Current Outlook for USD

[colinkites2000]

I noticed ElliotWave has a fairly strong sentiment towards an advancing USD coinciding with a depression and tightening of money supply. Ron Paul and Peter Schiff seem to think the opposite. Any economically fluent posters care to comment on the fundamental differences in these two outlooks and where you see things headed for the $$.

Cheers,
Colin

[freelance]

I noticed ElliotWave has a fairly strong sentiment towards an advancing USD coinciding with a depression and tightening of money supply. Ron Paul and Peter Schiff seem to think the opposite. Any economically fluent posters care to comment on the fundamental differences in these two outlooks and where you see things headed for the $$.

Cheers,
Colin

I can't count the times that the ElliotWave folks have been wrong when it comes to Gold. I wish I had saved all those predictions over the years.

[forsmant]

I have been receiving the Elliot wave newsletter for about a year. They called the top in pms back in March. They called the top of the stock market in October of '07. They also called the top of the Euro dollar exchange rate just before it turned around. The called the bull market in OIL. I dunno when you checked in on them but every time I do they are right.

[CzargwaR]

Natural economic forces are pushing the dollar up to encourage domestic savings and attract foreign investors. The natural forces acting here is uncertainty of the soundness of businesses.

Many businesses rely on credit to finance operations. Since credit is no longer easily available (presumably) businesses have to either show that they are generating revenues, or go bankrupt. Those businesses relying heavily on credit with little cash have to sell assets(financial, commodities etc...) to generate the cash to pay off their debt. This liquidation and asset sell off allows these assets at later point by other businesses more efficiently.

But going back to USD - massive asset sell off drives the prices down - deflationary force. When there's deflation, currency gains value because in the future it will take less dollars to buy the assets. Savers are rewarded. Spenders suffer

But now the Shiff/Paul scenario kicks in due to government/Fed intervention. Fed and the Gov't are duing everything against these forces. Fed is providing false liquidity with money created out of thin air so those businesses that rely on credit can stay alive (They should fail because they are not generating enough revenue to cover their debt). That's why Monetary base has increased so much in the last 3 weeks:

http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&s[1][id]=BASE&s[1][range]=5yrs

Banks are still just sitting on this cash borrowed from the fed because they are not sure if the previous money they lend out will come back, or if people will continue to withdraw cash or close accounts. Once the banks will have a sufficient cushion of reserves they will just lend the money out like crazy again. Can you say hyperinflation?

And the government: 900billion bailout package. Financing for this will have to come from issuing more treasuries. This will have to come from dollars currently sitting idle(saved up) here at home or in foreign institutions. Other central banks holding dollars in their vaults is exchanged for treasuries and government just spends it - money supply goes up - inflation.

Our government is a spender and a borrower - so inflation is in their interest.

TLDR summary:

Free market forces is deflation and stronger dollar

Government and FED actions - inflation and weaker dollar


Edit:Credit goes to Gonegolfin for information.

[forsmant]

If those banks don't start loaning it out, people are going to start defaulting because money is harder to get. Unemployment is rising and credit card defaults and alt a mortgages are going to get written down next. More banks will fail and further downward pressure on the dollar will mean more deflation. The feds will continue to attempt to stop this but they are powerless.

[dannno]

If those banks don't start loaning it out, people are going to start defaulting because money is harder to get. Unemployment is rising and credit card defaults and alt a mortgages are going to get written down next. More banks will fail and further downward pressure on the dollar will mean more deflation. The feds will continue to attempt to stop this but they are powerless.

The post before yours outlined a scenario where this occurs for a while until the fed is able to inject enough reserves for the banks to feel comfortable again.

Once this happens, after all that liquidation occurs and everybody goes out of business, the banks will begin lending again. This will create a false sense of economic recovery which will mean more loans, but without the suppliers we will have hyper-inflation.

Many people who say we are going to have hyper-inflation think we will go through a strong deflationary period first. In fact, I have always said that they are using this deflationary pressure to give them more power and money so that they can purposely cause hyper-inflation just to destroy the dollar. Whether this is natural or contrived, the situation seems plausible.

[forsmant]

You give those nerds at the fed too much credit. They don't know what they are doing. They are not all knowing and only control the base. That is the only thing increasing nowadays. It has potential for inflation but until the actually print dollars in will not be hyper inflationary. They cannot do that without the governments help. Hyper inflation is still deflationary as the currency ceases to be a unit of exchange.

[colinkites2000]

Thanks for the replies everyone. I have a much better understanding now. I was just reading at www.elpais.com about how "Necesitamos un nuevo orden financiero global" as the first big story. Maybe they are planning for a true free market? :| Right...

[jkm1864]

I sure hope its deflationary because the people still working will still be able to make it. Now inflationary screws everyone so thats not good at all. I sure hope I still continue working but considering its the offshore oil field I think its a distinct possibility unless the government forces price controls. The problem with an inflationary depression is the pay raises never keep up with inflation and its only a matter of time before you loose it all.