Weak Dollar not all bad

NYT ^ | 11/27/2004 | S Roach

[JoeV1]

Suddenly all eyes are on a weakening dollar. In recent days, the American currency has fallen against the euro, the yen and most other currencies around the world. The renminbi is a notable exception; China has kept its currency firmly pegged to the dollar for a decade.

The fall of the dollar is not a surprise. It is the logical outgrowth of an unbalanced world economy, and America's gaping current account deficit - the difference between foreign trade and investment in the United States and American trade and investment abroad - is just the most visible manifestation of these imbalances. The deficit ran at a record annual rate of $665 billion, or 5.7 percent of gross domestic product, in the second quarter of 2004.

While a decline in the dollar is not a cure-all for what ails the world, it should go a long way toward bringing about a sorely needed rebalancing. With a weaker dollar, economic and even political tensions among nations would be relieved, helping to promote more sustainable growth in the global economy.

Still, a debate persists as to the wisdom of allowing the dollar to decline. The Bush administration seems to have given its tacit assent, and Alan Greenspan, chairman of the Federal Reserve, is finally on board.

[David]

Not bad for who?

Wall Street and the international monetary management community? Probably. For American Citizens generally however it is really bad; and for American Citizens with saved purchasing power in the form of dollars, it is a disaster.

[syriacus]

Nice column. Thank you for posting it.

[ccmay]

The upside of the weak dollar:

1. American farmers and manufacturers prosper as their exports become more affordable for foreigners
2. Perfidious France and Germany suffer as their exports become more unaffordable for Americans
3. Foreigners who bought dollar-denominated US debt obligations are repaid with cheaper dollars
4. Interest rates and inflation both go up modestly, rewarding people who are paying down fixed mortgages and trying to save some on the side
5. Those who had the foresight to invest overseas (ahem, including yours truly) find their non-dollar-denominated holdings increased significantly in value

The downside:

1. Vacations in Europe are more expensive (though if this gets more people out seeing our own great country, maybe it belongs in the upside list)
2. People who have adjustable rate mortgages and little in the way of savings are punished for their profligacy
3. ??? I can't think of any others. Can you?

-ccm

[Patti_ORiley]

Our Dollar's continued slide should put our European friends in a tizzy while causing limited inconvenience for us. While European goods will become increasingly expensive, pricing for Chinese goods will be unaffected -- meaning price inflation that would normally accompany a serious currency devaluation will be checked. The price we pay for Imported Oil will be affected, but falling crude oil prices could make the weaker Dollar's impact invisible to the average consumer.

[Monterrosa-24]

There are imports besides items from France and Germany. Petrol, strategic metals, coffee, and a world of goods will become more expensive.

Furthermore, international reputation plays a part in business and politics and when foreigners lose big by investing in US Dollars there are negative repercussions.

[durasell]

3. Foreign countries and investors become skittish about U.S. bonds and Fed is forced to raise interest rates before there's a massive sell off and devaluation.

[alex]

"The upside of the weak dollar: 1. American farmers and manufacturers prosper as their exports become more affordable for foreigners"

I hope to see some reduction in imports and return of manufacturing jobs.

[MaryJaneNC]

How does the American dollar stand with the Canadian dollar? Anyone know>?

[durasell]

Here in NYC we're going to see an influx of tourists (it's already begun), but I doubt you'll see manufacturing jobs springing up spontaneously anywhere. The infrastructure no longer exists.

[durasell]

Canadian dollar isn't in good chape, either. I think it's like 70 cents to the U.S., but I could be wrong.

[Mulder]

A devalued dollar is bad for Americans. But it may be good for the globalists and the NWO whores.

For the last several years, people have been promising that only if the central planners cheapened the dollar, our trade imbalance would get better. Guess what? Our trade deficit is at a record level now. But that doesn't stop the 'cheap dollar' crowd from continuing to push their agenda.

We need to return to a real currency, backed by gold, instead of the fiat paper that currently exists.

[Snowyman]

Canadian dollar was over .85 this morning, currently .8480 .
http://www.kitco.com/

[mathprof]

No, the Canadian dollar is about 85 cents, which means that against this currency the dollar is very weak.

My Canadian friends are giddy. When they bring this up, I ask them if they've seen the movie "South Park".

[durasell]

Thanks! I was just too lazy to look. I'll admit it...

[JoeV1]

Not bad for who?

Wall Street and the international monetary management community? Probably. For American Citizens generally however it is really bad; and for American Citizens with saved purchasing power in the form of dollars, it is a disaster.

How is that? Perhaps if one wants to travel to Europe it will be more expensive since the international settlement currency is mostly dollars it is not us that is getting hurt at this point since it is the Euro that has strengthened against the dollar and not much else. Imports from China are not affected since their currency is tied to ours and my buying power hear in America has not been effected either. Inflation is a pretty tame 2.5%. Oil is more expensive due to a supply/demand imbalance and not the dollar and oil trades are settled in dollars anyway so it is the oil producers that are taking the hit, not us (at least for now)

A weak dollar makes foreign investment in our markets less expensive and therefore more attractive. I don't believe anyone seriously believes the dollar is any trouble that can't and won't be corrected at a time and to a level that is deemed reasonable. Right now it is the Euro nations whose exports are getting hammered due to their being so expensive. WE are a nation of consumers and that is what we are doing, consuming. To somehow hang a negative on that is not reasonable. The problem is not that we are consuming to much but that other nations are consuming to little. There is a point made about savings but one can argue that home ownership is a form of savings, and a good one. I believe around 80% of Americans own their own homes and this is considerably higher then in other nations whose cash savings rates are higher.

[Snowyman]

My Canadian friends are giddy.

No one I know is giddy over this. There is no reason , if you understand what is going on , to gloat or think it's funny. Dismissing it as trivial only shows ignorance .

[JoeV1]

"The price we pay for Imported Oil will be affected,"


Oil contracts are settled in dollars so we are not effected by the flucuation.

[JackSplatt]

Anyone know if our old buddy George Soros is involved in all this?

[JoeV1]

The upside of the weak dollar: American farmers and manufacturers prosper as their exports become more affordable for foreigners

Perfidious France and Germany suffer as their exports become more unaffordable for Americans

Foreigners who bought dollar-denominated US debt obligations are repaid with cheaper dollars

yes but they can average out by continuing to buy while their currency is stronger.

Interest rates and inflation both go up modestly, rewarding people who are paying down fixed mortgages and trying to save some on the side

Those who had the foresight to invest overseas (ahem, including yours truly) find their non-dollar-denominated holdings increased significantly in value

Agree to all of the above

The downside:

Vacations in Europe are more expensive (though if this gets more people out seeing our own great country, maybe it belongs in the upside list)

People who have adjustable rate mortgages and little in the way of savings are punished for their profligacy ??? I can't think of any others. Can you?

Not right now.