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Jon Talton

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

Category: Dollar
October 8, 2012 at 10:30 AM

October, beyond the election

Whatever happens in the American electioneering over the next month, here are a few things to watch that touch only peripherally on the campaigns:

1. Slowing in Asia. The World Bank today lowered its growth forecast for East Asia and the Pacific region, chiefly because of China’s ongoing slowdown and lack of effective stimulus. This will have a direct effect on the Pacific Northwest because of our trade dependency on Asia (China is Washington’s No. 1 export destination).

2. The eurozone. Yes, this is getting old, but it’s not getting better. Greece is still in the monetary union, barely. Germany continues to resist more aggressive measures to restart growth. Austerity is causing a deep recession in many eurozone nations. It’s amazing how far they can kick the can down the road. But the best outcome on this trajectory is a long downturn complete with social unrest. The worst: A sudden crisis that causes all the dominoes to fall down.

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Comments | More in China economy and business, Debt ceiling debate, Dollar, Eurozone, Federal Reserve, Interest rates, Macro/Big picture, Oil prices, Outlook, Pacific Northwest economy, Politics and the economy, Stock market

November 8, 2011 at 10:05 AM

Exports prove to be the one green shoot that took

U.S. exports have not only rebounded to their pre-recession levels, they are 10 percent above where they stood when the downturn started. This, even though they dropped faster than GDP during the worst months of the Great Recession. They came back faster than the overall economy and have been the one bright spot in an otherwise somber landscape.

For one of America’s most trade-focused states, this is no small thing. Washington’s exports recovered to $53.4 billion in 2010 from a “trough” of $51.9 billion the previous year. In 2008, they hit a record 54.5 billion vs. $36.7 billion in 1999.

Professor Jay Shambaugh of Georgetown University sees the growth mostly driven by world demand, especially in Asia, because the dollar’s moves can’t explain the rebound. He argues that this makes it clear that the slow growth in the overall economy is indeed a result of a deep demand hole left by the Great Recession, and not because of over-regulation or high taxes.

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Comments | More in Dollar, Trade

September 23, 2011 at 9:52 AM

The gain and pain from the dollar

To hear the media echo chamber tell it, the United States is “broke.” The markets see it differently, as investors are fleeing into Treasury bonds, which have the lowest yields in 60 years, and into dollars. This is good and bad news. It means that America remains the world’s safe haven in hard times, with the ability to borrow massive sums (say, for a real, job-creating stimulus) at very low interest rates. A strong dollar allows us to continue to borrow in our own currency — the world’s reserve currency — and for Americans to retain relatively strong purchasing power.

The downside is that the strengthening dollar makes U.S. exports less competitive by making them more expensive. This also hurts employment. It also lays bare the strategy of emerging nations, especially China, that keep their currencies artificially low in order to boost their exports.

Now, however, as the world hovers on the brink of another recession, central banks are having to intervene to prop up their currencies. The alternative: See their own purchasing power and value of assets priced in their currencies circle the drain as investors and companies flee developing economies for the safety of the dollar.

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Comments | More in Dollar, Federal debt/deficit

December 31, 2010 at 11:00 AM

Markers for the economy in 2011

Before I wobble-off to the martini-infested precincts of New Year’s Eve, here are some things to watch in the coming year. It’s not a forecast, but rather some important focal points that will have an outsize bearing on how the economy performs. Add your own in the comments section, and have a great New Year.

1. Will growth in gross domestic product translate into robust job creation and better wages for more Americans? One forecasting firm sees growth next year at 4.4 percent, a rate that traditionally would have caused large spurts of hiring. In recent years, GDP and the Dow have told less about the condition of average Americans. We’ll see how offshoring of jobs and much leaner, and more profitable, companies affect the old GDP-jobs calculus. Little in the forecasts indicates that the relatively stagnant average wages of the past three decades will change. And even the most optimistic GDP forecasts still mean years of high unemployment?

2. Will the stimulus of extending the Bush tax cuts, including for the richest Americans, offset or even outweigh the falling off of the real stimulus enacted in 2009? If history is a guide, they will, at best, make the rich richer but not produce many new jobs. But maybe this time is different. Still, it will be fighting the headwinds of states losing federal stimulus money, projects winding down and the end of Census hiring,

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Comments | More in Banking, Deflation, Dollar, Energy, Eurozone, Federal Reserve, Global economy, Great Recession, Income/living standards, Jobs/Unemployment, Macro/Big picture, Outlook

October 14, 2010 at 2:50 PM

Helicopter Ben helps get the dollar chopped up in the currency markets

It was an interesting day in the currency markets, as in, “may you like in interesting times.” Rupert Murdoch’s Wall Street Journal had an online headline saying, “Specter of Stimulus Spurs Run From Dollar,” as if we’re to believe the socialist Comrade Obama will unleash a trillion dollars to build high-speed rail, research centers, renewable energy industries, productive infrastructure, job retraining and the like.

Dream on. The dollar was driven down by perceptions of large-scale QE — quantitative easing — by the Federal Reserve. Through its rococo mechanisms, the central bank essentially prints more money. This may make credit more available in the domestic economy — maybe — but it also destabilizes other currencies, especially those linked to the dollar, and risks devaluing dollar-based assets.

But more is going in. This is partly fallout from the failure of major nations to reach an accord on currencies, especially China’s unwillingness to join the free-market club. The result: Other nations are going their own way, too. Singapore tightened its monetary policy, making its dollars more appealing to investors who are worried about a de-facto devaluation here.

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October 11, 2010 at 10:00 AM

Nail guns into the housing coffin; wealth inequality, and a dollar mystery

The week begins with Wall Street trying to hold onto the Dow’s 11,000 mark and the hangover from the freeze in foreclosures because of sloppy/fraudulent paperwork. Nearly every economic event has winners and losers, so those facing the loss of their property have gained time, perhaps a great deal of it. On the other side, the housing downturn will be even more prolonged, with consequences fanning out across the economy.

As I’ve written before, the old housing boom is not coming back. The foreclosure freeze just puts a glacier atop the other forces that will prevent it.

With the house no longer a piggy bank, wages stagnant and most Americans not partaking in the trading in world capital markets, what’s an average Joe or Jill to do? Move to Sweden, according to a provocative piece in the Baseline Scenario. It looks at the actual historic high in wealth inequality, measured against what Americans estimate the disparity to be, and what they consider to be an ideal distribution.

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Comments | More in Dollar, Housing, Income/living standards, International economy, Jobs/Unemployment

September 30, 2010 at 9:45 AM

Three quarters in, and economy’s still sending signals of fragility

As the third quarter slouches across the finish line, many of the worst fears of early summer weren’t realized. Deflation did not break out. A double-dip recession did not happen. The Eurozone did not collapse. Commercial real-estate’s sickness did not become a worse drag on the economy.

On the other hand, no magic optimism rescued the labor market. Unemployment remained acute, particularly for younger workers, minorities, older workers who had lost a job and those in many distressed industries. Five unemployed workers are chasing every opening. In addition, the weak recovery is sending more people into poverty and income inequality, which was already at levels not seen since the 1920s, is increasing. The real pain and general anxiety is creating an unstable political environment even as it seems to paralyze political leaders from meaningful action.

The Dow rose some 8 percent in September (we’ll see how it ends the last day of the month). Bullish analysts saw it as a sign of fresh life in the expansion. Other observers, also using a word with “bull” in it, pointed out a fresh infusion of money from the Federal Reserve, which was mainlined into equities via low interest rates and was no real vote of confidence in the economy. Interestingly, or ominously, gold stayed above $1,300.

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Comments | More in Amazon.com, Auto industry, Banking, Deflation, Dollar, Eurozone, Federal Reserve, Global economy, Housing, Income/living standards, Jobs/Unemployment, Microsoft, Starbucks, Stock market

July 9, 2010 at 10:00 AM

Deflation — there, I said it. Here’s why we should be concerned

As any econ geek can tell you, deflation is a “sustained fall in the general price level.” Now, stay with me and don’t flee to the hockey news. Beyond that, definition is a very destructive force that causes the value of goods, services and assets to fall and keep falling. It’s not a relative thing, such as a pullback in the rate of inflation (that was the disinflation we saw in parts of the 1990s). Deflation just keeps on coming.

Most Americans alive today have no memory of the deflation in the 1930s. The only upside was to make money more valuable, if you could get it. But it was devastating for job creation, capital formation, just keeping a business going, world trade and anyone who lived dependent on investments. Deflation was the engine of the Depression. Our distant memory — and obsessive fear among policy-makers — is inflation. But not too long ago few people in the market had any memory of the difficult pre-1984 investing environment. They thought the bull would run forever.

Deflation is back as a fear, and not only among bears such as Robert Prechter, who has been forecasting this for years. It tallies more than 6 million entries on Google. Nouriel Roubini has been warning for a couple of years of “stagdeflation.” As the Eurozone struggles with its banking and debt crisis, it must reassure the world that deflation won’t happen. Commentators even argue about “good” and “bad” deflation.

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Comments | More in Deflation, Dollar, Eurozone, Federal Reserve, Great Recession, Macro/Big picture

July 7, 2010 at 10:00 AM

What’s behind China’s reassurance on Treasury holdings?

It certainly didn’t hurt the market today to get a reassuring statement from Beijing saying its large holding of foreign reserves was not “a nuclear weapon” and the more than $900 billion in U.S. Treasury debt “should not be politicized.” In other words, the idea that China would use these as a “threat” is false.

For years, one doomsday scenario has had China dumping its dollar reserves and refusing to buy more Treasuries, as well as corporate debt, sending the global economy into a tailspin and over-leveraged America into a Depression. (A cynic might say, we’ve been doing a fine job of that on our own). But the apocalypse storyline has one big flaw: Such a move would prove just as devastating to China.

For one thing, China’s holdings are a critical state investment. The last thing Beijing wants to do is see their value fall, even on the perception that our friendly Chinese bankers might cut us off at the bar and confiscate our keys. Their Treasuries have done well as the world has rushed to them as a safe haven lately. The historic imbalances between the two countries have been, perhaps, short-term benefits for both, allowing China’s rapid growth and America’s cheap imports (but also unsustainable bubbles). In the long term, they are dangers to both countries.

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Comments | More in China economy and business, Dollar

June 21, 2010 at 9:35 AM

China meets low expectations with revaluation, but it may be enough for now

China’s modest move to allow appreciation of the renminbi is driven as much by politics as by economics. It might allow American politicians to say they “got tough with China,” even though this hardly means the Chinese currency is actually floating and assuming its true market-based value. It gives China cred headed into the G-20 meeting.

In economic terms, the renminbi has remained at a stable peg against the dollar throughout the Great Recession, not only to protect Chinese manufacturers and exporters, but to retain the value of the country’s huge foreign exchange holdings. Without the social safety net that Western countries enjoy (until the deficit hawks have their way), China is extremely dependent on job creation and retention to keep social peace. Thus, keeping the currency artificially low to spur exports will remain an imperative.

American critics who rightly argue that the low renminbi hurts exporters and jobs here are unlikely to be silenced. New York Sen. Charles Schumer criticized China for backing off a pledge to end the peg to the dollar.

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Comments | More in China economy and business, Dollar, Trade

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