I have not ignored that, but am trying to figure out what things would cause the US$ trend to reverse. The thesis of the article is that that dollar should turn around. The presumption behind this must be that trade balances and financial flows have adjusted rapidly to make the dollar relatively underpriced. But my argument is that aside from commodities we have a hard time producing for export, and for a particular reason. The US is still struggling with high quality product design and fabrication. Virtually every manufactured good I purchase I compare quality and select on the basis of design functionality and quality of construction, even paying 2-3 times what I might get away with using lower standards. I do this because I am tired of American and Chinese manufactured $HIT that does not work as advertised and breaks trying to get it out of the box. Given our trade deficits I would guess I am not alone in my tastes and predilections.
I see nothing in that trend that is changing, and I think it will take a fundamental structural change in our economy that rewards folks who invent and design and manufacture, and not folks who are good and moving money around and folks who argue the lawsuits for or against those who do.
Furthermore, about 1/2 of our economy has nothing to do with exports, being government, healthcare and energy. 1 in 7 dollars in the US goes to health care and yet none of us think we have a great health care system. Michelle Obama as a lawyer gets $300K + as an administrator, as an example. I would bet that only a few specialist MDs get paid more than that and most GPs get 1/2 of that.
It is example after example throughout our economy of things that make no sense and would not be that way if there were a free market exchange of goods and services in that particular sector, including the right not to participate at all in that sector.
I think we have too many built in structural problems that have nothing to do with foreign financial flows for goods and services to lead to a genuine reversal of the trend.
Simple, investment demand for USD assets.
"The presumption behind this must be that trade balances and financial flows have adjusted rapidly"
Nope. First, trade balances do not determine exchange rates. While there is undoubtedly some weak but longer term correlation between a positive current account balance and currency appreciation, it is second order and weak, and in the short run currencies can go wherever they like.
Second, current account balances themselves are not driven by trade competitiveness, but primarily by savings rate decisions. The savings rate in any country minus the investment rate in that country is its current account surplus. That is an accounting identity, and not a weak correlation.
Right now the US has a large current account deficit because the savings rate here is low but the rate of gross investment here is very high. That means we import real capital. The question whether or not that benefits or harms us in the long run, it not determined just by knowing the sign of the flow - inward in this case. It depends on whether the cost of that capital is greater than or less than how much it does for us.
The same is true of any investment whatever, but we care less about other forms because we expect the losers and winners to both be residents etc.
"aside from commodities we have a hard time producing for export"
Nonsense, US exports are at record levels, of course so are imports. They are also highly varied, lots of it is high tech, high value added stuff not commodities (e.g. pharmecuticals, aircraft, computers and other tech, communications equipment, heavy machinery and industrial equipment, etc). The reason we have a large current account deficit is the personal savings rate is near zero, while we invest over $1 trillion a year in new plant and equipment. Retained corporate earnings only funds about half of investment.
"The US is still struggling with high quality product design"
iPhone. MacAir. 757s. F-15s. GE power turbines. CAT construction equipment. Intel chips. It is just nonsense, the US is the leading industrial and technological economy on the planet. It is also the leading service economy on the planet, of course, dominating the information and entertainment and financial industries world wide.
"I see nothing in that trend that is changing"
Your problem is simple then, you have misidentified a non-existent subjective trend in your own ridiculously high flown preferences or standards, with the actual cause of the current account deficit. Mexico and Brazil and India don't care whether you think quality is up to your father's day standards, they prefer to have actual capital equipment and technology, to sitting around on assorted manure piles digging ditches with a hoe. Europeans and Japanese, meanwhile, want to watch Hollywood starlets prance about in their underwear, and would prefer not to die of heart disease if a pill can stop it. None of that is the reason we import more capital than we export. We simply don't save enough out of current income to fund the gusher of ongoing real investment occurring here. Also, I am pretty sure "energy" isn't pushing paper around, and as for health care, you are welcome to go try Africa's if you think ours pointless.
"example after example throughout our economy of things that make no sense"
Um, sorry, your not dictating every value in existence is not equivalent to "make no sense". The real value of goods or services to anybody who will bid for them is what they will actually bid for them and not what you think they should spend their money on. In case you hadn't noticed, it isn't your money, it is theirs. And it is their freedom, what they choose to do with it. Do plenty of people make rather vapid use of their wealth? No doubt. Who cares? If they toss it away to others around them, those others pick it up.
"the right not to participate at all in that sector."
Thinking of government? lol.
No, see, the financial crisis since last summer has resulted in all major banks, but especially US and European ones, forcing a net cash flow in their favor, and using that cash flow to extinguish old debts that did not perform, rather than to fund any new ones. As that has happened, the Fed has cut rates here to compensate. The dollar has fallen and commodity prices have risen strongly (bubble strongly) in real terms. These will all curtail consumption expenditure in the US, probably by enough to cause a recession.
But they are also all shutting off avenues to overspending beyond income for the half the population that doesn't save. The net US savings rate of zero is not a result of no one here having money - US household net worth is around $55 trillion. It is, instead, a result of about half the population funding expenditure with debt, and the other half lending it to them, mostly through financial intermediaries. Stop the former, and the savings rate of the latter remains.
A higher average savings rate will reduce the current account deficit. It is already moving - it stopped growing over a year ago and has decline in the last year or so, though not very rapidly. It will decline more as various avenues to spending beyond income are shut off. In the immediate past, all those losses the banks are writing off are gains to the deadbeats they lent to. But the deadbeats aren't going to get more - from that source, anyway, the government might (lol).
That is the longer term reason the credit crunch will address the current account situation. But the short term turn around for the dollar the article is forecasting, won't depend on anything that gradual. It is much simpler than that. Japanese households have $25 trillion in savings and their yen now buy a lot more than a year ago. Europeans, lower savings each, at least as big a currency move. They are all going to want to buy US financial assets that have fallen up to 20% in dollar price and much more than that in their currencies.
Really simple. See all those sovereign funds and Arab investors piling into the likes of Citigroup? There is your short term dollar demand.