first the numbers
http://quotes.ino.com/chart/?s=NYBOT_DXY0Last trade
88.66 Change
-0.22 (-0.25%)then some words from The Daily Reckoning
The Japanese bought themselves a nice little dollar rally
yesterday. According to the scuttlebutt from the London
trading pits, the Japanese central bank scooped up about 10
billion dollars in the open market yesterday, in an effort
to prop up the ailing greenback. The dollar purchases,
while large, were not out of the ordinary for the Japanese
central bank. The Bank of Japan has sold a record 17.8
trillion yen ($164 billion) this year in order to weaken
the yen against the dollar. We suspect these massive dollar
purchases will go down in history as one of the worst
Japanese investments since buying Pebble Beach.if anyone is interested in receiving their very informative daily newsletter, you can subscribe here:
http://www.dailyreckoning.com/subsvcs.cfmnow for my thoughts on the processes:
With a $10 Billion influx from the BoJ the dollar should have stayed in positive territory for at least a week and possibly longer if the "recovery" were "real". But with the lack of true fiscal policy, what we are seeing is a continued decline in the value of the greenback - two reasons spring to mind
1) Since the dollar is simply fiat money, it only has value if value is perceived. The global perception of the United States is currently very negative, not only for our foreign policies and conduct, but for our fiscal policies and conduct.
Even the most lame thinking individuals see that you must be able to sustain your abilities to pay your bills with something of value and IOUs must eventually be collected.
We are now viewed as Wimpy - from the old Pop-Eye cartoons -
remember him? Remember how he always was mooching and saying: I will gladly pay you for a hamburger tomorrow if you get it for me today? Well, they believe that we have not been paying for today's hamburgers for many days and that we may have promised far too many people for far too many hamburgers already consumed.
2) Then there is the "holding the bag" or "daisy-chain" theory. I don't know how many of you are familiar with the failure of the savings and loan industry in the 80s.
Here is a brief synopsis of how they inflated the value of commercial real estate.
You get a friendly appraiser (see BoJ) and he writes a glowing appraisal of a parcel of land (usually an old landfill) and states that this property has tremendous worth.
This appraisal is given to a bank along with a request for a loan exceeding the value stated on the appraisal (because you need not only the money to buy the land, but money to "develop" it).
The bank makes this large lovely loan and then decides to share the "benefits" with other banks (fees, interest and liability) and does a "participatory loan" -
The original loan then is "retired" by the bank because all the other banks have "kicked in" their portions of the loan and paid fees to share in the loan (basically covering the original banks loan).
The developer then begins this wonderful new project. (Don't you see the construction springing up around you? If this project is the only one you see out there, might indeed be legitimate, but if you see lots and lots of construction going on the question does become: who is going to occupy that property?)
Developers generally do not wish to remain in ownership of any of their properties - they are "developers" after all. They then want to share the fun with "management and maintenance" organizations, so they "sell" the development to those people, usually retaining an interest in the "gains" that are made (limited partnerships are formed) -
So they go back to their friendly appraiser and now since the property is "developed" the value is exponentially higher than the value for the raw land ('cause a guy's gotta make a profit - ya know).
The buyer for this property then goes to his friendly banker and get his own loan - and that loan cycle begins all over again.
Well, that is in a perfect world where the loans are always serviced - what happens when things are not as they seem?
If you have 10 acres of commercial property (land that was vacant or agricultural in nature now annexed by a city for tax revenue purposes) that begins in value as perhaps $1,000 per acre (as farmland) and then becomes "commercial" and gains in value (through the developer's appraiser) to $1 - 10 per foot (remember that there are 43,560 feet in an acre) - you do the math -
Then add to that the construction of any development in ranges of $20 - $80 per foot (think shopping malls and apartment complexes) -
So you have a piece of paper that inflates the value of land on a speculative basis.
When those final plans do not pan out, the magnitude of the loans that fail have a tremendous impact on the soundness of our banking industry.
So, you are asking, why did I need to give you those details?
Because if you see how "value" is "created" and how much debt is involved in that creation, you will understand that when the BoJ "intervenes" in the dollar, it is attempting to "create" a perception of dollar value.
If no one else believes that there is a basis for that value, they will simply "profit take" or "stem losses" and leave the next person/entity holding the dollar.
Those of us that live in the US have little choice about the color of our currency. Those not in the US have many other choices.
My thanks go out to all who contribute on this thread, with special thanks to Ozy (the threadmaster)!
Have a Great Day Marketeers!