inflation/devaluation redux

[ritaxis]

Idiotic straight extrapolation -- If CZK300,000 went from $12,000 to $16,359 in five months, in a year it would go to $22,461, which is a rate of increase for CZK/decrease for dollar of 87%. I think.

But the Canandian dollar has only gone to $1.10, which is what? I forget how much the Canadian dollar was earlier this year. But not more than a third less than it is now, surely?

Maybe what we ought to do next year is go ahead and borrow the full amount of his expected expenses for the rest of the time, turn them into CZK, and have him pay us with his loans -- to pay off our loans, which won't wait until he is finished -- while paying his fees from his stored CZK. Which he'll have to turn into Euros at some point. Next year?

Does anybody think the dollar will rally especially in the next six years?

Does anybody know anything about money?

Comments

[randwolf.livejournal.com]

Essentially, you are thinking about speculating in the currency markets. This is a very risky thing--what if the dollar rises instead of falls?--, and generally not something to do with money you or someone you care about really needs. I do think it likely the dollar will continue to fall for the next six months, so converting currency for the next six months--provided you can absorb an unexpected loss ("hedge")--is probably sensible. I wouldn't go further than that, but I am a very conservative investor. For longer-term tracking, keep an eye on Brad Delong's blog; he covers the fundamentals in this area very well, and if you pay attention to his discussion of the dollar currency balance you can get a sense of what the fundamentals driving the exchange rates are. The problem is that one has to watch politics as well as economics; exchange rates are influenced mostly by large investors, especially central banks, and the central banks can change their policies overnight. Trading currency is not like buying and selling something that people directly consume; the fluctuations in demand can be quite dramatic.

One usually isn't allowed to spend student loan money on anything non-academic, and I'm not sure how far that stretches. Essentially, you are proposing lending money to your son and then repaying it with his student loan money. I'm not sure that this is allowed, and I think doing it for more than six months ahead is a serious exposure for your son, since you might end up spending much more money than necessary, and he would be paying the debts.

The best basic reference books on this, as you might expect, are the small handbooks the Wall Street Journal publishes, but also read Mandelbrot, the (Mis)behavior of Markets as a corrective to some of the unreasonable assumptions about risks that the WSJ books promulgate. If you'd like a copy of the Mandelbrot book, I have one I'm planning on getting rid of; if you want I'll send it.