Skip to comments.US Dollar has sunk to record lows against Euro
Posted on 11/27/2004 10:24:13 AM PST by soccer_linux_mozilla
The United States trade deficit is soaring and the once high-flying dollar has sunk to record lows against Europes common currency.
The dollars record low against the euro coincided with the governments report that the United States was running a trade deficit through September at annual rate of 592 billion dollars. That compares with last years record 496 dollars billion. As a result, the country is having to borrow almost 600 billion dollars from overseas this year to pay for the imported cars, televisions and other items Americans are buying.
This type of article isn't even looked at by the 'true' FReeper Republicans because "The Man" can do "NO WRONG".
"Specie is the most perfect medium because it will preserve its own level; because, having intrinsic and universal value, it can never die in our hands, and it is the surest resource of reliance in time of war." --Thomas Jefferson to John Wayles Eppes, 1813. ME 13:430
"Paper is poverty,... it is only the ghost of money, and not money itself." --Thomas Jefferson to Edward Carrington, 1788. ME 7:36
"Experience has proved to us that a dollar of silver disappears for every dollar of paper emitted." --Thomas Jefferson to James Monroe, 1791. ME 8:208
"It is a [disputed] question, whether the circulation of paper, rather than of specie, is a good or an evil... I believe it to be one of those cases where mercantile clamor will bear down reason, until it is corrected by ruin." --Thomas Jefferson to John W. Eppes, 1813. ME 13:409
Dangers of Paper Money (quotes of THOMAS JEFFERSON)
"That paper money has some advantages is admitted. But that its abuses also are inevitable and, by breaking up the measure of value, makes a lottery of all private property, cannot be denied. --Thomas Jefferson to Josephus B. Stuart, 1817. ME 15:113
"The trifling economy of paper, as a cheaper medium, or its convenience for transmission, weighs nothing in opposition to the advantages of the precious metals... it is liable to be abused, has been, is, and forever will be abused, in every country in which it is permitted." --Thomas Jefferson to John W. Eppes, 1813. ME 13:430
"Scenes are now to take place as will open the eyes of credulity and of insanity itself, to the dangers of a paper medium abandoned to the discretion of avarice and of swindlers." --Thomas Jefferson to Thomas Cooper, 1814. ME 14:189
"The States should be applied to, to transfer the right of issuing circulating paper to Congress exclusively, in perpetuum." --Thomas Jefferson to John W. Eppes, 1813. ME 13:276
"The evils of this deluge of paper money are not to be removed until our citizens are generally and radically instructed in their cause and consequences, and silence by their authority the interested clamors and sophistry of speculating, shaving, and banking institutions. Till then, we must be content to return quoad hoc to the savage state, to recur to barter in the exchange of our property for want of a stable common measure of value, that now in use being less fixed than the beads and wampum of the Indian, and to deliver up our citizens, their property and their labor, passive victims to the swindling tricks of bankers and mountebankers." --Thomas Jefferson to John Adams, 1819. ME 15:185
"Private fortunes, in the present state of our circulation, are at the mercy of those self-created money lenders, and are prostrated by the floods of nominal money with which their avarice deluges us." --Thomas Jefferson to John W. Eppes, 1813. ME 13:276
"It is a cruel thought, that, when we feel ourselves standing on the firmest ground in every respect, the cursed arts of our secret enemies, combining with other causes, should effect, by depreciating our money, what the open arms of a powerful enemy could not." --Thomas Jefferson to Richard Henry Lee, 1779. ME 4:298, Papers 2:298
"I now deny [the Federal Government's] power of making paper money or anything else a legal tender." --Thomas Jefferson to John Taylor, 1798. ME 10:65
Darn. Does this mean more European tourist coming to our lovely shores this summer?
Anyone seen George Soros lately?
Thank God for Hamilton & we didn't listen to Jefferson!!!
Note your toons don't reflect what is really going on. It is not government spending per se, that is resulting in the collapse of the dollar. Rather it is a synergistic symptom. It is the PRIVATE spending on foreign products, instead of domestic. They are using U.S. dollars to buy these products. In order to prop up the value of the dollar, we need to balance currency accounts with loans from abroad. This of course only staves off the inevitable. And will make the final situation worse. The CATO-ite Free Traitors will destroy the basis for capitalism in the U.S. The currency will be collapse, all commodities will de-couple from the greenback, and nobody in the U.S. will be able to afford Mideast oil, Australian iron, Canadian timber, Japanese ships & electronics, or Chinese TVs, Taiwanese PCs, etc.
Right now, the only thing that could save the U.S. economy is if Captain Nemo and the Nautilus sank all 500 of the Chinese Container Freighters brimming over with junk en route to the U.S. ports.
Europe cannot sustain it's collective strength for a variety of reasons but the biggest one is demographic. They are slowly dying and becoming Islamic. As this trend continues they become less and less productive. We actually may have to bail them out in the next 50 years.
PLEASE! Do you know anything about this?
Since 2001 we've been in Europe, and I innocently assumed that after the Irak war the dollar would soar! I can't understand how this is good for america that her currency has tanked. Especially as a strong dollar has always been touted as a GOOD thing in prior years.
Jekyll Island Ping
In November 2004, the euro broke through the magic mark of $1.30 per euro. This represented a decline of 52 percent of the dollar against the euro since early 2002, when the euro had reached its lowest point. Comments by Alan Greenspan, Secretary of the Treasury John Snow and others have left the impression that the decline may not be over yet.
Yeah. It sucks that Bush won reelection, doesn't it?
Advantages of a Weak Dollar
1. Can help U.S manufacturing exporters, making their goods cheaper abroad.
2. Since the weak dollar causes American companies to sell more products cheaper abroad, this will reduce the U.S. trade deficit.
3. Overall a weak dollar can boost U.S output.
4. A weaker dollar can possibly lead to more jobs
Disadvantages of a Weak Dollar
1. A weak dollar can lead to higher interest rates.
2. A weak dollar can lead to higher inflation.
3. Imports become more expensive. This can hurt companies that import production components.
4. Less capital inflows by foreign investors
Advantages of a Strong Dollar
1. Imports are cheaper as there is a greater "purchasing power."
2. Lower inflation
3. Lower interest rates
4. When traveling abroad, the U.S dollars exchanges for more foreign currency.
5. A strong dollar encourages investment in U.S. equities and corporate bonds among foreign investors. These capital inflows from foreign investors benefit U.S companies.
Disadvantages of a Strong Dollar
1. Exports become more expensive, as there is a higher cost overseas for American products.
2. Increased U.S trade deficit.
3. Reduced U.S output
4. Foreign travelers find the U.S. more costly.
I think a "strong dollar" policy will always outweigh the advantages of a weak dollar.
Question to all.
What instruments or currency pairs would you take positions in to stay on the right side of these events?
In theory. In practice, there is a dynamic response to these normal reactions.
Against Europe it may work, except they subsidize the difference...ala AirBus.
And as against the Chinese, they just continue to ban private Chinese currency trading, and escalate their currency interventions against the dollar with foreign governments (currently $120 billion a year they are willing to lose money on). Meanwhile, the Chinese government keeps stalling when pressured to float the yuan. Why would they do that, since it is costing them $120 billion a year to keep their currency down? They were Supposed to do something to start floating four years ago. Chinese yuan/Remimbi has inflated how much against the dollar in the last 4 years? Zilch. I am beginning to think that a counter-U.S. strategy of inflating the Yuan with a reciprocal currency intervention program is essential if we don't start tariffing the hell out of China right away. But their private citizen currency trading restrictions make this difficult, as we are not really selling much of anything to them...except our factories we are closing down.
We need to be realligning our treasury and trade strategy more with Reagan's. As one of the architects of that strategy, I commend the following authors: Dollar's Value In Jeopardy
Paul Craig Roberts
Tuesday, Nov. 16, 2004
Chinas currency peg to the U.S. dollar prevents correction of the U.S. trade imbalace and imperils the dollars role as reserve currency.
In the post World War II period, the dollar took over the reserve currency role from the British pound, because the supremacy of U.S. manufacturing guaranteed U.S. trade surpluses.
The British pound lost its role due to debts of two world wars, loss of empire, a run down industrial base, and socialist attack on UK business.
The reserve currency conveys unique advantages on the favored country. As the reserve currency, the U.S. dollar is guaranteed a high level of demand.
Foreign central banks hold their reserves in dollars, and countries are billed in dollars for their oil imports, which requires other countries to buy dollars with their currencies.
As a reserve currency fulfills world needs in addition to the functions of a domestic currency, the favored country can hemorrhage debt for a protracted period on a scale that would promptly wreck any other countrys currency.
This advantage is a two-edged sword, because it permits the reserve country to behave irresponsibly by running large trade and budget deficits. When the tide turns against the reserve currency, its exchange value collapses.
The reason for the collapse is the huge stock of reserve currency held by foreigners. When other countries conclude that their hoards of dollars represent claims that the U.S. cannot meet, dollar dumping begins.
Financing for U.S. debt dries up; interest rates rise; imported goods become unaffordable and living standards fall.
Flight from the dollar is already underway.
During the past two years, the U.S. dollar has declined 52% against the new European currency, the Euro. This decline is striking in view of the sluggish European economy and the fact that many analysts regard the Euro as merely a political currency.
Indeed, the dollar is declining against all currencies that have any international standing: the British pound, the Canadian dollar, the Australian dollar, and even against the Japanese yen despite Tokyo's intervention to support the dollar.
Overcome by hubris and superpower delusion, U.S. policymakers are unaware of Americas peril. Economists and pundits are equally in the dark.
Economists believe that decline in the dollars exchange value will correct the U.S. trade deficit by reducing imports and increasing exports.
Once upon a time a case could be argued for this logic. But that was a time before U.S. corporations took to outsourcing jobs and locating production for U.S. markets offshore.
U.S. imports of goods and services rise each time a U.S. factory moves offshore or a U.S. job is outsourced. Goods and services produced offshore by U.S. corporations for U.S. customers count as imports and worsen the trade deficit.
The U.S. cannot reduce its trade deficit by increasing sales to China of goods made by U.S. firms in China. As Charles McMillion, president of MBG Information Services, concisely summarizes: Outsourcing is export substitution.
It is amazing that U.S. policymakers and economists do not understand that dollar devaluation is meaningless as long as China keeps its currency pegged to the dollar.
Americas greatest trade imbalance is with China. In 2000 the U.S. merchandise trade deficit with China became larger than the chronic U.S. trade deficit with Japan.
By 2003 the U.S. trade deficit with China was almost twice as large as the U.S. deficit with Japan: $124 billion versus $66 billion. This year the U.S. trade deficit with China is expected to be $160 billion, a 29% increase from last year.
This imbalance cannot be corrected as long as China maintains the peg. As the dollar falls against the Euro and other currencies, the Chinese currency falls with it, thus maintaining Chinas advantage over U.S. goods in world markets.
Both the Clinton and Bush administrations are guilty of permitting China to maintain a grossly undervalued currency that sucks productive capacity out of the U.S. The combination of cheap Chinese labor and an undervalued currency are destroying U.S. middle class living standards.
As Americas industrial base erodes, so does its competitiveness and ability to close its trade deficit through exports.
Currency markets cannot correct the undervalued Chinese currency, because China does not permit its currency to be traded and there are insufficient stocks of Chinese currency in foreign hands with which to form a currency market.
Sooner or later the peg will come to an end - perhaps when China fulfills its WTO obligation to let its currency float.
When the peg ends, it will deliver a severe shock to U.S. living standards. Suddenly, Chinese manufactured goods - including advanced technology products - on which the U.S. is now dependent will cost much more.
Overnight, shopping at Wal-Mart will be like shopping in high-end department stores.
China accounts for a quarter of the U.S. trade deficit and for one-third of the U.S. deficit in manufactured goods, is the second largest source of U.S. imports after Canada, and is Americas third largest trading partner as conventionally measured.
Despite these facts, the U.S. government does not publish full current account data for China, instead lumping China in with Other Countries in Asia and Africa. This keeps the magnitude of the problem out of sight.
Canada and Mexico rank as the U.S.s two largest trading partners because of double counting in the measure of imports and exports. For example, the full value of auto bodies shipped across the borders to Canada and Mexico for assembly operations are counted as exports when they leave the US and as imports when they return.
In contrast U.S. trade with China involves almost no double counting of component parts.
Recently, Goodyear Tire and Rubber Company declared its intention to close all U.S. plants and to manufacture offshore for US markets. Each time the U.S. loses an industry, Americas export potential declines and Americas imports rise. This scenario guarantees a rising trade deficit and the end of the dollars reserve currency role.
Dr. Roberts, was Assistant Secretary of the Treasury for Economic Policy during 1981-82, and Economics Advisor to the NSC, to President Reagan through 1988.
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