James Pethokoukis

Politics and policy from inside Washington

A bullish case for the US dollar

Jan 12, 2010 14:15 UTC

Ed Yardeni expounds:

I’m not sure, but it seems to me that the dollar is the best of a dodgy breed. The Old World nations–Europe, Japan, and the United States–have rapidly aging populations. Their outlays on social welfare are rising faster than their GDPs. Their dependency ratios–the number of retired persons supported by each worker–are taking off. This suggests to me that the dollar, the euro, the pound, and the yen (DEPY) might all continue to be good shorts relative to gold. (See Figure 5 in our Gold chart book linked below.) Gold is widely viewed as a hedge against inflation. More broadly, it is a hedge against out-of-control debt-financed government spending.

The currencies of the New World should also continue to outperform those of the Old World. While the economies of the Old World are likely to stagnate as a result of the expansion of their social welfare states, the economies of the New World are likely to continue to rapidly improve their standards of living. The proliferation of free trade and globalization should continue to boost prosperity in the emerging economies of Asia, Africa, the Middle East, and Latin America. As discussed below, China is leading this charge and pushing up commodity prices. Australia, Canada, South Korea, and Taiwan are included in my New World paradigm.

COMMENT

May this new year really be the time for economic growth and development for all.

Tracy, Velocity Fulfillment

Explaining Obama’s strange bank tax

Jan 12, 2010 14:08 UTC

The WH wants to tax banks to pay for the $120 billion that TARP may end up costing taxpayers. A few thoughts:

1) Remember that most major banks have repaid their TARP capital injections, earnings Uncle Sam a decent return.

2) The tax would apply to these banks. For the biggest banks like JP Morgan, it would cost them $20 billion a year over the next five years.

3)  The tax would not apply to the folks actually losing the government money: AIG, the automakers and homeowners.

4)  The WH wants to banks to loan more but it also wants to suck up $120 billion in capital. And it is unclear how the WH would prevent this costs from being passed on to customers through higher borrowing rates.

5) Right now, the chances of this happening are less than 50-50.

6) A cynic might say that this is all an distraction by a WH seen as too cozy with Wall Street and whose financial reform plan neither limits the size nor complexity of banks. As it is, its financial reform plan is stalled in the Senate.

COMMENT

Hmmmmmmmmmmmmmmm.
lets see, the government prints the money, the banks use the money, the tax payer borrows and repays the money plus interest with lower value dollars.
Hmmmmmmmmm, clear to me.
But one simple question: If the tax payers have to pay higher loan rates with lowered value dollars, ,then they will borrow as little as they can- if at all.
The net result is few new loans.
Hmmmmmmmmmmmmmmmmmm????

Shouda let the titans fall and the thrifty would have emerged as the new top species on the planet.
You know, like when the dinosaurs made way to the mamals.

Sounds clear to me.

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