November 2008

The Decline and Fall of the Dollar Empire

The Japanese made an unusual suggestion the other day that was largely ignored in the American press.

Japanese economists, increasingly concerned that the United States might seek to pay its enormous and growing debt obligations in a weakened US dollar, are looking to the possibility of US Treasuries being issued in yen.
...
As the yen strengthens, the effective value of debt held in dollars will decline, a fate that yen-denominated Treasuries would escape.

This idea isn't new. President Carter issued bonds denominated in German Marks and Swiss Francs when the dollar's value was in doubt during the high inflation of the late 70's. Now there are new questions being raised about the dollar, but this time the concern isn't inflation - its default.

The debate is over: deflation is here

CPI just declined a full 1% in October. This means we have had -1.5% deflation in the last three months. The Panic of 2008 is officially the first deflationary bust in almost 60 years.

As I have explained previously, every time there has been 1.5% deflation or greater, going back almost 100 years, we have been in a deflationary recession.

What comes around goes around?

This is a cross-post from Grist.org. I thought that the Economic Populist readers might be interested in the intersection between manufacturing and the environment -- please tell me what you think

How to save Detroit

Irony of ironies, the one set of products that could save G.M. is the one that G.M. destroyed -- the electric trolley systems of America. According to the well-known research of Bradford Snell, G.M. killed the electric trolley, because in 1922 they decided that the only way to increase car sales was to eliminate the competition, decent public transit. So they bought systems, pressured railroads and banks, bought public officials, did whatever they could to replace electric -- I'll repeat that, electric -- transportation with oil-based transportation.

Doing everything to avoid solving the real issue

Jim Kunstler of Cluster[bleep] Nation gets to the heart of the matter, as far as the Global Financial Calvinball approach to the banking/credit crisis goes:

Alas, the financial impairment is still on-going world-wide and has quite a ways to run before it's finished working its hoodoo on the so-called advanced economies. The lame duck US economic posse so far has done everything possible except the two things that really matter: allow the fraudulent securities at the heart of the problem to be exposed to the light of day to determine their actual value; and allow those companies who trafficked in them to suffer the full consequences by going out-of-business. For the moment, they're content to shovel cash into the truck-bed of every enterprise in America that shows up at the Treasury loading dock.

Producer Prices decline 2.8% in October!

Producer prices for finished goods declined (-2.8%) on a non-seasonal basis in October, a much greater decrease than expected. On a year-over-year basis, the rate of producer price inflation has declined from 9.8% in July to 5.1% in October. We can expect this decline to continue when this month's number is released in a month, because producer prices had increased 2.6% in November 2007 alone.

This is a slice of good news. Typical post-WW2 recessions have ended at roughly the time when both the rate of producer price and consumer price inflation are declining (check), producer prices are declining faster than consumer prices (almost certainly check), and producer price inflation is less than consumer price inflation (not yet, but maybe in a month). That means producer profits margins are increasing, which makes business expansions more likely.

Cross your fingers that the decline isn't simply measuring our trajectory towards a full-fledged deflationary spiral.

So Much for Trade Reform From Obama, or Maybe Just Media Story Plants

We now see reports that any trade reforms around NAFTA will be delayed by an Obama administration, due to the Economy.

After he becomes president in January, Obama will order a study on the world's largest trade agreement, then seek longer- term negotiations with Mexico and Canada on how to change it, according to three advisers, who spoke on condition that they not be identified. The recession, the collapsing auto industry, a record trade deficit with China and other issues are pushing Nafta aside, analysts and industry representatives said.

Pages