Ace:

This ties back to what I mentioned regarding the ensuing strengthening of the Dollar. Some thought I was wacky, but this is continued evidence that the US has the highest interest rates in the Industrial economies. And since these rates impact short-term debt restructuring, it makes this doubly important.

There are rumblings that the Euro will become an unstable currency, because the European Union is going to remove the debt and deficit requirements of their member nations. This will make the Euro much less stable. Or better stated, this will give investors reason to have less faith in the Euro, since the entire premise behind the Euro being a stable currency was the debt and deficit limits in the EU requirements.

Thus, the Dollar will strengthen. This is good for our economy. It also, as you noted, means that the Fed is confident enough in the economy that they believe that the rise in rates will not adversly affect the recovery.

Inflation is continuing to be low, and since the Fed usually raises rates because of fears of stemming inflation, this move is more of a correction to bring rates to normal levels and get rid of the free money that's been sitting out there for years.

It also give our Fed a powerful tool to stimulate the economy if need be in the future. If rates were still at rock bottom, you can't do a rate cut to stimulate the economy. Europe doesn't have this in their arsenal any more.

And hey, if you are a large corporation with lots of idle short-term cash sitting around (or a senior citizen who relies on MMDAs to earn interest income), then this will mean higher rates on those investments. Good news indeed.

Where's Joe?

The EU has already basically destroyed the Growth & Stability Pact (which set the debt limits) by letting Germany not count its "reunification costs" in its debt total. Hey, it's only been 15 years, right?

Erm, KCtrio, you sound like you know what you're talking about, but statements like this:

Thus, the Dollar will strengthen. This is good for our economy.

Again, not trying to knock on you, you appear to know what you're talking about, but oversimplifying economics tends to get people into trouble. :)

Carry on. :P

Nevermind exports... How big is our trade gap now anyway? Record levels? A strong dollar only makes that worse... foreigners can't afford to buy our shit - and we can afford to buy theirs, hence our trade gap gets even bigger.

Fat kid:

You of course are correct; a strong dollar has both good and bad ramifications for our economy, but I would argue that, in the aggregate, it is good in the singular sense that it makes our currency the dominant one in the world.

I put that there because there was a raging debate that went on about 2 weeks ago with people bemoaning doom and gloom because of our weak dollar, and I posited that the dollar was going to go up for just the reasons I layed out. Then Cedarford came in and bashed the holy shit out of me, in mocking tone, claiming that I was insane. Well, this is what people have predicted, and this is what happened.

A weak dollar is great for people that benefit from it in foreign trade and hell for people involved in foreign trade that benefit from a strong dollar.

And I'm not just talkling about currency hedges and foreign payment netting systems. I'm talking about import, export, raw materials and everything else. But people that focus on one aspect of international finance bemoan a weak dollar; others bemoan a strong dollar.

The bottom line is that we will experience tangible benefits from a stronger dollar and higher short-term borrowing rates in this country compared with our international competitors. Of course, there'll be losers.

My post was a follow-up to the foreign finance lunacy thread from a while back.

Loose shit, and glad you pointed this out.

No, its not cowbell worthy, in fact its downright bad news. And the fact that analyists predict oil prices to continue to rise for the foreseeable future is very bad news. The world eceonomy cannot sustain these oil prices forever before it goes into recession. So fasten your seatbelts folks, cause here we go again!

72Virgins:

Please don't start this again. This is what got us into trouble last time. The doom and gloom stuff must be measured against the big picture of things in terms of International Finance and global economics. I believe Birkel had some things to say about this, and there was some good dialogue.

I think there are pros and cons to this. World oil prices may or may not hit the number you've put there. But even then, one must look at real dollar prices (comparing price per barrell on a constant dollar basis). All oil contracts are denominated in dollars. This is why it is important to understand the ramifications of this, even on the oil front. First of all, there are many people predicting a drop in oil demand from China (in spite of what the latest AP story tells you). If this does happen, this yields directly to a drop in price. There are many other factors that are in play right now that portend a fairly stable oil price for the next 12 months. The geopolitical fear that caused prices to rise in 2004 are receeding somewhat, especially in the countries of Iraq, Nigeria, Russia, Venezuela and Saudi Arabia. Things have settled somewhat in some of these countries. Those are some of the factors to which I alluded to.

Americans pay more for imported goods when the dollar is weak. That's bad for the consumer. So how can you just flip a statement out like this and say that a strong dollar = horror? If there's growth in the economy, there'll continue to be so. A stronger dollar helps some and hurts others (importers and exporters, for one set of examples). All it means is that the type of growth (mix of growth sectors) may change.

Balanced monetary policy is good for everyone. Fast fluctuations (like a fast-falling dollar or fast-rising dollar), no one likes.

Fatkid:

I have a couple of statements to add to address more carefully the things you mentioned.

First, I never mentioned "super-strong" dollar, I mentioned stronger dollar. Two very different things.

Secondly, not to be flip, but what do you mean by: "Think about what that does to the yield curve via inflation."

In the world of treasury (cash) management, there are two definitions of the yield curve. This is taken from "Essentials of Cash Management, Sixth Edition."

General Yield Curve Definition:
How the market values a debt instrument in comparison with other similar securities that have longer or shorter maturities is revealed by the yield curve, which expresses the term structure of interest rates. A yield curve depicts the differences in yield of securities that are identical except for their dates of maturity.

1) Normal Yield Curve: The most common shape of the yield curve is upward sloping, reflecting the greater return over time that investors require to compensate for the increased price risk.

2) Inverted Yield Curve: An inverted yield curve slopes downward, indicative of a market situation where short-term yields are higher than long-term yields. Yield curve inversion happens infrequently and contravenes the usual condition that securities with longer maturities must offer higher yields. One theory explaining an inverted yield curve is that short-term uncertainties, such as an anticipated recession, shift investor preferences away from short-term instruments to those carrying longer maturities, driving down long-term rates.

Which yield curve are you referring to? Are you suggesting that fears of inflation are so high that people are predicting an ensuing, near-term recession for the US, and they believe that this is highly likely? Inflation is low. That's the point of why this move by the Fed is positive.

When bond investors expect the economy to hum along at normal rates of growth without significant changes in inflation rates or available capital, the yield curve slopes gently upward. When investors believe that inflation is going to go up higher, the curve becomes steeper. Where's the bad? High inflation is bad, but the yield curve is merely a reflection of high-returns on long-term investments (which may be caused by higher inflation). You worried about inflation, then worry about it. But to lug in the yield curve as somehow a bad thing is not accurate. Rather, it's a reflection of what would happen if inflation and long-term rates went up. Both of these scenarios are normal yield curves.

The inverted yield curve usually doesn't even begin to show its potential until there have been protracted quarters where long-term yields are the same as short-term yields. What usually happens is a flat yield curve, not an inversion. If inverted yield curves were common, you'd make a shit load of money if you saw it coming and stuck all of your money in long-term T-bills. And there are lots of people smart enough to do just that.

Doesn't happen that often.

Now, on to this observation of yours:

Nevermind exports... How big is our trade gap now anyway? Record levels? A strong dollar only makes that worse... foreigners can't afford to buy our shit - and we can afford to buy theirs, hence our trade gap gets even bigger.

Balance is the key here. You too quickly dismiss the benefit to the American consumer of a stronger dollar. Remember, consumer purchasing is a huge economic engine. Stronger dollar means cheaper prices for all Americans. Here's the effect distilled down to its essence:

Weak dollar=High export and low import activity. Strong dollar=Low export and high import activity.
Weak dollar=Higher prices for American consumers of foreign-manufactured imported goods. Also means cheaper prices for foreign consumers of American-made goods.
Strong dollar=Lower prices for American consumers of foreign-manufactured imported goods. Also means higher prices for foreign consumers of American-made goods.

You focus too much on the trade gap and too little on American consumer purchasing power. Sorry for the long post, but you asked me not to be too brief for risk of confusion or trouble, so you get long and detailed.

Oops - wasn't meaning to be flippant - I've been drinking so I'll save the response this deserves for when I'm sober - but I was referring to an inverted yield curve. The thing with th weak dollar is take a peek at our recent stock market returns in terms of other currencies (besides the dollar) - if you check these things out you see that foreign investors are idiots for not investing here. The currency adjusted returns are out of control for european and asian investors, the only thing freaking them out is Bushs' spending, which we can all agree is egregious.

In any case, I am grateful for your lengthy and well-informed post, and I apologize if my response came off as flippant - didn't mean it to be that way. All's I'm sayin is with economics there are two distinct sides to any situation - and in general saying a weak dollar is bad is kind of like saying "I only make money when the market goes up" - the flip side being you could short the shit out of everything... (why does Soros come to mind? :) ) - so..yeah... I'm on the road all day tomorrow but I'll try and come up with some clarifications and some talking points tomorrow night.

Again, thanks for the responses.

Fatkid (Do you really like that moniker? OK, it's different, so I guess I like it):

I didn't accuse you of being flippant, it was I who hedged my comments with that word. You, on the other hand, did not sound flippant. So no need to be concerned here. If I came across as flippant, please forgive.

You merely stated that you were afraid of something happening that may or may not come to fruition. I took issue with the specifics of your post; and, I also felt compelled to be more specific, since you did recommend that a more detailed exposition would be better than a short one. I agreed with that.

KCTrio,

Fat Kid likes that name. He has several others he goes by as well:

1. Round Mound of Shovellin' Food Down
2. Rotund Lad (not to be confused with Downtown Lad).
3. Husky Boy
4. The Conservative Oliver Willis
5. and, simply, Meat.

But hey, between friends? He's just Fat Kid. :)

Jack M.

Always there throwing me a poopie-head lifeline just when I need it the most. Nothing finer than poopie-head pest-posts.

They are precious gems, to be marvelled at by all in the Blogosphere. In aggregate, poopie-head pest-posts make for incisive commentary, vibrant discourse and gently welcome people of varying political viewpoints.

I think Mr. Bennett is really missing the profound depth of these comments that we make. Sort of like reading Blackstone's Commentaries, Chitty's Pleadings, Greenleaf's Evidence, Story's Equity and Story's Equity Pleadings. Read those and you can become a lawyer of the highest calibar without the need for a legal education (if it weren't for the Bar Association Nazis, you know). If those books were good enough for Abe, then they should be good enough for anyone.

If Bennett wanted to become an expert in things political, he'd only need to focus on the poopie-head pest-posts and ignore the lucid discourse, and he'd become a self-taught expert.

Perhaps a better analoy would be Aquinas's "Summa Theologica." If you ignore all the different arguments on a given topic that Aquinas compiles, and simply skip to the "I answereth that" paragraph, you get the gist of the entire book without having to fuck with the aggregation of arguments on every topic in that book. That cuts down the digestion of the book by about 80% or more.

And you, kind sir, have done just that: You've provided a rare poopie-head-enlightening-post that cuts straight to the heart of the thread.

Well done.

KCT,

Thanks..I think. :)

However, I have apologized to Mr. Bennett for my earlier untowards comments, and I meant it. I see no reason to begin assailing him for no reason in this thread.

As far as fat kid, though, anything goes. :)

Jack M.

That was a joke, nothing else. I never said one unkind word to Bennett, and I gave him a thoughtful explanation of why the Blog here had the mix of posts it has. Bennett interpreted that I was calling him a liberal elitist. I reframed my position, and he merely came back with the "poopie-head" stuff.

I would have appreciated some response to my stating to him that I wasn't calling him a liberal elitist.

So, instead of taking a swipe at the guy, I just used his words to try and be funny.

I wasn't smacking you down at all, just taking your comment and using it to make fun of the "everything here is poopie-head talk" accusation.

You did nothing wrong; you inspired me.

And Jack:

I was not pulling Bennett into this thread. I was only pulling the generalization of poopie-head preponderance.

So Bennett: Forgive me if I offended you. I wasn't. I was just using the words you and others used.

Take care, Jack M.

KCTrio

72Virgins:

Please don't start this again.
OK you gotta deal. The proof shall be in the pudding and we shall all see soon enough.

72Virgins:

Proof shall be in the pudding?

Not to go off on a dirty tangent...but, what the hell.

From Ace's Paul Anka take on the prison scandal, "The Guys Get Shorts."

Or maybe you're not ready for that. Maybe you're not ready to go full-on gay. Maybe you want your meat with some puddings. They've got tranny magazines too, Don.

Lord help us all if that is the proof you were referring to.

Good God, reading the first 2/3 of this thread, I got worried that Ace had fed all of your nuts to the new logo.

Thank you Jack for resoring some sense to this sorry lot of nancies.

Hobgoblin:

Am I one of those sorry lot of nancies? God help me if I am.

But I'm trying to play nice, since Ace was sort of encouraging us to be a bit less pissy and a bit more pussy (something like that).

What can I do to restore this horrific state of affiars?

I beg your guidance.

KC, were you reasonably and intelligently discussing the ramafications of an interest rate hike on the economy and the value of the dollar?

yes=nancy

I have to say that the remainder of the thread restored my faith in all of you.

After your last "pudding" comment, nothing need be done to redeem yourself.