www.CostaRicaTicas.com

I love it. My ahole taxista on the way out thought he was gonna stick me with 20 dolares but I pulled out a 10K colone note and he only asked for 500 colone more. Not a big difference but I got him by a little at least.

I don't think anyone said it was unsolvable. However, I do offer up a request for a solution.

I don't mean to come off as superior intellectually but in order to fully understand the problem, you have to understand the basic premise of fiat currency. Also, more importantly, the way in which money is actually created. And, I have to mention the problem with fractional reserve banking. Contrary to popular belief, most "money" is NOT created by the Treasury. I believe according to government figures that about 2% of all money is created by the treasury in the form of currency. The rest is simply electronically typed in to a computer to create funds. These funds are created out of debt. No debt, no money. Debt=credit (car loans, mortgages, credit cards). When you get a car loan, the banker simply types in your loan amount and electronically creates the money. It came from nowhere. Instinctively you would think the loan was created because the bank has that money on deposit somewhere and is going to loan it to you at a higher rate than they give people who are saving. Absolutely not true. They only have a FRACTION of it on reserve and it is fiat in nature. Fiat=government issued currency, backed by nothing but a PROMISE to pay. So, having said that, you can easily see how a "run on the bank" is devastating. If every customer at XYZ National Bank wanted their money on the same day it would be impossible to service that request. All banks are leveraged by nature. Now, think about this on the grand scale of a nations and worlds economy. What happens when China wants to collect the money that we have borrowed? What about foreign sovereign wealth funds that are taking advantage of our weak economy? Did you know that recently an American Icon ( Anheuser Busch) was sold to a Belgian brewery? Or that the Chrysler building was sold to a middle eastern sovereign wealth fund? Or that GE (at one time the worlds largest company) has sold 10% stake to a middle eastern wealth fund? Their is only one solution when you think through the process and that is to continue to inflate the money supply in to oblivion. No problem for those at the beginning of the food chain. But for the masses at the back end it simply means inflation and more worthless money. Thus, destroying the middle and lower class of society.

Live for the day boys. Monger on. Take it all in with no regrets while you can! And, I'll be waiting for the solutions. I'm not predicting some total collapse. Don't get me wrong. But, it certainly is a slow and predictable erosion. Hey, the good news is with a weak currency, maybe some of those jobs NAFTA took away will come back. Shit, that won't work either, all those jobs will be taken by illegals at slave wages. Oh well. Monger on and hope to see a few of you in a few weeks.

dapanz1

Dapanz all good points, but china who owns most of our debt will never collect on their money all at once on us. Egypt owed us tens of Billions of dollars and we forgave all that debt. If we really got into a bind and the other nations were really that much more wealthy than us then they would forgive our debt as well, after all we can nuke any single country 10 times over if push came to shove on collections or a run on our currency but the nuke issue is irrelevant because they already own most of our hard assets in the US and once inflation hits and the dollar further devalues another 50% our debt will actually be cut in HALF, that s what other countries are pissed about they think we purposely want a weak dollar to devalue or debt and increase our exports.....could be true and probably was until the devaluation of our currency increased the dolllar denominated oil with formed the vicious cycle of inflation domestically due to high oil which is the part we did not want.

Great post ST. The only thing I worry about is if the Chinese or any other country owning our debt sells it slowly and methodically in order to not create chaos in the world economy. Still the amounts we are talking about are staggering and would bring the $ down further. Let me tell you another country that has been buying up our debt rapidly...Brazil. They are insulated from us in that they depend on no one for food or energy. Your next superpower might be Brazil. Certainly other countries have every right to be pissed if we are intentionally letting the dollar devalue. After all, all commodities are based on the $. Therefore, every country by proxy must import our inflation. But with the rapid rise in technology and wealth of countries like China, India, Brazil, Pakistan and Indonesia the need for the USD will continue to wane. I predict that at some point it will be replaced as the world reserve currency. How about a one world currency?

Just a note about forgiving debt. How does that happen? It's true, we have forgiven several countries debt including our beloved CR. The truth is a bit disheartening. The taxpayer actually picks up the bill. Secondly, there is a very actively traded bond market that trade "Brady Bonds." It's Waaaayyyy too complicated to detail those bonds in this post. But essentially the central bankers (organized criminals ) reap the benefits by charging debtor nations interest. God love the bankers and the IMF. IMF= International Money Fund.

dapanz1

SurfTown and Dapanz1, great posts! I learned a lot, but all at the same time, I'm glad I don't know more. The reason I don't want to know more is because even if I did, I couldn't do anything about it and it would only make me mad and worry more.

One thing I have just a little worry for is my savings (cash) and my retirement savings being trashed in value. I worry a little about some sort of world crisis that wipes out the wealth that I currently have since I've worked very hard for my wealth and stability by foregoing an unnecessary accumulation of material items (very frugal now so the end of my life is reasonably comfortable). Given all I've done to set myself up, I worry just a little that it could be wiped out with just 1 bad day on Wall Street.

I'm still confident (definitely because of my ignorance) that the dollar will eventually come charging back.

I'm not an economist, though I studied the basics in college. I'm fairly well read, though, and have paid attention to economic news.

The simple fact is that national economies have really become blended over the last few decades into a world economy. China is becoming the manufacturing center of the world because of cheap but highly educated labor. India is becoming the service industry center of the world for similar reasons. Those of us who are older remember when doom and gloom was prophesied with a different country being the rising star: Japan.

Now Japan is confronted with many problems too, now that their standard of living has risen. It will happen with China, India, and Brazil too. When their standards of living rise high enough the labor will no longer be so cheap. But it will take a generation probably, since their populations are so high.

Meanwhile, we are just going have to adjust to the fact that it is a world economy now instead of a USA centric one. Yes, the dollar may no longer be the dominant currency. What is the dollar really worth? It's falling because it is not worth as much as where it was artificially propped. But it won't fall forever. It will find it's proper value and level out.

We'll have to adjust to being one of several strong economies instead of THE one.

Bilko,

You are talking about a government, which we all assume, thinks about the future of its colones. This same government rewards landlords and tenants, with special laws, that add incentive to pay rent and expenses in US dollars. HINT - if you pay rent, every month in US dollars, your landlord cannot legally raise rent for three years. Essentially, the CR government is providing incentive to rentees to devaluate its own currency.

Are you still comparing the Costa Rican government of corrupt, ill-informed, under-educated, chronies to that of the US government? This is the same government that FIRED their security minister, who is a known enemy of NARCOs and the (obviously) the FARC, and hired a MATH TEACHER to take his place.

Whenever I hear people comparing the government and economy in CR to the US, I think of that toy train that runs from somewhere between Santana, through Sabana, and the western side of San Jose. It goes about 2 miles per hour and has three cars, which carries a total of maybe 60 people. I also think it still runs on coal, as it spews a heavy cloud of smoke into the air. Think about the economies of running this piece of shit train, every day, as a solution to their every growing problems with traffice and congestion.

_________________
http://TipsCostaRica.com for pratical advice on living in Costa Rica.
In order to write about life, first you must live it! - E. Hemingway.

Dapanz1
You nailed it !

This is a BIG reason for me wanting to "Pull the trigger"
Sell out and travel the world, sooner than later.
Better have fun while you can !!!

Tha Nuck

_________________
Throughout the history of mankind there has never been one shred of evidence that supports that life is serious..........
Don't believe everything you think ............

Chi,

I'm not sure I get your point, but I'll explain mine. The government down here is very badly run, it's obvious to anyone who lives here. The US government is badly run. Costa Rica never has been a first class economy. The USA was, but is heading downslope at breakneck speed. Will it ever sink to the level of Costa Rica, economically? I doubt it. But there are parallels in how economic policy is run and contributing to the devaluation of currencies. A country with giant trade and government deficits ends up devaluing it's currency, whether by choice or by force. That's where the parallel lies. Look at the chart of the dollar versus the euro, just for example. The USA was the biggest creditor nation in the world, not long ago. Now it is the biggest debtor nation in the world. I think you can see the results in the value of the dollar. The USA has been on a borrow and spend binge since 1980, with about an 8 year pause, and is now going further and further into the red, financed by foreign sources. Sounds like the USA is doing it's best to become a third world country.

Incidentally, Costa Rica hires a math teacher as security chief. The USA hires a horse association lawyer to run the Federal Emergency Management Agency.

_________________
"The only normal people are those you don't know very well." Joe Ancis

Dollar against the pound: was at 2.10 on Nov 8, 2007 and now at 1.80.

Dollar against the euro: was at 1.60 on Apr 22, 2008 and now at 1.46.

I add that both currencies are in a free fall. Those are huge differences when related to deals that are in the hundreds of millions of dollars.

Is the sky still falling? Are the Chinese going to cash in all their reserves now? I know, don't speak so fast, but why are they coming back to the dollar? Please don't tie this to politics... please don't!!!!! Go deeper than that, if you can.

(I've always been a believer in the dollar. I've always thought it was cyclical like so many other things financial - just a waiting game.)

D, please tell us. I play the Forex, so I can tell you almost to the pip what each currency trades for (USD, GBP, JPY, EUR). The whole thing is so problematic. I'll only tie it back to politics just a wee little bit, then I'm all ears. This is an election year, we are almost at the election. Expect to hear much, much more about the value of the currency, the price of oil and the disturbance in Georgia/Russia. Now, I'm all ears. Why is the world sucking up all the dollars?

I can't give an answer without going back to politics. But, Europe is in a major recession. Germany just reported negative GDP -.5%. If our Fed ever reported those numbers the market would tank over 300 points in one session. The OVERVALUED (given my theories on fiat money, this is sort of a contradiction, but what the hell. It is what it is.) GBP/EUR was causing Europe to not be able to export, nor was it very attractive to tourism. We had the export advantage. But, what do we export now? All of our manufacturing is overseas. Sure, we have many multi national companies that will profit. Ie..sales in foreign countries. A weak dollar is bad for the world economy given that all commodities are priced in dollars. It's smoke and mirrors to try and strike a balance that will benefit all nations. If you want to know what I really think PM me. But, I await your, or anyone elses ideas.

dapanz1

Dapanz1,

My impression is that there is a lot that goes into the valuation of a currency and so this is why I cautioned about the political comments. I didn't want a lame comment like, "because Bush is leaving office." That comment is lame, because since we don't know who will be taking his place, it actually suggests an unstable gov't. Usually, the currency of an unstable gov't declines.

I think the value of a currency is based on history, fundamentals, track records, inflation, gov't stability, type of gov't, interest rates, current state of one's economy, size of one's military, overall value of assets within a country, GDP, jobless rate, future prospects, population, balance of trade, ability to weather economic storms and much much more.

Surely some factors are more important than others so I could see a group of economists debating over which are more important. I can also see that the top 5 factors aren't always in the same order or for that matter the same factors.

How they decide on any given day that the dollar is worth more than the pound or the euro is beyond me.

Whatever the factors are at any given time, looking at charts, it seems currencies, like the stock market, go up for a time and then goes down for a time so.... cyclical. Traders ride the wave. How do you decide which currency to buy? Were you riding the wave too?

Question: You are paid in dollars so if the dollar is going up, you really can't play in the forex now, true? I mean, you can't buy dollars with dollars and you aren't going to buy Pounds and Euros right now.

Just a quick response to this then more later. No, I can not buy dollars with dollars per say. The currencies trade in pairs. These are examples of how they trade:

EUR/USD= If you SELL the EUR, you are LONG the dollar (ie..you have bought dollars with dollars.) If you BUY the EUR/USD pair you are LONG the Euro and SHORT the dollar (you are getting rid of dollars.)

GBP/USD=See above example, only change EUR to GBP.

USD/JPY= If you sell this pair you are SHORT the USD, thus getting rid of them to buy JPY. If you BUY this pair, you are buying dollars with dollars and ridding yourself of the Yen.

Yes, I do mostly short, momentum trades. Only for the brave.

dapanz1

There are as many opinions among professional economic pundits as among amateurs like me.

Bearish on the dollar? This guy agrees: http://stefanmikarlsson.blogspot.com/20 ... rally.html

Bullish? http://www.cnbc.com/id/26444657

Both give plenty of reasons. I am bearish because I am more into fundamentals than technical analysis, but I am not looking short term. If I'm wrong, I will bail at some point from my non dollar stuff. So far the dollar isn't back to where it started, or even close. It's come back but we'll see if it has legs.

_________________
"The only normal people are those you don't know very well." Joe Ancis

Value of currency is base on your comprehensive list BUT the primary drivers of currency valuation are Debt ratio to GDP, interest rates, and GDP % acceleration or deceleration those are the big ones the others in your list count but are peripheral.