Friday, May 02, 2008

Is the worst over yet?

How the world works presents some economic excerpts that paint an almost optimistic picture of the economy. Only time will tell if its delusion or foresight.

6 comments:

K T Cat said...

I've seen quite a few posts like this with good data to back it up. There was one called "Dude, where's my recession" that you might be able to Google.

A recession is multiple quarters of negative growth. We've yet to have even one.

Kelly the dog said...

A recession is multiple quarters of negative growth. We've yet to have even one.

True. It seems the current malaise is mostly due to the housing bubble and the devaluation of the dollar which is linked to the soaring of gas and food prices. Otherwise fundamentals seem to be ok. Here in Colorado the economy is actually doing pretty well. Its largely due to energy sector investing. We have a lot of foreclosures at the low end of the market, but the mid and high end are pretty solid.

K T Cat said...

I had read somewhere that the drop in the dollar was due to our low interest rates at the Fed relative to the interest rates in other nations. When you can earn more in Europe, you sell dollars and buy Euros in order to invest there and the dollar drops against the Euro.

I lost the link and haven't had time to relocate it.

Kelly the dog said...

I'm skeptical of the one cause explanations. I see the interest rate argument. It definitely has merit, but US interest rates have been low for quite sometime. Last time the US dollar was this low against the pound and the Canadian dollar was the mid-70's following the oil embargo.

I find it easier to believe that multiple factors have combined to damage the dollar's value to this degree. Clearly the sub-prime real estate market has been a factor, and energy issues have contributed. I think things seem worse this time because we're finely seeing some serious inflation. A lot of basic foods have nearly doubled in cost and energy prices seem to be on a steep climb with no end in sight.

That said, if you find the link, certainly forward it to me.

K T Cat said...

Essentially, the dollar falls in value because more people are exchanging their dollars for other currencies. You can't buy goods in Europe with dollars, you have to use Euros. Whether that happens at the vendor or their bank, the end result is the same. You can't buy equities or investments with foreign money, either. When there is a real interest difference, that is, removing inflation and other factors, money will flow from low to high rates of return. That's why the interest rate reason makes sense.

There's more to it than that, but that's the gist of it.

Kelly the dog said...

Yes, but what changed recently? We've had this issue with low interest rates for a number of years - what happened in the last six months that lead to the dollar dropping like a rock? Is it just that other countries have finely said uncle and are moving to other currencies?