Something is happening. Possibly several somethings.

[solarbird]

Good evening.

The dollar is through the floor against the Yen, trading at US$1=円90.545. I don't know why. There's speculation it's related to the collapse of the GM/Chrysler bailout bill in the Senate tonight. There's other suggestions that it's related to FannieMae.

That Yuan devaulation story keeps not going away, with analysts now saying that China will "let" the Yuan trade downwards over the next six months.

Since I started typing this, the dollar has fallen to 円90.270. This is a huge shift. Nikkei is stairstepping down after lunch, bouncing off limit stops. Overnights (futures) on the S&P 500 are down 40ish points, and that's off lows.

eta: US$1=円89.090. Um, yikes. Shit be goin' down. I checked again after typing that sentence: 円88.935. These are monstrous moves down for the dollar in the only open Dollar Index currency. Brace for impact.

eta2: 円88.410 before bouncing, at least for a moment. I've never seen anything like this. This is a 4.5% swing in 24 hours.

eta3: Courtesy gfish: "There are no incentives to buy the dollar right now," said Hideki Amikura, deputy general manager of foreign exchange at Nomura Trust and Banking Co. in Tokyo, a unit of Japan's largest brokerage. "U.S. politicians can't even agree on stopgap measures for the auto industry." Despite that, back up to 円89.405 and generally recovering at least some of the lost ground. I have no idea what tomorrow looks like. None.

eta4: This is the second craziest overnight I've ever seen. Seriously, that US dollar drop was time-to-put-the-baby-in-the-rocketship scary. CNN is reporting that TARP funds might be used to bail out the Detroit automakers, without conditions. Yen/Dollar trade seems to be stablising as the Nikkei leveled off and closed for the day down 5.6%. (Seriously, it looked like it was going to be much worse, for a while.) Hang Seng (Hong Kong exchange) is still open and down a bit over 6%. US dollar is dropping against Pound Sterling, Euro, Swiss Franc even as those currencies also drop against the Yen - but the drops are small. Are Japanese and Chinese investors are taking their money home? Remember: Yuan/Renminbi are not freely convertable. Yen are.

Edited original forex link to a source actually showing what happened; Yahoo's charts aren't working right for unknown reasons.

Comments

[z111.livejournal.com]

I barely understand anything economic that you write about. Can you translate any of this into something my poor brain can comprehend?

[solarbird]

It's time to put the baby in the rocket ship.

[z111.livejournal.com]

Is that the same as putting your head between your legs and kissing your butt goodbye?

Your economic analyses are too much for my non-economic brain. Though your alarm has me pounding the internet trying to get a clue (and failing miserably,)

[solarbird]

Oh, okay, fine.

One hugely big scary thing I worry about is foreigners deciding they don't want to buy US Treasuries anymore. The Chinese, Koreans, a small assortment of Gulf states, and the Japanese have been the people floating the massive US trade and budget deficits, which are financed through the sale of US Treasuries.

If they stop buying them, Treasury bill interest rate payments explode. US budget debt (which the Bush administration has more than doubled and seems to be working on tripling in its last days in office) has already one of the largest items in the budget. What happens if that becomes unfinanceable? What happens if the cost of servicing current debt doubles? Or triples? Or quadruples? What if the cost of taking out new debt becomes insurmountable? Think about these questions.

Short answer: Lots of things, and none of them even a little bit good. Long answer is probably outright printing. (C.f. "watch the M1." I mean that. I just wish I had enough trust in this Fed and this administration to be sure they wouldn't fudge it. Seriously.) Outright printing usually means destroying the currency and if you are very lucky a reset. If you aren't lucky, you get Napoleon III, who, I admit, as dictators go, wasn't so bad. And if you are very unlucky, well, the options get much worse very quickly.

So one of the things I'm looking for is a hard move away from US dollars. I'm extremely concerned about T-bills acting like a bubble. I'm even more extremely concerned about that happening in a falling-dollar environment. Tonight, it looks like somebody big - or several somebodies big - decided to GTFO of dollars. It didn't catch fire. But for a while, it sure looked like it was going to.

[solarbird]

Is that the same as putting your head between your legs and kissing your butt goodbye?
Not familiar with the Superman mythos?

Your economic analyses are too much for my non-economic brain. Though your alarm has me pounding the internet trying to get a clue (and failing miserably,)
I've been sounding alarms on different things for some time. I started this one between classes back in, hum, 2006, I think?

Btw, I've added (eta4) to the post.

[maellenkleth]

Nnnnnng. It is bad. Please consider getting the FO while you still can.

Okay, don't usually comment openly on observed business trends as might impact my gigs, but from immediate direct experience will ratify your suspicion that expatriate money is being called home to Asiyan. Certainly to Zhongguo, if I may be suitably opaque for a moment. Friends and business colleagues here, of the Zhongguan diaspora, are packing up to head back: that migration, as it unfolds, is very significant.

(And what that means for us here in North America: not good. Particularly, would expect a further drop in orders for raw materials and other manufacturing inputs to Asian end-users. Raw material supply is my family's source of groceries). Am less worried about a shortfall in the supply of beads and trinkets substitutable goods from Zhongguo because the people I care about don't buy or sell that crap anyway. (And if you really want that crap, go to Dearborn Goodwill and buy it for five cents on the dollar at second-hand).

Here, have an icon of a game-figure: the Lightweight Ship, because it really is time to leave Dodge City. Now.

[z111.livejournal.com]

No, I don't know the Superman myth. Your lj might be too over my head on multiple levels. :-(

I'm barely learning about things like LIBOR and then you bring up all kinds of indices that make my eyes glaze over. I've been trying hard to figure out what's happening to us economically, and where we're going, but it's like going down some rabbit hole. It's no wonder even economists can be so hugely off the mark with their predictions.

I'm surprised the stock market isn't a blood bath today.

Anyway, I don't expect you to dumb stuff down for me. But yesterday, you had me really alarmed and yet I couldn't wrap anything at all around what you were saying. So I do appreciate you clarifying. I understand a wee bit better.

Seems like Bush might do his own bailout...and what does he care at this point...he can do what he wants without much repercussion.

[solarbird]

Really? Wow. Okay. Yeah, Superman, the first costumed super hero, from the far-away planet Krypton (yet also human, in the original, sorta; the ultimate development of humanity), was launched into space in a tiny rocket ship as a baby by his parents before his home planet exploded. (His father knew it was coming but the ruling Science Council thought he was nuts.) His origin's kind of a Moses riff, really, with "rocket ship" instead of "reeds," "super-scientist father" instead of "mother," and "exploding planet" rather than "Egyptian raid."

Anyway, it's always struck me as extra crazy if you're putting the baby into a rocket ship and launching it into deep space, and extra crazy bad if you're actually right. "I know! We'll put the BABY into a TINY ROCKET! And launch him into SPACE! For his OWN GOOD! And NOT just because his CRYING is driving us MAD! The planet's also exploding." Of course, either way, the crying stops, so the whole off-planet thing must just have been a bonus.

[djrock3k.livejournal.com]

Homegirl

Great work. I really enjoy reading your analysis. It is the secret info that doesn't get enought light. It is all interconnected, and we better start noticing it.

"time-to-put-the-baby-in-the-rocketship scary" - for that phrase alone, you win at Internet.

being a world traveller and a asiaphile (as well as a Japan-born ex-military brat) the tanking of the dollar against the yen is super suck-ulational. Leave alone the Yuan/Renminbi. We are not looking so good to the people who (semi) own us and that is very bad indeed.

Thanks again for the collation.

[epawtows.livejournal.com]

I think DC slightly adjusted Sup's origin to stay that the plan was three rockets (small one for the kid and bigger for the parents) but only the junior-sized was finished in time.

[peakoilchaplain.livejournal.com]

KB Toys is filing for Bankruptcy and plans to liquidate. A toy store chain going down two weeks before Christmas? I could see them having a bad Christmas season and going down in January, but this is unbelievable ...

And for an update on the social mood in Iceland, a snippet from an article I read in the Economist (http://www.economist.com/world/europe/displayStory.cfm?story_id=12762027&source=hptextfeature):

Sirry Hjaltested, a pre-school teacher who joins in the Saturday protests, says that her grocery bills have gone up by half in a few months. She blames the country’s reckless bankers for the ruin of the economy. “If I met a banker,” she says, “I’d kick his ass so hard, my shoes would be stuck inside.”

Most pre-school teachers are pretty mild-mannered people, and Icelanders are generally described as mild and polite as well ... how does "my shoes would be stuck inside" jive with that?

[silussa.livejournal.com]

How import would Asians in general, and Japanese in particular, see the auto industry. And, particularly, see a willingness to the the ENTIRE automotive industry go belly up?

$1=91.0950 Yen right now.

[silussa.livejournal.com]

To add a few clairifications and details...

Interest on the Federal Debt is the third largest item in the Federal Budget. And a large chunk of that debt is held by foreign countries. From the latest treasury report (http://www.treas.gov/tic/mfh.txt), the two largest foreign holders are the People's Republic of China ($585 billion) and Japan ($573.2 billion)

The interest payment for Fiscal Year 2008, just ended Sep. 30, was $412 billion, on a debt which was about $10.6 TRILLION dollars. (that's before all the recent bailout stuff, which has added well over 1 TRILLION DOLLARS to that amount).

The proposed budget for FY 2008, by comparison, was about $2.9 Trillion.

Still, if you look at that effective interest rate, it's slightly under 4%. Darn good rate.

But...and this is a concern I most definitely share with solarbird, what if a major debtholder decides they don't want to hold our debt anymore?

Or, if you prefer, my persona nightmare scenario these days:

"Standard & Poor today placed US Sovereign Debt on negative CreditWatch..."

It's not a big shift, except psychologically. Only to an interest rate of 4.5% or so...or another $50 billion dollars in interest payments. We just get rid of the Department of Agriculture, the Department of Justice, and NASA.

And that's a fairly MINOR shift. If you went to, say, 12% (not a terribly bad credit card rate...and yes, you CAN get a credit card near 4%), then you would have to wipe out the entire discretionary part of the federal budget to make the interest payments.

There are a ton of other ramifications that go with that....massively higher tax rates, major drop in the value of the dollar versus other world currencies, positive trade balance (we have to earn money to pay off foreign bond holders), etc. None of it good.

That's assuming people are willing to lend you the money AT ALL. Realistically, if the US was a corporation, it would be in Chapter 11.

[solarbird]

That's still kinda nuts.

I like the plan from the animated Superman series; small rocket with phantom zone device. The idea was to put the population (and supplies, one supposes) into the phantom zone, have someone (one might hope more than one someones in more than one ship, but at least one) rocket to Earth, then pull the population back out of the phantom zone.

[solarbird]

YAY SHINY INTERNET