Skip to comments.Greenback Gloom (Not?)
Posted on 11/29/2006 6:29:22 AM PST by shrinkermd
No one, of course, wants to see the dollar in a free fall. And no question, it has retreated against some currencies. But worried? We arent.
The dollar isnt weak at all. Indeed, its trading 19% above its level in the mid-1990s, smack in the middle of the Internet boom. True, its come off the highs it set in early 2002, when foreign investors still spooked after 9/11 were desperate to invest in a safe haven with sound markets, the rule of law, low interest rates and fast economic growth. That pushed the buck up sharply.
...The other is that, contrary to lots of current market reports, the U.S. currency isnt nearing new lows at all. The reason is simple: Many people focus on very narrow measures of the dollars value like the dollar-euro, or the dollar-yen, or even the dollar-yuan. By those gauges, yes, the dollar is hitting new lows or close to them.
...But this is an error. Far better is looking at the dollar against a broad market basket of currencies weighted for the amount of trade they do with the U.S. When you do, you see that while its true the greenback has slumped in recent months, over the long term its not down at all. And why has the dollar fallen recently?
(Excerpt) Read more at epaper.investors.com ...
"...But as Bank of America economist Joseph Quinlan notes, the world is addicted to exporting to the U.S. Last year, total world exports hit $12.6 trillion. The U.S. took in 16% of that total, with just 4.5% of the worlds population. Were the worlds consumers of last resort. A plunging dollar could change that. So, for now, that makes a collapse in the dollar unlikely. Its not that we cant afford it. Its that the world cant.
A falling dollar ought to be good for exports and bad for imports. So it may be time to invest in companies that face significant import competition.
"trading 19% above its level in the mid-1990"
Drudge is running headline of dollar at 15 year low.
While this is excellent for exports, it does cause problems for importing and since our government does not allow us to make much any longer this will cause us a few problems.
Drudge goes for the tabloid headline, as always.
Now that the world knows that Democraps control the purse strings, that alone scared 15% off the dollar.
I always get confused by the dollar swings. With the dollar getting weaker, doesn't that mean that U.S. goods will be cheaper for foreign buyers than they were before? If so, isn't the weak dollar a good thing for U.S. manufacturers and the U.S. hospitality and tourism industries? Or do I have it backwards?
However my gut feeling agrees with the idea that since the world depends on us to import everything they make, that simple fact will tend to prevent a free fall.
Even countries such as China who might secretly hope to see the downfall of US power can ill afford to lose all their consumers. The Chinese economy would follow ours.
Extreme dollar pressure could be a good thing in the long run. It might even cause rethinking about having production in China vs production in USA.
What goes around comes around.
Drudge's headlines are probably on the basis of Yen, Euro or a few currencies. This article is using the dollar index which is a bundle of currencies. I wish I knew how to post the graph that illustrates this point.
Probably, a currency free measure of the dollar value is the price of gold per oz. It now centers on $600; it centered around $350 per oz a few years ago.
Has a lot to also be due to foreign debt. If they buy you cheap, if they lower the value of your currency, it makes it more expensive to pay them back.
if they lower the value of your currency, it makes it more expensive to pay them back.
I said essentially the same thing on another thread yesterday or the day before and was flamed mercilessly. Lots of "doom and gloom" goomers out there.....
There are challenges that will arise from it, obviously. Most significantly, we'll pay more for imports, and that means oil.
But there is a silver lining even so.
The other side of this coin is that consumers will be paying more for imported goods, of which there is a lot because of all the overseas outsourcing that US has been doing over the last 3 decades.
Overall, it will hit the US consumers pocket until American manufactures can gear up to fill lower cost product demand.
Now this is a reasonable and well informed understanding of where the dollar is.
This is what's pushing the dollar down, and will continue to push it down, unless we, the American people, take corrective action:
And let me close with the words of a few good men:
"We hear sad complaints sometimes of merciless creditors; whilst the acts of merciless debtors are passed over in silence." - William Frend, 1817
"I place economy among the first and most important virtues, and debt as the greatest of dangers to be feared." - Thomas Jefferson"
"The decline of great powers is caused by simple economic over extension." --The Rise and Fall of the Great Powers, by Paul Kennedy
"There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved." - Ludwig von Mises
No generation has a right to contract debts greater than can be paid off during the course of its own existence." - George Washington to James Madison 1789
This would be normal trade theory. Unfortunately, it is less than likely. We have huge trade imbalances partially because of the trade barriers imposed by China, the Pacific Rim, and the EU. They deny it of course.
But nonetheless real.
If things get really bad...they likely will make those barriers even higher. So as the dollar falls, in part because of their predations...they likely will react with even more aggressive barriers to keep the U.S. from redressing those imbalances.
Look at how the EU has reacted to being busted about its Airbus subsidies...they have threatened open trade war.
Why this should be so much worse than their thinly-veiled trade war is not explained.
Anyways...nothing is likely to happen at the WTO where the EU outvotes us 15 to one....
Yep. The WTO is to "Free Trade" what the UN is to "World Peace".
Time to get out of both.
The biggie, though, is oil. We can make our own computers, autos, etc. We simply choose not to since we can buy them overseas for less.
But we've gotta buy our oil from the Saudis, at least until the American people demand that Congress permit more drilling, and that ain't gonna happen anytime soon.
Except...those computers and autos etc....were how we were formerly able to pay for the oil. We had a trade surplus in those same manufactured goods. Now we have blithely assumed that manufacturing is of no account... our creditworthiness will go the same way. As the combined deficits of energy and manufactures drain our capital.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.