Weak Dollar not all bad

NYT ^ | 11/27/2004 | S Roach

[Snowyman]

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

I'm not sure about 2004 , and I doubt if it has changed , but oil contracts with the Middle East had a clause for payment in USD or gold . At the sellers discretion .

[JoeV1]

I hope to see some reduction in imports and return of manufacturing jobs. As long as companies can have a TV set (or anything else made overseas for $2.00 per hour they won't pay a union worker 25$ per hour. That is a simple economic fact. Besides, if you were honest I believe that given the choice to buy a 25" TV made in China (or where ever over seas) for $189.00 and one made in America for $359.00 you would choose the lesser expensive one. Besides that the American mfg could not compete in world markets charging the price he must get to cover expenses and adding a profit.

[JoeV1]

It has weakened but not nearly as much as it has against the Euro.

A question being asked but not discussed here is what is a reasonable level for the Euro to be at vs the dollar? Perhaps $1.30 to the Euro is fair, perhaps $1.50 is. It is not reasonable to accept that the Euro and dollar should be at parity.

[JoeV1]

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

Only if the contract settlement is done in a currency other then the dollar. Currently 2/3 of all world trade is done using the dollar as the settlement currency.

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

If you are speaking of currency traders then I wouldn't worry about their feelings. They are predators anyway and get what they deserve.

[dogbyte12]

Big winner is gas stations just on this side of the canadian border. Canadians are going to run to the border areas to get an even bigger bargain on items such as gasoline.

[JoeV1]

I don't see a problem with the trade deficit because it is actually a sign of our surging economy. Basically we are buying more "stuff" because we have the money and they are buying less of ours because they do not. Trade deficits have nothing to do with our debt refunding and interest rates as I see it. Now a budget deficit is quite another thing as the more bonds we try to float the less valuable they will become to the investor and the higher the interest rates must go in order to attract these investors.

[DanDan]

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

Unfortunately, the weak dollar does affect oil prices.

Since many oil importing countries are non-dollar, they are better able to afford nominally expensive oil, meaning it takes longer for high prices to impact demand. The mechanism by which higher prices should reduce demand is broken.

It is estimated that one third of the oil price increase is due to the weak dollar.

[Wiz]

If you are or were in the military and have experience of PCS or TDY overseas, you will know how bad life could be to live in another country with dollar so weak, even with COLA. There are always someone appreciating expensive dollar and crying on the other hand.

[demkicker]

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)

This one should definitely be on the upside list! Not to mention, that the anti-American attitude of Europeans and their commie media are keeping us home anyway.

[planekT]

This may have been posted already, but here is one reaction that may be partially linked to a falling dollar. The article doesn't go into any furter detail about what specific legislation WTO is reacting to or what makes up the "wide range" of U.S. exports, unfortunatly. Does this worry me? No. I think it's a cut your nose off to spite your face reaction.

[planekT]

Article didn't post for some reason.

GENEVA (AP)
The World Trade Organization on Friday approved stiff sanctions on a wide range of American exports intended to punish the United States for failing to repeal what it considers protectionist legislation, a trade diplomat said. "It's been approved," said Amina C. Mohamed, Kenyan ambassador to the WTO and chairwoman of the organization's dispute settlement body.WTO Approves Sanctions on U.S. Exports

[Alberta's Child]

One other downside is that imports get more expensive. This isn't a problem when it comes to manufactured products that can be made here in the U.S., but it does seriously affect commodities and raw materials that we must import from elsewhere simply due to lack of availability here.

[JoeV1]

Here's a probable scenario that may soon unfold:

Any currencies value is determined by what traders are willing to pay for it. Currently the dollar is being heavily sold and buyers are scarce and so the price drops (supply of dollars great, demand of buyers not). Now what if this happens (and it has happened before) The US, Germany, France, Britain, Japan and China (maybe not China but possibly) at an agreed upon time suddenly launch a massive intervention to support the dollar by buying upwards of a trillion or more of them. How will this effect the value of the dollar? Due to this massive intervention (buy) suddenly the dollar could strengthen by anywhere from 8-15% (demand of buyers great, supply of dollars not) We then have what is called a 'short squeeze'. Those traders who sold the dollar at .90 promising to replace it at a later date for a hoped for lower price suddenly find the contract date is up or fast approaching settlement and they will have to buy that dollar back for not .85 cents and a .05 cent profit but instead $1.08 and an .18 cent loss. In other words instead of making about 7% on the short sale they are losing 20%. The buyers will make money because they are buying the dollars at a low price and as the price climbs they sell out of it at a higher price and net the difference between the buy and sale price. (opposite of a short sale)

It is possible that a program is in the works to slam the money traders. Make no mistake this has been done in the past and that is why currency trades are such a highly risky way to make money.

[JoeV1]

Once again, this only applies if the settlement is NOT done in dollars as 2/3 of trade contracts are. Buying from Euro countries means we pay more dollars for their goods priced in Euros but when the agreed upon settlement is dollars then it is the selling country that is getting the short end of the stick, not us.

[-YYZ-]

"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"."

If they are, they haven't thought it through too well. The US is Canada's largest trading partner (and vice-versa) and this is bad for Canadian exports to the US, including gas, oil and electricity. The Cdn dollar was undervalued (IMO) but a 30+ % increase in a year or so is a lot. OTOH, imports from the US will be cheaper, and Canadians buy a lot of stuff from the US. Good for Canadian consumers and US exporters. Harley-Davidson buyers up here will be happy.

[Alberta's Child]

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

Oil contracts are settled in dollars, but the notion that these transactions are not affected by changes in the value of the dollar is a myth. Regardless of how the contracts are paid, the reality is that the price of oil is determined by the value of the dollar in the markets where the oil is consumed.

Suppose oil is trading at $25 per barrel today. If the U.S. dollar loses half its value against every major currency in the world tomorrow and there is no underlying change in supply or demand, the price of oil tomorrow would be $50 per barrel. Europeans would also be paying "$50 per barrel," but the price they pay in their local currency would be unchanged. The settlement of oil contracts in U.S. dollars simply means that foreign buyers must first convert their currency to dollars before buying the oil.

[-YYZ-]

ps when I say it's bad for oil, gas and electricity exports, I mean that since those commodities' prices are set in US markets (gas and elec., particularly), the price we get for them will be reduced, although other factors (as discussed above) may ameliorate this somewhat.

[Alberta's Child]

. . . but when the agreed upon settlement is dollars then it is the selling country that is getting the short end of the stick, not us.

The end result of this, of course, is that foreign oil producers will stop accepting U.S. dollars for payment. This is exactly what happened with the 1973 "Arab oil embargo," which was one of the biggest myths in modern history -- it was really nothing more than the result of a massive currency devaluation scheme cooked up by the U.S. government.

[Monterrosa-24]

Common people from Latin America to Eastern Europe often put some of their humble savings in dollars ("gold money" they inaccurately call it)

It does not matter what currency is used to settle a contract if your holding dollars and the dollar weakens you lose money. Oil price per barrel in dollars can go up and the price can go up in the States while it is stable in Euro countries.

Another negative to a weak dollar is less bang for the buck on any project or investment in a foreign country including charities. It will cost more to send two dentists to Madagascar. It will cost more to get the Japanese to grind the specialty lens for the new Xenon Med Scope biz venture. It will cost the CIA more to bribe officials in Yemen.

[winodog]

If you have saved a lot of money compared to someone deep in debt, does there reach a time when your savings will not matter much? The person in debt will just claim bankruptcy and will have a lot of "stuff" compared to the person who has been saving and has little else.

And if you have bought a home does there come a point in time when you cant make payments but the bank would rather you stay in the house then board it up? Of course thats if things get real bad and there are tens of thousands of foreclosures.