Posted on 12/02/2007 4:53:00 AM PST by Zakeet
The plunge in the dollar has turned normally calm voices strident and fearful. A weak currency, they say, spells catastrophe for the U.S. economy.
But like much conventional wisdom, this isn't true. Nor is it true that the dollar, to use one favorite recent word, has "collapsed."
You wouldn't know it, however, from recent headlines. This week's Economist magazine, known for its cool-headed discussion of economic events, has this on its cover: "The Panic About the Dollar."
Others see in the dollar's slump a metaphor for America's future one of decline and waning influence in the world.
To be sure, the dollar is down almost 40% against the euro since 2001. Against the pound, it's off almost 44%. It's even down against the yen, by nearly 13%.
But put in perspective, these declines are neither dangerous nor even undesirable. Over the long-term, the dollar is well within normal bounds. After years of rallying due to massive flows of investment into the U.S., the dollar has simply come down to Earth.
To say it has "collapsed" or "plunged" is simply wrong as the chart above shows.
Look at the dollar weighted against all its trading partners, not just a cherry-picked few, and you see the dollar hasn't plunged at all. It's about where it was 10 years ago during the Internet boom.
It rose sharply in the late 1990s, thanks to the outsized returns offered in the U.S. markets compared with elsewhere. Today, after the Nasdaq meltdown in 1999 and 2000, a recession and 9/11, the flood of investment isn't as great.
True, the dollar has weakened against specific currencies the euro and yen are recent standouts but that weakness must also be put into context.
(Excerpt) Read more at ibdeditorials.com ...
That's what Williams says, but he won't part with the numbers unless you send him $90, and he won't show his calculations at any price. My guess is that he doesn't have calculations, he fudged everything.
Fudging is easy --anyone can do it, even Williams; coming up with something that's useful is hard. There're lots of way's of calculating inflation; if you want to know how prices for urban consumers are going then the CPI works fine. If you're looking at everyone else's buying too then you want the PCE. It goes on and on. The thing with Williams' $90 wonder is what good is it? It won't help you plan costs for hiring new workers like the ECI will, it won't tell you what last quarter's change in the gdp is like the gdp-deflator will. It's useless other then for whining and complaining.
If US exports is 8% of its GDP, then it's not "a very very good question" to ask if we export $1.1 trillion in Big Macs. You can say you're serious and you can say it's a good question, but $1.1 trillion in Big Mac exports is idiotic.
post 141 "..BEA statistics show that exported manufactured goods only account for 2.8%...." post 153 "...Bureau of Economic Analysis post 87."
You've got it going from 8% in post 87 to 2.8% in post 141, and neither number has anything to do with GDP numbers for this year --we're now exporting more than we import.
Correct. I was typing too fast. The number is 8%. However, here is the most recent BEA report on balance of payments.
From the report "The deficit on goods and services increased slightly to $177.7 billion in the second quarter from $177.6 billion in the first. ...The deficit on goods increased to $204.2 billion in the second quarter from $200.9 billion in the first."
OOPS! From the BEA:
2007 | Change: | ||
I r | II p | I-II | |
1 Exports of goods and services and income receipts...................................... | 558,369 | 586,698 | 28,329 |
18 Imports of goods and services and income payments...................................... | -728,472 | -755,031 | -26,559 |
Now importing more than we export. It's the gap that's less.
I use a consistent methodology like the Continuous Commodities Index, an unweighted (ie unmanipulated) measure of inflation dating back to 1957.
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