Lately I've thought maybe I should have majored in Economics. It might have been interesting, except I suspect some level of mathematical skill is required. However lately in my Internet readings I've ran across interesting punditry and factoids about what's going on with our national economy, and what I can glean from what I'm reading tells me my hunches have been more than hunches.

Why is it if I keep hearing on the 7:00 p.m. news that the stock market is going gangbusters there are also reports that consumer confidence is slumping, and Christmas retail sales weren't what was expected? The devaluation of the American dollar against other currencies is the answer.

According to one Internet forum pundit, the Federal Reserve used to publish something called the "M Report" (something like that). The M Report announced how many dollars were out there in the American economy, and how much the Federal Reserve was printing. This was used by European reserves to adjust the rates of...blah blah blah...because our money hasn't been based on the actual value of gold since the 1940's, of course.

This guy said that the Reserve stopped publishing the M report in March of 2006, but still publishes data for the mathematical formula the report was based on. This fella said the Federal Reserve has printed 11% more money lately than it has in the past. That's great news, isn't it? Money is everywhere! "Grab that cash with both hands and make a stash!" Except when money is everywhere, it doesn't have any value! (Source: some guy on DemocraticUnderground.com.) Someone commenting on the slump in home sales said that with the tax cuts Bush has put in for the top 5%, plus the money we've borrowed from China to cover the shortfall, we're going to see inflation like never before, so high that you'll soon make $20 an hour flipping burgers, "...but it won't be as exciting as it sounds because gas will be $10 a gallon." (Source: some guy on USAToday.com.)

Of course you can find unqualified people predicting Doomsday on any ol' forum, right? But last night Jim Cramer of CNBC's "Mad Money" verified what these guys were saying on "Hardball". It's all bared out by the fact the American dollar is now worth half the English pound! I don't follow exchange rates on a daily basis but I'm pretty certain the American dollar has always been the most powerful currency going in my lifetime. Cramer went on to say that this will encourage other countries to buy our products because they'll be comparitively cheap (so we're kinda like China and Indonesia now. Wonderful.). He went on to say, though, that this means companies who export are going to do great, but local small businesses -- the ones Republicans claim to be the defenders of -- are going to be doing crap. Jim Cramer finished up his appearance on Hardball by saying he expects the stock market will go up 2,000 points by December, yet we'll be in a recession. Sounds sensible.

The CNBC guy's opinions backed up something I heard Democratic strategist James Carville saying several months ago that I had written off as sour grapes. Someone on CNN said the stock market was going great and he said, "It would have to go up another 15,000 points to be where it was (in Bill Clinton's time)." I thought that was horseshit, until what Jim Cramer said and what the Democratic Underground guy touched on: if the dollar is worth half the English pound now, then in real money the points on the stock market are worth half what they were worth. As the DU guy put it, say in 1992 one share of the Dow was worth 45 ounces of gold, and now it's worth 19. So you can buy stocks for less! But they're also selling for less -- they're not worth as much! So you can say, "The stock market is up 20,000 points! A record high!," but it's only 10,000 in 1990's points! So Carville wasn't sour, he was dead on.

(SIDE NOTE: Back in the `90's you could buy a USA-made Fender Telecaster guitar for $600. In England having a USA Fender was a status symbol because they were pricey over there due to the exchange rate and import tax. Now I see regular ol' Fenders going for $1,200, even $1,300. But in England cut the price in half due to the dollar/pound exchange -- they're worth 600 pounds!)

Another Democratic Undergrounder pointed out that while a weak dollar might make our products more attractive to foreign buyers, if the American dollar is cheap enough why stop there? They can buy our means of production! The United States of America -- sold, bought and paid for, just like George Carlin predicted.

EDIT: So still...if the stock market is doing so well, why is consumer confidence down? Why do I still feel like we're in the recession. Because the companies in the stock market are not rooted to the American economy. They may have a home office here, but the plants are in China and Taiwan, and the product is bought in Europe. So they're doing great but its relevance to the solvency of America is small. In the 1950's Procter & Gamble doing well meant the USA was doing well, but in the global economy this is not so.

I found all of this fascinating and wanted to share.

1 Comments:

 nulabs71 said...

>> Lately I've thought maybe I should have majored in Economics.

It's never too late Brother Howard. You'd be amazed at how much more enjoyable school is when your older.

1:05 PM, May 01, 2007  

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