT INFLATION
OR SPIKE THE INTEREST RATE

JUST LOOK AT THE 6 YEARS AFTER 
THE PLAZA ACCORDS OF THE MID 80'S
 FOR A GOOD ENOUGH PRECEDENT