News item: Roubini suggests the U.S. Dollar may be getting closer to its Wiley E. Coyote moment, when we realize we have run off the cliff and are standing on thin air.

Sept. 4 (Bloomberg) -- The dollar will weaken and the U.S. risks seeing a crash of the currency unless it does more to control the deficit and reduce debt, said New York University Professor Nouriel Roubini, who predicted the financial crisis.

“If markets were to believe, and I’m not saying it’s likely, that inflation is going to be the route that the U.S. is going to take to resolve this problem, then you could have a crash of the value of the dollar,” Roubini said in an interview today in Cernobbio, Italy. “The value of the dollar over time has to fall on a trade-weighted basis, but not necessarily relative to euro and yen.”

Roubini said he didn’t see a risk of a dollar crash in the “‘short term.” The value of the U.S. currency relative to currencies such as the yen or the euro “cannot change too much compared to current levels because if the dollar were to weaken a lot and the euro strengthen a lot, that’s going to warp any chance for the European economy to recover, same argument as to the yen,” he said.

“Most of the adjustment of the dollar in the future has to occur relative to China, relative to emerging Asia and relative to some of the other commodity exporters in the world, whether these are advanced economies or emerging markets,” he said.

Foreign creditors need assurances that the U.S. will address its deficit, Roubini said.

“Unless in the medium term these issues of fiscal sustainability are addressed, and unless we mop up that excess liquidity from the financial system, eventually the financial markets and the foreign creditors of the United States might get more concerned about the sustainability of the U.S. fiscal deficit and about the U.S. being tempted to use the inflation tax as a way of resolving its private and public debt problems,” he said.

Since the US has been pleading with the Chinese to raise the exchange rate on their money for years, it is not too far fetched that it could eventually happen. That would, of course, accord with Roubini's prediction of a weaker dollar measured against the Yuan.

Notice that Roubini doubts the dollar will fall much in the "short term" (whatever that might be). I think anyone could be right about such a prediction--as long as you adjust the time frame.

Bonner thinks the dollar should be strengthening short term. Instead I read today that the dollar is at a new 2009 low and gold has finally broken above $1,000 for about the third time ever.

The debate between the inflationistas and the deflationistas continues without either side winning the argument decisively. Bond yields (10-year at 3.34%) would seem to indicate coming deflation or disinflation; gold and some other commodity prices coming inflation. There is continuing demand destruction even as the govt. spends wildly. This standoff seems to be unprecedented.

I can only say that, having my money in cash, commodities, and gold that the gold has done the best of the three. I recommended you buy gold years ago. I realize that it's awkward to convert money to gold then back to money, but surely less so than buying real estate? True, one can't eat or live in one's gold; it has no practical utility, being merely a hedge against currency debasement. Bernanke has shown his hand, and gold has nearly doubled under his reign.

15 Million already unemployed with many more to come.

Govt has less revenue and more dependents.

If govt merely prints the money, it's worth less.

Not printing means Depression.

Both courses mean mass decline in living standards.

There will be some from Column A and some from Column B.

Next three months will tell! Obama looks extremely weak.

Looks like the working class will take the bigger losses.

20 Years of this?

Why though is Euro strong? Is it mainly from USA population's quality-fall?

It would seem to me that any rational person would conclude that, if there is a large pool of unemployed potential labor and that standard of living is based on consumption (or at least the opportunity for consumption), then nothing stands in the way of increasing standard of living by increasing production, except an unrealistic economic system. Given that to support increased production of consumer goods, there is the need for increased production of renewable energy (which is good because it contributes to increased employment opportunities anyway), any truly functional economic system would quickly move to that orientation which obviously would work better. Of course, there are people who profit from a disfunctional system and they need to be moved out of the way.

A lot of the idle labor is unable to produce anything that anybody wants or would pay for. If they soldered, welded, lathed -- it's done in China. If they made cars or tires, Korea and Japan or robots or EU. Clothing -- Asia. Houses went bust.

Here, I saw nine men last week work the full day to replace four concrete sidewalk blocks. Of the nine, five actually worked 30 minutes.

So what do we do with 15 Million? OK. You'll be in charge. You will have them??????????????????? Their wage will be $15 Billion a week, which you'll get from????????????????????

My reading of Roubini is that he suggesting there is no major risk of a currency crash or collapse within the next year; but after that, all bets are off. Although there is no hard and fast rule, when economists speak of the 'short term', they usually mean less than a year. Long-term, or in the long run, means more than a year. If they speak of the very long run, that usually means decades or even centuries....or even, in some cases, millennia.

Are there no economists working on Wall Street? When they say short term there, they seem to mean several minutes to several hours, and occasionally as much as a week. Do you know that they are now renting space next to the exchange's order handling computers for their own computers so that they get about a 30 milli-second window ahead of the placing of customer orders to place their own (after, incidentally, being informed of what the customer's order details are). I understand that these leaders of our system are considering an arrangement where all residence doors will have to be unlocked at night so they can slip in and sip blood.

But we always knew that. Didn't we?

Yes, there are economists working on Wall Street.

There is another word to describe them.

The word is 'whores'.

Didn't George Cooper in his book The Origins of Financial Crises describe Wall Street as a 'den of whores'? Why yes; yes he did. And he was right.

This true, but why is it true? I suspect because the Reagan Revolution was a sham, an opportunistic but ultimately fake and shallow tax revolt of the elites. The culture of dependency seems to be as entrenched today as it was during the 1970s, and meanwhile nowadays corporations are getting on the dole...causing the govt. trillions in long term costs. The corporate version of the Cadillac-driving welfare queen is the bank or securities dealer or insurance company/hedge fund who gets tens of billions in bailouts as it doles out billions in bonuses. Self reliance, whether individual or corporate, has taken a major hit. We expect govt. to come to the rescue even as we run govt. into unpayable debt. That accounts for the dependent side of the equation.

As for the revenue side, there doesn't seem to be the will to raise taxes on those who received more than their share of tax cuts under Reagan and Bush and the only ones who can really afford to pay: the rich. The top 10% in 2007 made off with 50% of the national income while the top 0.01% made off with 6%. But this elite makes most of the campaign contributions. Obama even with 60 Dem senators hasn't been able or willing to do what Clinton did with 50: raise taxes on his wealthy constituents.

The Bush tax cuts will die by 2011. Obama can just leave that alone legislatively. There were a couple of sweeteners in it for the rest of us and he can extend them with limited new legislation. Since the Republicans backed those features in the beginning, it would be difficult for them to take the other side now.

At the top end, I think that Obama can afford to leave rates below maybe $1 million to $5 million alone, taking into account the effect of the Bush cuts ending, and start any increases at that level with the marginal rate reaching 100% at $1/2 billion, give or take. This will both be fair to the majority of the populace, and really limit the public's resistance to the increase. Predictably, the 100% rate will not catch anybody, but it's a good symbol for what people really want.

Just for a rough number, I estimate that increasing the tax rate to 100% on the top 1% of earners would gain $325 billion or so, everything else being equal.

"30 milli-second window ahead of the placing of customer orders to place their own (after, incidentally, being informed of what the customer's order details are)."

This used to be called front running and was illegal. Ah, progress!