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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

September 8, 2009 at 10:00 AM

Investors set aside their dollars: Good, bad and ugly

Top of the News: There’s “good” falling dollar and “bad” falling dollar, and the question is which one we’re seeing?

As the dollar hit a new low for the year, we’re probably watching both. With the worst of the financial crash averted, investors are moving out of dollars into stocks, commodities and the wonderful new “innovations” our friends on Wall Street are brewing.

That’s good in as much that it showed 1) even with all our troubles, the dollar was still seen as a safe haven; 2) investors are feeling freer to move capital into what one hopes would be productive, job-creating roles in a recovering economy, and 3) a cheaper dollar should help American exporters, which is especially important in Washington state.

So what’s the downside?

Unfortunately, a “bad” dollar selloff hovers out beyond the warmth of the “recovery” campfire. America is heavily in debt at all levels, putting pressure on the dollar as global reserve currency. Much of the world has a stake in continuing the dollar’s primacy in this role, but there’s just not much more give on this credit card — especially with America producing far less of value to world markets.

And the big, bad unknown is inflation. The Fed, rightly to my mind, chose the fight potentially catastrophic deflation in the fall and winter by, as Chairman Ben once put it, throwing pallets of shrink-wrapped dollars out of helicopters. The danger to this monetary expansion is inflation, which would make dollar-based assets worth less, and thus less appealing to investors. We’ll see.

The Back Story: If you missed it, check out this arresting interactive chart on job gains and losses in metro areas over the past several years. Back in 2004, sprawl-happy Phoenix and Vegas are big winners, while Seattle is tepid. In mid-2007, Seattle is winning big. By 2009, the job losses look like the impacts from a nuclear war video game, and the construction- and financial services-dependent metros have the biggest craters.

Today’s Econ Haiku:

Stay in school, earn more

Obama’s “subversive” talk

And the bottom line

Comments | More in Dollar, Jobs/Unemployment

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