Foreign Exchange Rates - Sense or Nonsense?

One of our twin deficits -- the trade deficit, now running about $800 billion annually -- should be self-correcting. As our dollars pile up overseas (an increase in supply), their value should fall, but that has not been the case against many currencies. However, the Economist reports some adjustment in two stories, one online yesterday "The Fed's latest rise
May 11th 2006 From Economist.com The greenback has been drifting down against other currencies but there seems no sign, yet, of a collapse. " (See http://economist.com/agenda/displaystory.cfm?story_id=E1_GJDSPGD).

The other story was in the print edition May 6, 2006. In "Canada: A practical man", the Economist shows in a chart on p. 38 that Canada's rising trade surplus with us has been accompanied by a rise in the value of the Canadian dollar over the past four years, from a value of $0.65 US to $0.90 US.

The laws of economics may operate with a lag, but they do operate. Trade deficits and budgets deficits cannot persist in the long run with massive inflation!

NSA Telephone Logs - A Threat to Our Freedom

I was shocked to read that 63% of Americans approve of the NSA telephone logging program, as reported by Rich Morin on today's www.WashingtonPost.com. I want you all to remember this, written in 1945:

First They Came for the Jews
First they came for the Jews
and I did not speak out
because I was not a Jew.
Then they came for the Communists
and I did not speak out
because I was not a Communist.
Then they came for the trade unionists
and I did not speak out
because I was not a trade unionist.
Then they came for me
and there was no one left
to speak out for me.
Pastor Martin Niemöller

http://www.telisphere.com/~cearley/sean/camps/first.html

There may be several versions of this quotation, but they all tell us the same message: freedom is precious and fragile and needs to be defended!

May 11, 2006

I read the news almost every morning in the Washington Post, and there's something informative on every page. Today at the top of the economic news is "Fed Raises Rate Again; Now What? With 16th Straight Rise, Board Leaves Its Options Open"
By Nell HendersonWashington Post Staff WriterThursday, May 11, 2006; Page D01. (Why no link? Because the Post changes links often.) Especially interesting is the Trickle Up Effect chart showing relationships among interest rates. You can always find the latest official announcements at www.federalreserve.gov.

Last Monday, I attended the Shadow Open Market Committee meeting hosted by the Cato Institute. Yesterday's raise of the FFR was expected by the SOMC, and you can read the papers presented at http://www.somc.rochester.edu/ Most provocative was the paper by Anna Schwartz, who questioned whether the Fed has undertaken too many functions, incuding regulations, operations of payment systems, and the like. I ask, if the Fed doesn't do these functions, who would? Do you feel better having such functions performed an independent Fed or by some political appointees who serve at the whim of the President?

Also in today's paper and each Thursday, on page A02, Richard Morin reports on analysis and research in his Unconventional Wisdom column. He hosted some participatory experiments at his www.washingtonpost.com/richmorin site. Check it out!

Economics, Statistics, and Life

This blog is intended for my students and friends to have a place where we can share links to news about economics, statistics, and life. All communication here will be professional, not personal, and personal comments will be deleted.