US Dollar has sunk to record lows against Euro

http://news.scotsman.com/latest.cfm?id=3759014 ^ | me

[soccer_linux_mozilla]

The United States’ trade deficit is soaring and the once high-flying dollar has sunk to record lows against Europe’s common currency.

The dollar’s record low against the euro coincided with the government’s report that the United States was running a trade deficit through September at annual rate of 592 billion dollars. That compares with last year’s 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.

[Moonman62]

In a truly free market, the correct valuation of your currency is achieved when your imports and exports precisely balance.

If you have a trade deficit or surplus, then your currency is not at its fair market value.

Even if one nation creates more wealth, or has a faster growing economy than the nation it trades with?

Consider that the states within our own country have trade imbalances with each other and they all use the same currency.

[Southack]

"Yea, and let's not forget the Smith family from Texas City that loses their home when the bank calls in the mortage to cover the loses it took on the falling dollar."

How would that happen?! What a bizarre concept!

Show me *one* example of an American bank calling a *performing* loan due to foreign exchange Dollar devaluation.

You can't do it (because you are making up "jpsb economics" out of your butt).

[jpsb]

LOL, sad but funny.

[Southack]

"How far down do you think the dollar needs to go before we see some solid movement on the trade imbalance?"

Two years ago on this forum I was asked that self-same question and my response then is the same as my response now: 40%.

We've had 30% already since 2002, so 10% more Dollar devaluation against the Euro should do the trick against that competition.

Then we've got to keep dropping the Dollar until the Chinese break their Yuan-Dollar peg. After that, I'd expect the Dollar to climb back up to 40% below its 2002 peak.

Then +- 10% trading ranges for decades to come.

But that's merely my opinion. The reality is that the Dollar will continue to fall until such time as our foreign trade deficits begin downward declines quarter on quarter.

So the next 10% drop could just be a first start. It could be much more drastic if Europe and Asia choose to go to the mat on this issue.

And that would make me even happier.

[oceanview]

the productivity equations are harder to grasp then just what the "global" numbers show. manufacturing has seen large productivity increases due to automation: robots, just in time parts delivery, plant automation, etc. and while it is true that this automation exists in chinese plants also, having a source of ultra low cost labor means that investments in productivity are often delayed. simple example: migrant farm workers coming into the US thwart what would be normal investment in automated crop harvesting. why bother, when the migrants work for so little. why don't we have investment in near fully automated assembly plants here in the US? why bother, when the chinese worker gets $120 per month. if that chinese worker got $1200 per month, you would see more investment in automation.

The US productivity numbers we see being heralded are, in part, a result of low productivity work being offshored: call centers are extremely low productivity operations for example, so when they are performed at 1/3rd the wage in India, the numbers look much better. same with PC "help center" operations. same with some low productivity auto subassembly work, backoffice financial accounting work, and so on. offshore your low productivity activities, fire those american workers and replace them with offshore workers at a much lower wage, and your numbers look good.

[investigateworld]

Productivity:
Bottom line is the so called "free traders" cannot deal with a free people. By way of illustration: For every dollar I give an employee, I must give 11 cents for workers comp. Not that I want too, but a free people voted that in to provide protection should someone get injured on my job site. A free people through their elected representatives have voted all kinds of things for themselves to enhance their own lives. That's what free people do. Right or wrong, they just do. The slaves in China are not free to do so for themselves, hence the word "free" has no place in this discussion In the word productivity, I thinks it means "produce" things.That I did well enough in my spare to afford me a healthy retirement to the extent of being able to reeducate myself. I just cannot see anyone in this country being able to compete with a an average pay scale of 50 cents an hour. Oh, there's a few that will pick up a quick buck being they are the medium of exchange, but the Chinese are a hard working people, and their shear numbers will make up for any short comings.

[FreeReign]

He was the lesser of two evils. 52 to 48 against an extremely liberal northeast senator is pathetic.

That would be the American voter who is pathetic that they would vote 48% for "extremely liberal northeast senator".

And we wonder why Bush isn't conservative enough.

[groanup]

You're right, I mis-spoke, the dollar is at the same level it was ten years ago. So what's the problem? Your premise that the budget was in balance and there was no need to borrow is wrong. If you'll look at the Federal debt statistics you'll see that during the "Clinton" surplus our borrowing increased every year. Splain that one to me.

Attract buyers to a falling dollar? Hah! The dollar rises and falls. If you are an overseas investor just where do you want to put your money? China? Russia? India? Or maybe a country with a 200 year history of stable and growing financial markets. Okay, it's your money. Where to?

[Southack]

"Every textbook discussion of currency that I've ever seen always lists "a store of wealth" as one of 3 primary functions of currency. When did this change?"

...With the advent of government-issued paper currencies.

[jpsb]

What is a bank going to do when inflation is at 7% but has loans at 5%? If the bank is in trouble it will call in it's 5% loans. Wouldn't you? What if inflation is at 20%? Think the banks can afford to lose 15% on hundres of billions of dollars? I don't.

[eternity]

It is very sad. Had a bad dream last night of foreign troops bailing out of planes over this country. I am the only one trying to get away. Am carrying a rifle but the rest of the populists don't care as they are conditioned to act like sheep.

[jpsb]

"If you'll look at the Federal debt statistics you'll see that during the "Clinton" surplus our borrowing increased every year. Splain that one to me."

That I can not explain, I thought we payed down the debt at least a little. I should have known better, bastards in DC do nothing but lie.

[Southack]

"I agree with you for the most part, but I wouldn't say paying the bank back each month for a huge mortgage is exactly "owning" a home."

Surely it is better for wealth-creation than burning rent money every month in order to obtain 0% ownership...

[Moonman62]

Only 20% of the people identify themselves as liberal. And I forgot to mention the liberal GWB barely beat was in a ridiculous bunny suit. There are lots of reasons to be disappointed with GWB. If it weren't for security issues he never would have been re-elected.

[GOPJ]

... average American worker matches the purchasing power of the Yuan multiplied by the Productivity of the average Chinese worker, *then* a free market system will approach parity (i.e. move towards balance).

This does *not* mean that Americans live at Chinese standards or that Chinese rise to American standards ... for the simple reason that the Productivity levels are different.

"Productivity" will increase in China -- what then?

[Happygal]

I'm in Ireland.

I don't think the dollar being low at the moment will last.

I do, however, plan to buy myself quite a few dollars as a Christmas present to myself! Just so as I can have a nice US vacation in 2005. :-) So, it all goes back into the US economy in some way! *S*

[OwenKellogg]

My question: "Every textbook discussion of currency that I've ever seen always lists "a store of wealth" as one of 3 primary functions of currency. When did this change?"

Your answer: ...With the advent of government-issued paper currencies.

Discussion: it is impossible to change the function of currency with the advent of currency.

Or did you intend to imply that currency is no longer a store of wealth with the advent of fiat currency? In that case I agree. But Friedman and the Austrians still maintain that currency should serve as a store of value. Are they off base?

[Southack]

"There's no way in heck the dollar is overvalued when one goes back more than 30 years."

On the contrary, there is indeed a way: the trade deficit.

[investigateworld]

Finally, something we agree on. (I'm a building contractor
when I'm in the mood. Home ownership is a working stiff's path to wealth and happiness)

[Moonman62]

Read my post #201 then get back to me.