Can someone smart answer this economics question?
So I read mises often, schiff's books, meltdown, etc...but I've only been at this stuff for 2 years so I still have a lot to learn and i'm young. One thing I'm wondering is for example, let's say the dollar index is 1/2 what it is now by next year. From what I understand that just means our dollar can buy only half as much of foreign currencies as it used to. So imported products become more expensive i assume? But my main question is what about the value of the dollar within the US. Can we only buy half as many products in the US from US producers? I don't think this is the case since the dollar has lost 96% of its value since 1913 but we still are a relatively rich country. But I couldn't be lead to believe we wouldn't be affected if the dollar index were halved, our living standards would have to come down somehow i would think. But how much?
And my other question is what is the tie between inflation and the dollar's exchange rate? I remember schiff saying in his vlog that they are one in the same, but this can't true can it, because some countries that have no or little inflation might still have a relatively weak currency? Like for example we've supposedly had no "inflation" (i know inflation really is increase in money supply but i'm talking price inflation) in the US since the recession, but at first everyone got into the dollar and put the exchange rate high, but now everyone is fleeing out, and the dollar I think is down 10% in the last 6 months.
Any help with these questions much appreciated.
lagging and forward looking ...
One must first realize, as you already have, the true definition of inflation.
The symtoms of inflation can be manipulated, at least in the short term.
Now consider the ultimate rule of supply and demand.
The Sovereign funds along with the central banks of this world, especially the ones long on the dollar, can still, in the short term, manipulate supply and demand for the dollar to minimize loss.
As a result ...
You can have price decreases ...
You can have price increases ....
Additionally, there are some assets that act more free than others.
For example; Real estate can not be transported ...
And there is reletively low liquidity in this market especially in this environment.
Here is the 800 pound gorilla sitting in the room ...
If food prices continue to fall then world consumption is still falling ....
This will be very very bad if it is allowed to continue. There will be a collapse. A very quick collapse. And a worldwide revolution will result. The reason for this is that deflation penalizes the people that touch the money first the most and it also penalizes the most levered the most. It just so happens that the financial institutions are the ones that touch it first and are also the most levered. Because of this very un free market phenominon ... they will pass this cost down on a levered basis and force the burden on the rest of us. Just like they always do, but this spiral can be very rapid. Gravity accelarates on the way down and deccelarates on the way up. This is a good analogy.
Because of this ... this will not be allowed to occur.
They must inflate prices and deflate prices.
A slow ebb and flow until stablization occurs.
The problem with this is that they are quickly starting to run out of tools to manipulate a slow decrease in standard of living.
If they run out of tools before stablization is achieved, then there will be a collapse and revolution anyways.
If they achieve their goal then they will fend off the worse case scenerio, but it will be at the expense of our children and their children.
Eventually, the piper has to be paid.
The question is, on whose watch?
So I wish to conclude by answering your questions ...
The value of the dollar is relative and the importance of this is directly proportional to the amount of true freedom we have in the worldwide market place. In the past not so much. Now, not so much. In the near future, no one knows. There are no truly free goods or services including gold and especially including real estate.
In the distant future freedom will prevail. How far in the future is the thing we are trying to manipulate.
The other answer is quite simple ...
Since currency, all world currency, is manipulated by central banks and Sovereign funds ...
Increasing the supply of dollars will tell you absolutely nothing about the exchange rate in the short term.
But it tells you absolutely everything about the exchange rate in the distant future.
WAHOR!!
http://www.dailypaul.com/node/48994
WAHOR!!
http://www.dailypaul.com/node/48994
Declining Dollar
The decline of the dollar means American purchasing power will decline. The size of the "basket" of goods and services that can be purchased with the same amount of dollars will shrink. It matters naught where the goods came from.
We are already in the midst of spectacular inflation. See:
http://www.federalreserve.gov/releases/H3/20091001/
check out the "Monetary Base".
We have huge price inflation although it is mostly contained in commodities and assets. Since last year, oil prices have doubled, the stock market is up 25%, AIG, GM and Citi all have market capitalization greater than $0, Fannie and Freddie are still liquid, 10 year Treasuries are still yielding under 10%, Gold is over $1050. The Inflation is already here!
ANY ATTEMPT BY THE FED TO SOAK UP THE LIQUIDITY WILL CRASH THE ECONOMY.
http://goldsteinrepublic.com
Oil
Oil is a major input to just about any product, from transportation of raw materials, to transportation to retail, to transportation home, to being a raw material itself (to make plastic). The U.S. imports most of its oil, so the price of everything would go up -- not double, but by the proportion of foreign inputs, most especially oil (but also other raw materials).
The only thing that wouldn't go up would be the organic farmer who bicycles his produce to your local farmer's market that you can walk to. But even that would go up because the farmer would be lured into raising his prices since his competitors would have higher prices to cover their increased costs. And the organic farmer would want the higher profit margin to pay for all the other things (clothing, etc.) that would have higher prices in a low-dollar-index world.
Study the "petrodollar". The U.S. has propped up puppet governments like the House of Saud in order to force oil to be sold in fiat dollars across the world. It was a good ride for 40 years, but now the gig is up, and the House of Cards is crashing down.
This is on the money. Literally
The issue fundamentally has to do with our overall standard of living. We have falsely propped the dollar to maintain the illusion of our current standard, but it is not sustainable in our global economy based on oil. Oil is the root of the "World's standard of living". Every item that you trade with someone else -your labor, your goods, services, etc.- along with "their" labor, their goods, their services are fundamentally valued based on the market price of oil. Oil moves all things, Oil builds all things, Oil feeds all things. It is the ultimate commodity and is essentially a currency unto itself. What the dollar will do is move toward its true value relative to the market price (scarcity factor) of oil.
The actual impact to all of us will have a composite factor. The costs for you to supply your labor will go up and the costs of everyone else's labor will go up making it feel much worse than just the dollar going down by 1/2.- i.e. you will be spending more to produce your goods and services and spending more to buy goods and services.
There are 2 solutions to this conundrum. Accept a significantly lower standard (we are going to have to pay off what we have already bought) or develop a replacement for oil that is cost competitive and has the volume capacity to supply energy demand on a similar scale that oil provides globally. The only energy supply that has a higher per unit output than oil is uranium (nuclear). Nothing else known to man (at this time) comes close. And I do not see any political will to "Go Nuclear". Therefore our standards will drop (significantly).
Oh- there is a 3rd option....sell your labor to a market in demand like China/ India / Russia. This might offset some of your lost purchasing power.
The price of locally produced goods will go up too
Why? Easy. All prices are connected in the economy. For example, if a U.S. resident produces goods to be sold in the U.S., many times they buy products made overseas to be used as resources in the production process. For example, orange juice produced in the U.S. is sometimes made with oranges produced in Brazil, so when they buy the oranges from Brazil, they will be more expensive because of the devaluation of the dollar. This increase in prices will affect the cost of the final product, so the delicious Tropicana juice will become more expensive, even though it is produced here.
Think of very essential things like webpages. Many U.S. companies employ people in India to make their webpages. These essential service will also be more costly due to the devaluation of the dollar. And of course, it will increase the prices in the U.S.
The price increases in food and other essential services will affect close to every producer in the U.S., so now the higher prices expand to the whole economy.
What is produced completely in the U.S.? Not much these...
days. In other words, everything goes up. If no jobs exist or the jobs that do exist cannot keep up with this coming inflation, we will starve and get real cold.
Asia is in control now. They have all the money.
We lost the Monopoly game!
Not the smartest....
and only been studying Austrian Economics for a year now but what my guess would be is that your correct in your logic. dollar index 1/2 of what it is will only allow you to buy yourself fewer currency of other countries. therefore all imorted goods would go up, Domestically prices would rise as well considering we import a majority of our energy. I think Schiff also mentions an influx of dollars... Foreigners realizing they are holding depreciating dollars will start liquidating and in turn be competing with our domestic transactions. I think thats the "chickens comming home to Roost" expression. as far as dollar exchange rate and inflation there is a lag affect. If anyone wants to correct me or add something please do...
the price of everything will
the price of everything will go up..
A prudent man foresees the difficulties ahead and prepares for them; the simpleton goes blindly on and suffers the consequences. Proverbs 22:3
A prudent man foresees the difficulties ahead and prepares for them; the simpleton goes blindly on and suffers the consequences. Proverbs 22:3
Matthew 10:34 Think not that I am come to
send peace on earth: I came not to send peace,
but a sword.
very insightful
how long did it take you to come up with that...lol
bump for someone
smart to answer his question.
Prepare & Share the Message of Freedom through Positive-Peaceful-Activism.
I'm not an economic guru by
I'm not an economic guru by any means but yes, the majority of imported products would be more expensive, of course depending on the exporting countries currency rate at that point in time compared to the usd.
Would we be able to buy half as many products? Not every product, it's a competing market and exporting countries such as china realize that if they are selling 1 million chinese televisions in the US this year at $500.00 each, and next year they trying to sell at $1,000, they would fail. More profit is to be made at the lower price because there is a larger market of consumers. But when it comes to smaller items such as 20oz sodas, they have went up in price like .30-60 cents here in the past year or so...and they are still going strong, I suppose the price difference depends on the market of each product
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