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phaishazamkhan
2007-Oct-24, 11:54 PM
I like reading about financial stuff. A while ago there was an article about the PRC using their investment in the US dollar to stop the revaluation of the yuan by reserving the right to use their financial nuclear option (http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/08/07/bcnchina107a.xml).

Now the outgoing head of the International Monetary Fund says the dollar will collapse on its own or with the help of outside forces (http://news.yahoo.com/s/afp/20071022/ts_afp/imfeconomyforexdollar_071022192726).

How likely are these situations? I'm sure the Chinese situation is unlikely because if you owe a bank $100 and can't shell out then you're in deep trouble but if you owe a bank $1,000,000,000 and can't fork it over then the bank is in deep trouble. To me, the latter article is just a warning rather than a declaration of imminent collapse.

So why ask the people on an internet astronomy board? They might know a bit more than Ben Bernanke. Hopefully Jim won't deem this too political and lock it down before the first response considering his recent modding.

Noclevername
2007-Oct-25, 12:03 AM
Hopefully Jim won't deem this too political and lock it down before the first response considering his recent modding.

I don't think it was the OP that made Jim do that, I think it was some of the responses in particular. So keep your suggestions politically neutral, folks!

Van Rijn
2007-Oct-25, 12:18 AM
I don't think it was the OP that made Jim do that, I think it was some of the responses in particular.


Perhaps, but I think the OP of that thread was fishing for a political response. As for the U.S., I wouldn't be surprised if we had a recession before too long, but that's about all I'd expect. Recessions happen now and then. *shrug*

phaishazamkhan
2007-Oct-25, 12:24 AM
Perhaps, but I think the OP of that thread was fishing for a political response. As for the U.S., I wouldn't be surprised if we had a recession before too long, but that's about all I'd expect. Recessions happen now and then. *shrug*

Yes but the fiscal prognosticators have been making it seem quite dire and final as if they were, and I'm hope I'm using the term right, woo-woos crying twenty twelve. Hence my curiousity.

The Backroad Astronomer
2007-Oct-25, 12:30 AM
If something happens it will be over by 2012.

Van Rijn
2007-Oct-25, 12:37 AM
Yes but the fiscal prognosticators have been making it seem quite dire and final as if they were, and I'm hope I'm using the term right, woo-woos crying twenty twelve. Hence my curiousity.

There are always some doomsayers. Meanwhile, I think back to Black Monday (http://en.wikipedia.org/wiki/Black_Monday_(1987)), which looked pretty scary for a little while. But how often do you think about it today? Depending on age, how many even remember it?

Noclevername
2007-Oct-25, 12:40 AM
It shouldn't be a major problem if you invest wisely. Put your money into canned goods, shotguns and underground real estate... :D

KaiYeves
2007-Oct-25, 12:41 AM
If something happens it will be over by 2012.
Then I won't feel so bad about taking a Gap Year.

Ronald Brak
2007-Oct-25, 01:30 AM
It's possible that some posters know more on this topic than Ben Bernanke. However he has been working as an economist since 1979, has written 4 textbooks and has published many papers, so it seems unlikely, but you never know.

Firstly there is no doubt the dollar will collapse slash fall, the only question is it going to be a collapse or a fall and how you define collapse. There is a perhaps a 75% chance the dollar will have a "soft" landing where it falls, but not too rapidly and doesn't generate a big panic. And perhaps a 25% chance of a "hard" landing resulting from a financial crisis. You want to avoid a hard landing if possible.

Note that if the U.S. dollar "collapses" this means it falls suddenly in value in relation to other currencies. It does not mean that U.S. dollars ain't no good no more. What it does mean is that imports will become more expensive and U.S. exports will become more competitive. Millions of people will need to move into export substituting industries. If this happens gradually it may not be too painfull. If it happens suddenly there could be massive unemployment. Imagine the economy as a snake. If it swallows an enormous drop in the dollar it's not going to move until it that huge structual adjustment has worked its way through its system.

Ronald Brak
2007-Oct-25, 02:22 AM
Looking at the latest U.S. housing figures there is a 100% chance there will a be a rates cut in the immediate future and a 40% chance that there will be a recession or that the U.S. is in a recession now.

mike alexander
2007-Oct-25, 04:07 AM
I understand China is moving to the lead standard.

Also remember that economists are attempting to predict the future. Generally, they are better at predicting the past. After the recession comes, they will be able to explain why it happened. Because they will be able to look back along the branch of history actually travelled.

So, diversify your portfolio, pick up bag of Doritos and a copy of Dr. Strangelove, kick back and enjoy.

Noclevername
2007-Oct-25, 04:16 AM
It's possible that some posters know more on this topic than Ben Bernanke. However he has been working as an economist since 1979, has written 4 textbooks and has published many papers, so it seems unlikely, but you never know.

How accurate have his predictions been? His track record's more important than how many books or years, IMO.

Ronald Brak
2007-Oct-25, 04:25 AM
How accurate have his predictions been? His track record's more important than how many books or years, IMO.

Actually it's not. You can have a hundred cranks making predictions about the economy and out of that hundred a few of them will appear to be accurate entirely through chance. A good track record in this case consists of not trying to make predictions from sets of data that are often basically random walks. Think of him as a doctor who advises a patient that to be healthy they have to avoid smoking and junk food and get regular exercise, rather than a witch doctor who can predict the day you'll have a heart attack. Basically, the question is does he act like a scientist or like a woo-woo? And to my knowledge, in his professional life, he has always acted like a scientist.

Noclevername
2007-Oct-25, 04:31 AM
And to my knowledge, in his professional life, he has always acted like a scientist.

That's the problem, most economists act like scientists working from completely different theories, and I don't know enough about them or their subject to say which one's right, if any.

Ronald Brak
2007-Oct-25, 04:59 AM
That's the problem, most economists act like scientists working from completely different theories, and I don't know enough about them or their subject to say which one's right, if any.

I imagine this is how many people feel about the lunar hoax issue. I would suggest two things. Look at their credentials and see if they are a working economist or simply a lobbyist, shill or woo-woo. And also check if they are giving their professional or personal opinion. And if they represent an institution you should consider the reputation of that institution. For example do they represent Harvard or the United States government?

mike alexander
2007-Oct-25, 05:09 AM
And if they represent an institution you should consider the reputation of that institution. For example do they represent Harvard or the United States government?

Nicely done!

Ronald Brak
2007-Oct-25, 05:23 AM
Thank you, but please note my two examples are only examples. It's up to the reader to decide how trustworthy those individual institutions may be. I don't want people to conclude I'm passing any sort of judgement here, reguardless of what I may personally think.

mike alexander
2007-Oct-25, 06:14 AM
Which was exactly my understanding: The Lady or the Tiger?

Or the Aardvark, maybe.

Ronald Brak
2007-Oct-25, 07:05 AM
It's not the chimp.

Ivan Viehoff
2007-Oct-25, 09:03 AM
That's the problem, most economists act like scientists working from completely different theories, and I don't know enough about them or their subject to say which one's right, if any.
I'm an economist. A lot of economic theories aren't too many steps up from reading the tea-leaves. Though it depends what you mean by theories. The theories are rather high level (if the price goes up, all else being equal, demand goes down - that's about the level of a theory in economics - it doesn't produce a prediction to 6 decimal places like a theory in physics, indeed the best it usually does is predict the sign of a number). At a lower level I think we have methods rather than theories. And the main shortcoming of the methods is lack of information. (What is the sensitivity of demand for X to price, not just now at the current price, but at all times at all prices? Be nice to know that but you never do.)

At the largest scale, eg, the whole-economy models which central banks and national finance ministries use for setting their macro policy, the models typically used are known to have shortcomings, for the following reasons.

People's behaviour does, and rationally should, depend upon their best estimate of the future, what we usually call their expectations. Suppose you are a major player in the economy, say, a central bank, or government. You need a model in order to form your expectations, and set your policy. Other agents in the economy know you do this, and they know what the prediction of your model is, because you publish it. They will set their own expectations and choose their actions based upon that. It can be shown that their collective action in doing that will typically act to subvert the prediction made. So the model can't be right. The prediction of the model, used as a basis for policy formation, is self-defeating.

There is a method called "rational expectations", in which you try to explicitly model the expectation formation process, so that the prediction will not be self-defeating. People have tried to build rational expectations models of the economy, but they don't work. So banks and finance ministries carry on using models of a type known to produce self-defeating predictions.

Ivan Viehoff
2007-Oct-25, 09:08 AM
Duplicate post deleted

ASEI
2007-Oct-25, 10:43 AM
If the value of the US dollar drops, and domestic industry becomes more competitive than imports, then how would that lead to a drop in employment? Not that employment can increase all that much, since we appear to be at full employment +/- the usual margin of college students and job-transitions right now?

Ronald Brak
2007-Oct-25, 11:55 AM
If the value of the US dollar drops, and domestic industry becomes more competitive than imports, then how would that lead to a drop in employment? Not that employment can increase all that much, since we appear to be at full employment +/- the usual margin of college students and job-transitions right now?

When there is a sudden change there can be a thing called structural unemployment. It's called this because the structure of the economy has changed. As the dollar falls the U.S. will need to move more people into jobs where they make goods to replace those that have become too expensive to import. The changeover can't happen all at once but will take time. If Jim Bob and Betty Sue (these are good American names, yes?) lose their jobs in the construction industry then with the lower dollar there should be jobs in manufacturing they could take. However Jim Bob and Betty Sue might need training in new skills first, they might need time to find new jobs or move to areas where jobs are available. Employees might need time to tool up factories, they may be hesitant to hire until they are sure demand is there and so on. In the long run things will return to equilbrium, but a lot of painful adjusting might have to go on first. This is why it is better for the dollar to fall gradually than all of a sudden. It gives time for the economy to adapt without a large structural employment problem.

Argos
2007-Oct-25, 12:08 PM
It's possible that some posters know more on this topic than Ben Bernanke. However he has been working as an economist since 1979, has written 4 textbooks and has published many papers, so it seems unlikely, but you never know.


My country is governed by the 'creme de la creme' of the most prestigious universities in Brazil, the US and UK. But see how far weīve got... It is China thatīs sending a probe to Luna...

I really donīt think there are big geniuses in economics.

Ronald Brak
2007-Oct-25, 12:17 PM
I'm not suggesting that Bernanke is a sighted man in the land of the blind. I'm suggesting that he is as blind as the rest of us but smart enough to check out things with his stick before stepping in it.

Click Ticker
2007-Oct-25, 03:30 PM
Everybody has something to sell. Many economists like to get their names in print, because if they do - they'll sell more books when they publish.

How does one get their name in print often? Would it be by predicting calm rational markets with minor ups and downs for years to come, or would it be by predicting a collapse in the dollar and a pending recession?

Let's see - the prediction was made by the outgoing head of the international monetary fun. So what's this person going out to do? Make a living on their own perhaps? Publish a book in the next couple years? Go on the speaking circuit? Anybody pay attention to who the head of the international monetary fund was before said person decided to make a doomsday prediction on their way out the door? Would a little media name recognition help you book that next event? Make a bold but not impossible prediction and you've got instant name recognition.

Larry Jacks
2007-Oct-25, 03:55 PM
When there is a sudden change there can be a thing called structural unemployment. It's called this because the structure of the economy has changed. As the dollar falls the U.S. will need to move more people into jobs where they make goods to replace those that have become too expensive to import. The changeover can't happen all at once but will take time. If Jim Bob and Betty Sue (these are good American names, yes?) lose their jobs in the construction industry then with the lower dollar there should be jobs in manufacturing they could take. However Jim Bob and Betty Sue might need training in new skills first, they might need time to find new jobs or move to areas where jobs are available. Employees might need time to tool up factories, they may be hesitant to hire until they are sure demand is there and so on. In the long run things will return to equilbrium, but a lot of painful adjusting might have to go on first. This is why it is better for the dollar to fall gradually than all of a sudden. It gives time for the economy to adapt without a large structural employment problem.

A cheaper dollar does make our exports more cost competitive. However, there are some things that we import (e.g. oil) that become more expensive. Oil is currently priced on the international market based on the dollar. If the dollar goes down too much or becomes unstable, oil exporting countries might change to another currency such as the Euro. Then, when the dollar declines the cost of oil automatically increases. I wonder how much of the current price of oil is due to the dollar going down in value.

There's also another factor - the amount of imported goods that go into the products that we then turn around and export. For example, a great deal of computer chip fabrication is now done in other countries. Those chips are used in a host of American made products (microprocessors are just about everywhere). If those chips become more expensive due to the devalued dollar then it drives up the cost of our products. It wouldn't be easy to bring that production back to the US anytime soon.

korjik
2007-Oct-25, 03:57 PM
If Jim Bob and Betty Sue (these are good American names, yes?)

Technically, no. Those are names representative of the American South, not good generic names.

:)

Ronald Brak
2007-Oct-25, 04:11 PM
Technically, no. Those are names representative of the American South, not good generic names.

So it's a regional thing and the U.S. hasn't adopted the Russian habit of adressing people by their first and second names.

Click Ticker
2007-Oct-25, 04:12 PM
Technically, no. Those are names representative of the American South, not good generic names.

:)

I had a teacher that would always use the names, "Joey" and "Suzy".

John and Jane Doe typically work in the US.

Now back to your regularly scheduled topic.

Ronald Brak
2007-Oct-25, 04:20 PM
Everybody has something to sell. Many economists like to get their names in print, because if they do - they'll sell more books when they publish.

When an economist does write a book that is woo-woo it gets savaged by other economists. (It may seem like very polite savageing, but for those who know the code the authors are often intellectually ripped to bloody shreds.) Dow 36,000 is an example of a book that was woo-woo and was savaged by other economists. Now this savaging may not stop woo-woo books from selling, but it does let you spot them.

Noclevername
2007-Oct-25, 04:51 PM
...I keep thinking of the film Trading Places where Eddy Murphy's character (a con man) was an instinctive genius at predicting the market because he read the players, not the cards, so to speak. Most economists seem to scrutinize the cards, what ink they're printed with, the grade of paper and the shape of the Jack's left eye.

Cougar
2007-Oct-25, 05:13 PM
Also remember that economists are attempting to predict the future.
Predictions are always difficult. Especially about the future.

mike alexander
2007-Oct-25, 10:46 PM
Excellent summing up, Ivan V.

One big difference between physics and economics is that atoms can't think. As you note, thinking tends to throw a spanner inthe works.

Launch window
2008-Jul-08, 01:11 PM
Dow Jones, S&P500 and Nasdaq these three major stock market indexes move in sync with each other, which makes their message clear and the message is not good. Oil has jumped from about 28 dollars to 140 dollars. The accounting books are not good, an increase in government spending can be paid for in one of three ways, we can raise taxes, we can borrow the money, or we can print the money needed to finance the spending, by the end of this year the famous debt clock created by real estate man Seymour Durst is set to break, it will be broken because it will have run out of numbers.

Launch window
2008-Jul-29, 02:04 AM
McCain and Obama tax plans are criticized
http://www.latimes.com/news/printedition/asection/la-na-taxes24-2008jul24,0,217480.story


The nonpartisan Tax Policy Center says that both candidates' proposals would increase the national debt by trillions and may make the system more complex

this nonpartisan group implies both candidates are going to inherit a pretty fragile economy
:(


Stocks in the United States tumbled on Monday as financial shares were battered by fears of more turmoil in the credit and housing markets.
http://www.radionz.co.nz/news/business/124368b96af8


Oil prices also rose more than 1%. US oil for September delivery gained $US1.47 to settle at $US124.73 a barrel.

Federal regulators seized two more failed US banks late last week, triggering a triggering a sharp sell-off in financial shares. Major indexes down more than 2%.

Merrill Lynch was down more than 11%; Citigroup by more than 7% and Lehman Brothers was down more than 10%.

Two weeks after the Federal Deposit Insurance Corp seized IndyMac Bancorp Inc, the Office of the Comptroller of the Currency said late on Friday it had closed First National Bank of Nevada and First Heritage Bank NA of California..


pain not just in the USA but around the world

Financials, Nippon Steel Stumble In Tokyo
http://money.cnn.com/news/newsfeeds/articles/djhighlights/200807282116DOWJONESDJONLINE000599.htm

Japanese stocks fell sharply early Tuesday, with financials such as Mizuho Financial Group declining after a Wall Street sell-off overnight, while Nippon Steel Corp. dropped on reports of a fire at its Kitakyushu plant.

The Nikkei 225 Average shrank 2% to 13,088.19 and the broader Topix index tumbled 2.6% to 1,266.85.

Australia's S&P/ASX 200 shed 0.9% to 4,877.30 and New Zealand's NZX 50 index gave up 0.3% to 3,245.43. South Korea's Kospi lost 2% at 1,565.83.

Shares of Mizuho sank 4.1% and Nomura Holdings Inc. skidded 4.4% in Tokyo on persistent worries about the health of the U.S. financial and credit markets.