Posted on 11/26/2004 6:17:16 AM PST by 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.
(Excerpt) Read more at nytimes.com ...
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 .
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.
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.
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.
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.
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
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.
"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.
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.
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.
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.
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.
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.
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