Plans by US Federal Reserve spells bad news for JA

[Lazie]

The action of the United States (US) Federal Reserve to start pumping US$600 billion into the American economy in an effort to create jobs and prevent a dangerous episode of declining prices could negatively affect Jamaica.
Petrol prices rose by a $1.50 in Jamaica on Thursday as global oil prices trekked higher.
But if forecasts by leading American banks JP Morgan and Bank of America Merrill Lynch, are realized, Jamaica could soon see pump prices rising by that amount on a regular basis.
Both banks on Thursday released forecasts indicating they expect oil prices to reach US$100 a barrel for the first time since 2008, even as the US dollar weakens.
The weakening dollar works like this ... the US dollar like any other item, derives its value from its scarcity, so the scarcer it is, the greater the value.
However, with the Feds prepared to pump more money in the economy, the dollar gets more plentiful eroding its value.
With the US dollars value going down, more money will be needed to purchase things denominated in that currency.
In much the same, way we have to find more Jamaican dollar to buy the same things when the currency weakens which is why oil prices are rising since it is denominated in US dollars.
On Thursday, it reached a six month high $86.
So while the ultimate aim of pumping US$600 billion into the economy is to create jobs, the Federal Reserve is weakening the US dollar.
And the weaker US dollar will cause pains for Jamaican consumers not only at the pumps but also electricity bills.

http://rjrnewsonline.com/business/pl...ls-bad-news-ja

[Plush]

Lazie, how does this work? Shouldn't the weaker dollar result in a stronger JA currency. This would mean would take less JA dollars to buy US. Shouldn't some netting off happen? I never undesrstand thes economists. When the US dollar gets stronger and JA dollar gets weaker, things are more expensive for us...when it's the reverse, things are still more expensive? When do we win?

[Lazie]

Lazie, how does this work? Shouldn't the weaker dollar result in a stronger JA currency. This would mean would take less JA dollars to buy US. Shouldn't some netting off happen? I never undesrstand thes economists. When the US dollar gets stronger and JA dollar gets weaker, things are more expensive for us...when it's the reverse, things are still more expensive? When do we win?

I was thinking the same thing, but since I'm no economist, I put it here to let the discussion start.

[Assasin]

Most of these Jamaican economist don't look for anything positive. We complain when the dollar devalue, when it revalue and when it stay same place.

Stronger US dollar also mean less debt and give the productive sector and Argriculture a chance to take advantage of producing and competing in Ja but if we choose not to then we have no advantage and will continue to complain no matter what happen.

[Mosiah]

Lazie, how does this work? Shouldn't the weaker dollar result in a stronger JA currency. This would mean would take less JA dollars to buy US. Shouldn't some netting off happen? I never undesrstand thes economists. When the US dollar gets stronger and JA dollar gets weaker, things are more expensive for us...when it's the reverse, things are still more expensive? When do we win?

Nuh fret. Audley borrowing at 1%

[Lazie]

Germany and China's reaction.

China and Germany express concern over US Fed move

Germany and China have expressed concerns over US plans to pump $600bn (£373bn) into the US economy.
German Finance Minister Wolfgang Schaeuble said the US would not solve its problems, but create "extra problems for the world" instead.
Some countries fear that the US Federal Reserve's move could hurt their exports by making their currencies stronger.
China's Central Bank head Zhou Xiaochuan urged a reform of the international currency system.
He did not elaborate how the system should be changed.
The US central bank announced on Wednesday that it would spend $600bn to buy government bonds, in the hope that the cash injection can kickstart the country's economy.
However, this weakens the dollar, boosting US exports while making imports more expensive.
'Clueless'
"If the domestic policy is optimal policy for the United States alone, but at the same time it is not an optimal policy for he world, it may bring a lot of negative impact to the world," said Mr Zhou.
Continue reading the main story “Start Quote

It is not that the Americans have not pumped enough liquidity into the market and now to say let's pump more into the market is not going to solve their problems”

End Quote Wolfgang Schaeuble German finance minister
"There is a spill over."
China's Vice Foreign Minister Cui Tiankai said the Federal Reserve had the right to take steps without consulting other countries beforehand, but added: "They owe us some explanation."
Germany's finance minister Wolfgang Schaeuble said on German television that "with all due respect, US policy is clueless."
"It is not that the Americans have not pumped enough liquidity into the market and now to say let's pump more into the market is not going to solve their problems."
He added that the German government was going to hold bilateral talks with US officials and also discuss the topic at the G20 summit in Seoul next week.
On Thursday, Brazil's finance minister Guido Mantega had warned that the Fed's move would hurt Brazil and other exporters.
The latest move by the Fed has been dubbed QE2 as it follows the central bank's decision to pump $1.75tn into the economy during the downturn in its first round of quantitative easing.

http://www.bbc.co.uk/news/business-11697483

[Mosiah]

Germany's finance minister Wolfgang Schaeuble said on German television that "with all due respect, US policy is clueless."

Wouldn't be surprised if Wolfgang is a member of the Tea Party!

[Lazie]

Wouldn't be surprised if Wolfgang is a member of the Tea Party!

Or a Termite?

[Mosiah]

Or a Termite?

That did get a laff outta mi. But on reflection, not sure it makes sense! Oh, the oppose fi oppose sake ting? A dat yuh mean?

Gwey, Lazie!

[Assasin]

think it was never a concern to China.

[myYout]

Third worl nuh win, wi survive membah. Anyting move an wi feel it, ah suh di ting set.

[Don1]

Lazie, how does this work? Shouldn't the weaker dollar result in a stronger JA currency. This would mean would take less JA dollars to buy US. Shouldn't some netting off happen? I never undesrstand thes economists. When the US dollar gets stronger and JA dollar gets weaker, things are more expensive for us...when it's the reverse, things are still more expensive? When do we win?

Jamaica's economy is de facto dollarized. Our currency has little intrinsic value as we produce very little and are technically bankrupt...

Our reserves (mainly borrowed funds) are mainly denominated in US$ and most FX receipts on the current account are in US$...tourism, remittances etc...even our Caricom trade is denominated in US$

So the JA$ is a subset of the US$... but with few of it's advantages because we can't print it, produce little & have high debt...... BUT we have ALL of it's disadvantages & more... and any adverse movements in the US$ will impact our currency (all other things being equal) even more than it does the US.

[Gamma]

so less USD available will devaluate our $ and everything else that flows from that...cost of imports etc etc?

[Don1]

so less USD available will devaluate our $ and everything else that flows from that...cost of imports etc etc?

Actually there will be MORE US$ around if the Fed is spending money to inflate the US economy... the US$ price will fall because of the increased supply.. ie a devaluation...

but since our currency ia a non-entity and our trade is largely denominated in US$... we will be adversely affected by the devaluation...our currency will tend to also be devalued..at a higher rate than the US$...that being the case it will take more JA$ to buy the devalued US$... a vicious circle

If our trade & FX earnings were in mainly a relatively stronger convertible currency.. Australian $$ or Canadian... it would be a different story

[Assasin]

ah bwoy how we change from the Euro. I remember it was been touted around here as the strong currency.

If we are smart we can use it as a reprieve to produce a little more home grown stuff that will be a bit more competitve but if we are not as usual we suffer.